Question 1

An advantage of high inventory turnover is:

Accepted Answer

High inventory turnover means that the company is selling its inventory quickly and efficiently. This can lead to a number of benefits, including:* Decreased operating expenses: When inventory is turned over quickly, the company does not have to spend as much money on storage and handling costs.* Increased asset turnover: Inventory turnover is a measure of how efficiently a company is using its assets. A high inventory turnover means that the company is generating more sales with its inventory, which can lead to increased profitability.* More funds for other market opportunities: When inventory is turned over quickly, the company can free up cash that can be used to invest in other market opportunities, such as new product development or marketing campaigns.

Question 2

Felicia's Rent to Own has total assets of $2,800,000, accounts receivable of $900,000, accounts payable of $700,000, inventory valued at $1,500,000, and total liabilities of $2,500,000. Calculate the owners' equity.

Accepted Answer

Owners' equity is calculated as Total Assets minus Total Liabilities. Here, $2,800,000 (Total Assets) - $2,500,000 (Total Liabilities) = $300,000.

Question 3

When Morgan Hardware Stores orders two cases of paint from their supplier Sherwin-Williams on credit, the paint store has created for itself a/an:

Accepted Answer

When Morgan Hardware Stores orders paint on credit, it creates an accounts payable, which is a short-term liability representing money owed to suppliers.

Question 4

Which of the following is not an example of a fixed asset for a lawn care service?

Accepted Answer

Accounts receivable is considered a current asset, not a fixed asset, as it represents money owed to the company that is expected to be received within a short period.

Question 5

Which of the following is an example of a current liability?

Accepted Answer

Accounts payable is a current liability because it is an obligation that is due within one year.

Question 6

The strategic profit model is useful to retailers because it:

Accepted Answer

The strategic profit model is useful to retailers because it combines margin management and asset management, helping them understand how different factors affect profitability.

Question 7

Which of the following is an example of a fixed asset for a music store?

Accepted Answer

Fixed assets are long-term tangible assets that a company uses in its operations to generate income. A central computer used to manage inventory is a fixed asset because it is a long-term investment used in the store's operations.

Question 8

By knowing the return on assets for his garden supply store, Chuck will know:

Accepted Answer

The return on assets (ROA) measures how efficiently a company uses its assets to generate profit, indicating the profit generated from the investment in assets.

Question 9

An appliance store has total assets of $2,800,000, accounts receivable of $900,000, accounts payable of $700,000, inventory valued at $1,500,000, and total liabilities of $2,500,000. In 1999, its net sales were $2,100,000, and its net profit equalled $42,000. Calculate the store's return on assets.

Accepted Answer

Return on assets (ROA) is calculated as Net Profit divided by Total Assets. Here, ROA = $42,000 / $2,800,000 = 0.015 or 1.5 percent.

Question 10

Which of the following is an example of an accrued liability for a florist?

Accepted Answer

Accrued liabilities are expenses that a company has incurred but has not yet paid. Employees' salaries are an example of this, as they are earned by employees but not yet paid by the florist.

Question 11

Retained earnings are a portion of owner's equity that has:

Accepted Answer

Retained earnings represent the cumulative amount of net income that a company has kept, rather than distributed to shareholders as dividends.

Question 12

The Great Outdoors is a camping supply store offering its customers equipment from affordable to elite. It has total assets of $350,000, current assets of $74,000, total liabilities of $280,000, accounts receivable of $12,000, and inventory valued at $23,000. Calculate the owners' equity.

Accepted Answer

The answer of The Great Outdoors is a camping supply...

Question 13

A disadvantage of too high an inventory turnover would be:

Accepted Answer

A high inventory turnover can lead to increased cost of goods sold because it may require frequent restocking, potentially at higher prices, and can also result in stockouts, leading to lost sales or the need to purchase inventory at a premium.

Question 14

Current liabilities are:

Accepted Answer

Current liabilities are debts or obligations that a company expects to settle within one year, such as accounts payable, short-term loans, and other similar financial obligations.

Question 15

Notes payable are an example of a/an:

Accepted Answer

The answer of Notes payable are an example of a/an:
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Question 16

If you had $50,000 and you wanted to invest in either a restaurant or in Loblaws stock, which of the following ratios would best help you to decide what to do?

Accepted Answer

Return on assets (ROA) would help you determine how efficiently each option is using its assets to generate profit, which is crucial for comparing investment opportunities.

Question 17

Calculate the return on assets for a hunting outfitter store that has total assets of $350,000, current assets of $74,000, total liabilities of $280,000, accounts receivable of $12,000, net sales of $64,000, and net profit of $23,000.

Accepted Answer

Return on assets (ROA) is calculated as Net Profit divided by Total Assets. Here, ROA = $23,000 / $350,000 = 0.0657 or 6.6 percent.

Question 18

Asset turnover:

Accepted Answer

Asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue. It is calculated by dividing net sales by total assets, and it helps compare how well competing firms manage their assets.

Question 19

________equals a company's net sales divided by its total assets.

Accepted Answer

Asset turnover is calculated by dividing a company's net sales by its total assets, measuring how efficiently a company uses its assets to generate sales.

Question 20

Corporations most frequently issue which kind of shares?

Accepted Answer

Corporations most frequently issue common shares, which represent ownership in a company and entitle shareholders to vote on corporate matters and receive dividends.

Quiz 8: Financial Strategy