Question 1

Staley Tile Company has assets with a book value of $350,000 pledged against loans with a balance of $190,000.Its pledged assets to secured liabilities ratio is 1.8 to 1.

Accepted Answer

The calculation for the pledged assets to secured liabilities ratio is:
Pledged Assets / Secured Liabilities = $350,000 / $190,000 = 1.84
Since the ratio is greater than 1, it means that the company has more pledged assets than its secured liabilities, therefore the statement is true.

Question 2

Brown Company has profit of $125,000.Its net sales were $1,739,000 and its average total assets were $2,750,000.Its total asset turnover was 4.5%.

Accepted Answer

The total asset turnover is calculated by dividing net sales by average total assets. In this case, 1,739,000/2,750,000 equals 0.632, or 63.2%. Therefore, the statement that the total asset turnover was 4.5% is false.

Question 3

The price-earnings ratio is calculated by dividing earnings per share by the market price per share.

Accepted Answer

The price-earnings ratio is calculated by dividing the market price per share by earnings per share.

Question 4

Quickcom has net sales of $135,000 and average accounts receivable of $67,000.What is the accounts receivable turnover for the period?
A)20
B)73
C)1,825
D)2
E)25

Accepted Answer

Accounts receivable turnover is calculated as net sales divided by average accounts receivable. Therefore, the accounts receivable turnover for the period is 2 ($135,000 / $67,000).

Question 5

The pledged assets to secured liabilities measures whether or not the pledged assets of the debtor provide adequate security for secured creditors.

Accepted Answer

The statement accurately describes the concept of pledged assets to secured liabilities.

Question 6

Return on equity increases when the expected rate of return from new assets is greater than the interest rate on the bonds issued to finance the assets.

Accepted Answer

Return on equity is calculated as net income divided by shareholders' equity. If the company can finance new assets with bonds at a lower interest rate than the expected rate of return from those assets, the net income from those assets will be higher, increasing the return on equity.

Question 7

Bobbytronics had $7,000,000 in profit for the year.Its sales were $11,200,000.Calculate the profit margin.
A)17.5%
B)62.5%
C)$34 million
D)$4.2 million
E)28%

Accepted Answer

The profit margin is calculated by dividing the profit by the sales and then multiplying by 100 to get a percentage. So, ($7,000,000 / $11,200,000) * 100 = 62.5%.

Question 8

When a company can leverage funds at a rate that is less than the after-tax return on assets,the return on equity will exceed the return on assets.

Accepted Answer

This is because the company can borrow money at a lower interest rate than what it is earning on its assets. This increases the profits earned on the equity invested in the company, leading to a higher return on equity than return on assets.

Question 9

All companies desire a low return on total assets.

Accepted Answer

All companies desire a high return on total assets as it indicates efficient utilization of resources and profitability.

Question 10

Brown Company has profit of $125,000.Its net sales were $1,739,000 and its average total assets were $2,750,000.Its profit margin was 7.2%.

Accepted Answer

Profit Margin = (Net Profit/Net Sales) x 100%
7.2% = (125,000/1,739,000) x 100%
Hence, the given information is true.

Question 11

Dividend yield is defined as the market price per share divided by earnings per share.

Accepted Answer

The definition of dividend yield is incorrect. Dividend yield is actually defined as the annual dividend per share divided by the market price per share.

Question 12

West Coast Kids had cost of goods sold of $3,000 million,ending inventory of $1,500 million,and average inventory of $1,000 million.The merchandise turnover is
A)2
B)3
C).33
D).42
E)12

Accepted Answer

Merchandise turnover is calculated using the formula:

Merchandise turnover = Cost of goods sold / Average inventory

Plugging in the given values, we get:

Merchandise turnover = 3,000 / 1,000 = 3

Therefore, the best choice is B with a merchandise turnover of 3.

Question 13

Targot's current assets were $16,825.Its quick assets were $11,220.Its current liabilities were $13,190.The quick ratio is
A)0.65
B)0.78
C)0.85
D)1.18
E)1.28

Accepted Answer

Quick ratio is calculated by dividing quick assets by current liabilities. So, 
Quick ratio = Quick assets / Current liabilities 
= 11,220 / 13,190 
= 0.85. Therefore, the best choice is C.

Question 14

Profit margin is sales divided by profit.

Accepted Answer

Profit margin is profit divided by sales, not the other way around.

Question 15

The book value of assets is an accurate measure of current market values.

Accepted Answer

The book value of assets is based on historical cost and does not necessarily reflect current market values. Market values can fluctuate based on factors such as supply and demand, economic conditions, and changes in technology. Therefore, book value is not always an accurate measure of current market values.

Question 16

Profit margin reflects the percent of profit in each dollar of net sales.

Accepted Answer

Profit margin is calculated by dividing the net profit by net sales and expressing it as a percentage. Therefore, it reflects the percentage of profit in each dollar of net sales.

Question 17

Return on total assets can be separated into profit margin and total asset turnover.

Accepted Answer

Return on total assets (ROA) is calculated by dividing net income by total assets. This can also be expressed as a product of profit margin and total asset turnover. Profit margin is calculated by dividing net income by total revenue, while total asset turnover is calculated by dividing total revenue by total assets. Therefore, ROA can be separated into profit margin and total asset turnover.

Question 18

Quantum's earnings per share is $2.47.The dividend per share is $.25 and the market price per share is $45.The price-earnings ratio is 5.5.

Accepted Answer

To calculate Quantum's price-earnings ratio, we need to divide the market price per share by the earnings per share.

PE ratio = market price per share / earnings per share
PE ratio = 45 / 2.47
PE ratio = 18.22

However, the given price-earnings ratio in the question is 5.5. Therefore, the statement is false.

Question 19

The pledged assets to secured liabilities ratio is calculated by dividing secured liabilities by pledged assets.

Accepted Answer

The pledged assets to secured liabilities ratio is calculated by dividing pledged assets by secured liabilities, not the other way around. This ratio indicates how much of the pledged assets are covering the secured liabilities.

Question 20

In periods of low income,bonds can increase return on equity because of less equity investment.

Accepted Answer

The answer of In periods of low income,bonds can increase...

Quiz 9: Analyzing Financial Statements