Question :
21.Which of the following ratios would be of primary importance : 1241841
21.Which of the following ratios would be of primary importance to a creditor in deciding to extend long-term credit?
a. Current ratio
b. Debt/equity ratio
c. Inventory turnover
d. Earnings per share
22.Which of the following ratios would be of primary importance to a manager in evaluating the success of a computerized collection process?
a. Accounts receivable turnover
b. Account payable turnover
c. Quick ratio
d. Return of equity
23.Book value fails to reflect true value primarily because:
a.financial statements are irrelevant.
b.financial statements are backward-looking.
c.financial statements are forward-looking.
d.financial statements are typically biased.
24.Which of the following is a fundamental way in which financial accounting numbers are useful?
a.They can predict the way the stock price will behave.
b.They are used to assess the quality of a company’s products.
c.They can be used to predict a company’s future earnings.
d.They identify the effect of inflation on the value of company’s assets.
25.The long-term debt ratio
a. measures the significance of long-term debt as a source of asset financing.
b. measures the effect of management’s use of long-term debt.
c. compares profits to the company’s total debt.
d. is a measure of profitability.
26.The use of financial statements for predicting future earnings and cash flows is limited due to
a.management bias, lack of forward-looking information, and certain inherent limitations.
b.lack of judgment, management bias, and lack of inclusion of inflationary effects.
c.lack of forward and backward-looking information.
d.lack of backward-looking information, the likelihood of management bias, and the omission of historical costs.
27.Which one of the following is a step used in assessing whether a particular investment should be made or not?
a.Determine the number of employees a company has.
b.Obtain an understanding of the company and its industry.
c.Determine the number of years the company has been in business.
d.Calculate the amount of advertising costs incurred by the company during the previous year.
28.A standard audit report states that the financial statements
a.were examined in great detail and contain no errors.
b.were prepared by management.
c.were certified error free by the independent auditor.
d.represent a substantial doubt of the ability of the company to continue as a going concern.
29.A company would likely “take a bath”
a.in periods of extraordinary high net income.
b.just prior to creating hidden reserves.
c.when it has experienced an extremely poor year.
d.when its quality of earnings is very high.
30.An analyst assessed a company and determined the company to have reported a “high quality of earnings.” This implies that
a.management issued a press release indicating it was not aware of any fraud during the current year.
b.the company’s management exercised little or no discretionary influence in reporting financial statement information to shareholders.
c.management has used its influence in determining the dollar amounts reported on financial statements.
d.income statement items reported during the current period can be expected to reflect future income levels.
