(TCO 3) The most popular depreciation method for financial reporting is: (Points: 5)
straight line.
double declining.
units of production.
sum of the years.


17. (TCO 5) Which of the following best indicates that a firm carries excess inventory? (Points: 5)
A decline in sales
A decline in the current ratio
A decline in days' sales in inventory
Stable current ratio with declining quick ratios
A rise in total asset turnover


18. (TCO 5) Company A uses LIFO and Company B uses FIFO for inventory valuation. Otherwise, the firms are of similar size and have the same revenue and expense. Assume inflation. In analyzing liquidity and profitability of the two firms, which of the following will hold true? (Points: 5)
It is impossible to compare two firms with different inventory methods.
Company B will have relatively higher profit and higher inventory turnover.
Company B will have relatively higher profit and lower inventory turnover.
Company A will have a higher current ratio and acid test ratio, with the same profit.
Company B will have relatively higher profit and a higher current ratio.


19. (TCO 5) Which of the following types of businesses normally have the shortest operating cycle? (Points: 5)
A retail clothing store
A grocery store
A wholesale furniture store
A car manufacturer
A car dealer


20. (TCO 5) A comparison of current assets with current liabilities gives an indication of: (Points: 5)
long-term debt paying ability.
overall debt paying ability.
short-term debt paying ability.
no debt paying ability.


21. (TCO 5) If the working capital is out of line, then analyze: (Points: 5)
individual current asset and current liability accounts.
long-term liability accounts.
long-term liability and current asset accounts.
current asset accounts.


22. (TCO 5) The most important asset in determining the short-term paying ability of a firm is: (Points: 5)
receivables.
cash.
inventory.
current assets.


23. (TCO 6) A low sales to working capital ratio tentatively indicates a(n): (Points: 5)
profitable use of working capital.
unprofitable use of working capital.
equal use of working capital.
All of the above


24. (TCO 6) Which of the following ratios is generally used to evaluate a firm's overall liquidity position? (Points: 5)
Quick ratio
Current ratio
Cash ratio
Asset test ratio
Inventory turnover ratio


25. (TCO 6) When dong external analysis, many of the reasons why the days' sales in receivables is abnormally high or low cannot be determined without access to: (Points: 5)
external information.
financial information.
internal information.
receivable information.


26. (TCO 6) What is the rule of thumb for dividend yield? (Points: 5)
Review price appreciation.
There is no rule of thumb.
The higher, the better.
What goes up must come down.


27. (TCO 6) Book value is of limited use to the investment analyst because it is based on: (Points: 5)
the book numbers.
the actual numbers.
the historical numbers.
the forecasted numbers.


28. (TCO 5) When a stock split occurs, earnings per share must be adjusted: (Points: 5)
proactively.
retroactively.
over the next 2 years.
Nothing needs to be adjusted.


29. (TCO 5) In computing earnings per share, preferred dividends are subtracted from: (Points: 5)
net income.
gross income.
net earnings.
gross earnings.


30. (TCO 6) Using financial leverage is a good financial strategy from the viewpoint of stockholders of companies having: (Points: 5)
a high debt ratio.
cyclical highs and lows.
steady or rising profits.
a steadily declining current ratio.


31. (TCO 6) Interest expense creates magnification of earnings through financial leverage because: (Points: 5)
the interest rate is variable.
interest accompanies debt financing.
the use of interest causes higher earnings.
interest costs are cheaper than the required rate of return to equity owners.
earnings available to pay interest rise, whereas earnings to residual owners rise faster.


32. (TCO 6) Which of the following is typically considered the most indicative of a firm's short-term debt paying ability? (Points: 5)
Working capital
Current ratio
Acid test
Cash ratio
Days' sales in receivables


33. (TCO 5) If a firm pledges its receivables and its inventory, then the best indicator of its short-term liquidity may be indicated by: (Points: 5)
working capital.
current ratio.
acid-test.
cash ratio.
days' sales in receivables.