Accounting Chapter 14

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Accounting Chapter 14
2010-01-31 18:50:58
Ch 14

Test 1
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  1. What are classified financial statements?
    Characteristics that are placed together in a group or classification.
  2. Example of a classified financial statement?
    A balance sheet that separates asses & liabilities into current and noncurrent categories
  3. Where do comparative financial statements appear?
    the financial statements amounts for several time periods appear side by side in vertical columns
  4. Parent Company?
    A corporation that owns other businesses.
  5. Subsidiaries
    the owned companies
  6. Consolidated financial statements
    Presents the financial position & operating results of the parent company & its subsidiaries as if they were a single busines organizaition.
  7. How is the % change computed?
    by dividing the amount of the dollar change between the years by the amount for the base year.
  8. When can a % change not be computed?
    if a negative amount or a zero amount appears in the base year.
  9. When should sales & earnings increase at more than the rate of inflation?
    If a company is experiencing growth in its economic activities
  10. Horizontal Analysis
    To express the idea of reviewing data for a # of consecutive periods.
  11. Vertical Analysis
    The review of the financial information within a singfle accounting period.
  12. Working Capital
    The excess of current assets over current liabilitie4s
  13. Current Ratio
    A widely used measure of short-term debt-paying ability.
  14. The the current ratio, the more liquid the company appears to be
  15. What does quick assets include?
    Cash, marketable securities, & recievables.
  16. What does quick raito comapares?
    Only the mose liquid current assets?
  17. Debit Ratio
    A measure of creditors long term risk
  18. The the debit ratio, the their position
    lower safer
  19. Management's Discussion & Analysis
    Where management identifies & discusses favorable & unfavorable trends & events that may affect the company in the future.
  20. What happens by co-signing debits of the corporation?
    The individual stockholders do become personally liable for the devit if the corporation fails to make payment
  21. Income Statement is divided into four major sections:
    • 1. revenue
    • 2. cost of goods sold
    • 3. operating expenses
    • 4.nonoperating items
  22. Gross Profit Rate
    Gross profit expressed as a percentage of net sales
  23. Operating Income
    Shows the relationship betwen revenue earned from customers & expenses incurred in producing this revenue.
  24. What does operating income measures?
    The profitability of a companys basic or core business operations & leaves out other types of revenue & expenses.
  25. What are revenue & expenses not directly related to?
    The companys primary business activities are listed in a final section of the income statement follwing operating income.
  26. What income taxes does not help produce?
  27. What is the mose widely used of all accounting ratios?
    Earnings Per Share
  28. What are the major factors affecting the market value of a companys shares?
    Trend in earnings per share & the expected earnings in the future periods.
  29. How is the price earnings ratio computed?
    This ratio is computed by dividing the current market price per share of the company's stock by annual earings per share.
  30. When can't a P/e ratio be computed?
    A period in which the company incurs a net loss
  31. What 3 factors are bondholders & long term creditors intrested in?
    • 1. the rate of return on their investment
    • 2. the firm's ability to meet its interest requirements
    • 3. the firms ability to repay the princpal of the debt when it falls due
  32. The yield rate varies inversely with changes in the market price of the bond.
    • Rates rises,the market price of existing bonds will fall.
    • Rates decline, the price of bonds will rise.
  33. Current Ratio- A measure of short term debt paying ability
    • Current Assets
    • Current Liabilities
  34. Quick Ratio- a measuer of short term debit paying ability
    • Quick Assets
    • Current Liabilities
  35. Debit Ratio- Percentage of assets financed by creditors
    • Total Liabilities
    • Total Assets
  36. Earnings Per Share- Net income applicable to each share of common stock
    • Net Income - Preferred dividends
    • Average # of common shares outstanding
  37. Return On Assets Return On Equitiy
    • Operating Income Net Income
    • Average Total Assets Average Total Equity
  38. Price Earnings Ratio- A measure of investors expectations & current market conditions
    • Current Stock Price
    • Earnings Per Share