Which of the following assumptions is embodied in the AFN equation? a. All balance sheet accounts are tied directly to sales. b. Common stock and long-term debt are tied directly to sales. c. Last year's total assets were not optimal for last year's sales. d. Fixed assets, but not current assets, are tied directly to sales. e. Accounts payable and accruals are tied directly to sales.

Which of the following assumptions is embodied in the AFN equation? a. All balance sheet accounts are tied directly to sales. b. Common stock and long-term debt are tied directly to sales. c. Last year's total assets were not optimal for last year's sales. d. Fixed assets, but not current assets, are tied directly to sales. e. Accounts payable and accruals are tied directly to sales.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter14: Completing A Quality Audit

Section: Chapter Questions

Problem 24CYBK

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What information can best be elicited from a receivable ratio? A. company performance with current debt collection B. credit extension effect on cash sales C. likelihood of future customer bankruptcy filings D. an increase in future credit sales to current customers
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Which of the following events will cause a company’s current ratio to decrease? a. The sale of inventory for credit (accounts receivable) b. Issuing stock for cash c. The sale of inventory for cash d. Paying off long-term debt with cash
Which of the following assumptions is assumed in the percent of sales forecasting method? All balance sheet assets accounts are tied directly to sales. Accounts receivables and inventory are tied directly to sales. Preferred stock and long-term debt are tied directly to sales. Fixed assets, but not current assets, are tied directly to sales.
Which of the following statements is correct? a. Any forecast of financial requirements involves determining how much money the firm will need and is obtained by adding together increases in assets and spontaneous liabilities and subtracting operating income. b. The percentage of sales method of forecasting financial needs requires only a forecast of the firm's balance sheet. Although a forecasted income statement helps clarify the need, it is not essential to the percentage of sales method. c. Because dividends are paid after taxes from retained earnings, dividends are not included in the percentage of sales method of forecasting. d. Financing feedbacks describe the fact that interest must be paid on the debt used to help finance AFN and dividends must be paid on the shares issued to raise the equity part of the AFN. These payments would lower the net income and retained earnings shown in the projected financial statements. e. All of the statements above are false.
Which is wrong about the use of financial statement analysis? a. Seasonality factors may contribute to a sort of distortion on the financial ratio’s trends. b. Activity ratios, such as profit margin and return on asset, tells how efficient the company uses its resources and assets c. Horizontal analysis of financial statements is conducted by analyzing inter-period financial statements d. The Liquidity of the company can be determined using acid-test ratio and current ratio
- Why does a decrease in receivable turnover create the need for cash fromoperating activities? - Why would ratios that include one balance sheet account and one incomestatement account such as receivable turnover or return on assets, bequestionable if they came from quarterly or other interim financial reports?
which of the following is FALSE regarding a firm's financial statements? Inventory is part of current assets Accounts receivable represents the value of goods that were sold to customers, for which the company has not yet been paid The balance sheet shows the value of a company's assets and liabilities at a point in time The income statement shows a company's income and expenses over a period of time the balance sheet and income statement information can be used to calculate the market value of the common stock
Which of the following statements is most correct?(a) Working capital measures the company's ability to repay current liabilities using only current assets.(b) The day's sales outstanding (DSO) represents the average length of time that the firm must wait after making a sale before receiving cash.(c) The lower the debt ratio, the more the protection afforded creditors in the event of a liquidation.( d) All of the above.
Develop brief answers to each of the following questions: 1. Why does a decrease in receivable turnover create the need for cash from operating activities? 2. Why would ratiosthat include one balance sheet account and one income statement account, such as receivable turnover or return on assets, be qu estionable if they came from quarterly or other interim financial reports?
Which of the following is most likely true concerning the stability and trend of earnings? Question options: The stability and trend of earnings require at least five years of historical data to be meaningful. The stability and trend of earnings are key factors when calculating cost of sales. The stability and trend of earnings are not factored in the analysis of revenues. The stability and trend of earnings depend on the trend of a single industry.
Prior to the end of the fiscal year a company decides to increase its sales by loosening its credit standards resulting in lower accounts receivable turnover. What effect would this action have on the firm’s working capital? ROA? return on net operating assets?