Question 1

Calculate C Co's current ratio for 2012 and 2011 respectively.
A) .60 and .70
B) .54 and .59
C) .63 and .72
D) .66 and .74

Accepted Answer

D

Question 2

Financial leverage will always be which of the following?
A) Positive, negative, or zero.
B) Positive.
C) Either positive or negative.
D) Negative.

Accepted Answer

A

Question 3

At the end of 20B, Storage Company reported 15,000 outstanding common shares. Total liabilities were $440,000 and total assets were $860,000. The company had no preferred shares. What was the book value per share of common share?
A) $28.00
B) $13.90
C) $14.00
D) $29.00

Accepted Answer

A

Question 4

A general rule to use in assessing the average collection period is that it
A) should not greatly exceed the discount period.
B) should not exceed 30 days.
C) can be any length as long as the customer continues to buy merchandise.
D) should not greatly exceed the credit term period.

Accepted Answer

The average collection period is the length of time it takes a business to receive payment from its customers for goods and services sold on credit. It is calculated by dividing accounts receivable by average daily credit sales. The credit term period is the time allowed by the seller for the buyer to make payment. The average collection period should not greatly exceed the credit term period, as it may indicate potential problems with collections and cash flow. Therefore, option D is the best choice.

Question 5

Matt Company paid out $2.30 in dividends per share during 20B. The market price of the share on December 31, 20B was $21.00 per share. There were 15,000 shares of share outstanding for the entire year. What was the dividend yield as of December 31, 20B?
A) 10.95%
B) 913.04%
C) 16.43%
D) 9.13%

Accepted Answer

The answer of Matt Company paid out $2.30 in dividends...

Question 6

Calculate C Co's debt to equity ratio for 2012 and 2011 respectively.
A) .79 and .78
B) .56 and .56
C) .66 and .66
D) 1.27 and 1.28

Accepted Answer

The answer of Calculate C Co's debt to equity ratio...

Question 7

The ratio that is calculated by dividing cash dividends declared on common shares by net earnings is called the:
A) dividend yield ratio.
B) payout ratio.
C) common dividend ratio.
D) earnings per share ratio.

Accepted Answer

The ratio that is calculated by dividing cash dividends declared on common shares by net earnings is called the payout ratio. It measures the percentage of earnings distributed to shareholders in the form of dividends.

Question 8

Strait Company has outstanding shares as follows: 16,000 common shares and 5,000 preferred shares. What is the number of shares that should be used in the denominator to compute earnings per share?
A) 5,000
B) 16,000
C) 21,000
D) 11,000

Accepted Answer

Earnings per share (EPS) is calculated using only the common shares outstanding, which in this case is 16,000. Preferred shares are not included in the EPS calculation.

Question 9

In 2012, C Co's gross profit ratio was 70.4% and their profit margin was 18.8%. In 2012, P Co's gross profit ratio was 58.3% and their profit margin was 8.9%. Which of the following is false?
A) C Co looks to be a better investment than P Co.
B) The major reason for P Co's lower profit margin is that their selling, general and administrative expenses were double the percentage of sales compared to C Co's percentage.
C) C Co's cost of goods sold was a lower percentage of sales than P Co's.
D) In 2012, C Co's profit margin was 111.2% greater than P Co's which would contribute to a higher return on total investment.

Accepted Answer

While C Co's numbers appear better overall, it is not necessarily true that it is a better investment. There are other factors to consider, such as the industry, market trends, management, and future growth potential. However, we can conclude that choice B is false because P Co's lower profit margin is not solely due to their selling, general and administrative expenses being double, as suggested. It could also be due to a higher cost of goods sold or lower sales revenue.

Question 10

A company has a receivables turnover ratio of 12. The average gross accounts receivable during the period is $360,000. What is the amount of net credit sales for the period?
A) $432,000.
B) $3,000,000.
C) $4,320,000.
D) Cannot be determined from the information given.

Accepted Answer

The receivables turnover ratio is calculated as net credit sales divided by average accounts receivable. Given the ratio is 12 and average accounts receivable is $360,000, net credit sales = 12 * $360,000 = $4,320,000.

Question 11

Some of the ratios that are used to determine a company's short-term debt paying ability are
A) current ratio, receivables turnover, and inventory turnover.
B) times interest earned, current ratio, and inventory turnover.
C) asset turnover, times interest earned, current ratio, and receivables turnover.
D) times interest earned, inventory turnover, current ratio, and receivables turnover.

Accepted Answer

The answer of Some of the ratios that are used...

Question 12

A liquidity ratio measures the
A) number of times interest is earned.
B) short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.
C) ability of the company to survive over a long period of time.
D) earnings or operating success of a company over a period of time.

Accepted Answer

A liquidity ratio measures a company's ability to meet its short-term obligations and unexpected cash needs. Choice A describes an interest coverage ratio, choice C describes a solvency ratio, and choice D describes a profitability ratio.

Question 13

All of the following ratios are investor measures of profitability except
A) payout ratio.
B) return on assets.
C) price-earnings ratio.
D) dividend yield.

Accepted Answer

The answer of All of the following ratios are investor...

Question 14

The inventory turnover ratio is calculated by dividing
A) cost of goods sold by the ending inventory.
B) cost of goods sold by the average inventory.
C) average inventory by cost of goods sold.
D) cost of goods sold by the beginning inventory.

Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory. This helps to measure how efficiently a company is managing its inventory by showing how many times a company's inventory has been sold and replaced during a given period. Using the average inventory instead of the beginning or ending inventory provides a more accurate representation of the inventory levels throughout the period.

Question 15

Calculate C Co's financial leverage and identify whether it was positive or negative.
A) 15.2% positive
B) 14.1% positive
C) 17.8% negative
D) 19.9% negative

Accepted Answer

Financial leverage is positive when the return on equity (ROE) is greater than the cost of debt. The choice B indicates a positive leverage of 14.1%, suggesting that C Co's ROE exceeds its cost of debt by this percentage.

Question 16

Profit margin is calculated by dividing
A) sales by cost of goods sold.
B) net earnings by net sales.
C) net earnings by shareholders' equity.
D) gross profit by net sales.

Accepted Answer

Profit margin is calculated by dividing net earnings by net sales, which shows the percentage of revenue that has turned into profit.

Question 17

A common measure of profitability is the
A) return on common shareholders' equity ratio.
B) current ratio.
C) debt to total assets ratio.
D) cash current debt coverage ratio.

Accepted Answer

The return on common shareholders' equity ratio measures the amount of net income earned for each dollar invested by common shareholders. This is a good indicator of profitability as it shows how effectively a company is using its equity to generate profits.

Question 18

Which of the following ratios is not a test of solvency?
A) Debt to equity ratio.
B) Cash coverage ratio.
C) Times interest earned ratio.
D) Earnings per share ratio.

Accepted Answer

The earnings per share ratio is a measure of profitability rather than solvency. Solvency ratios primarily focus on a company's ability to meet its long-term debt obligations.

Question 19

A company has an average inventory on hand of $40,000 and its average days in inventory are 26.4 days. What is the cost of goods sold?
A) $553,030.
B) $1,056,000.
C) $486,667.
D) $480,000.

Accepted Answer

The cost of goods sold is calculated by multiplying the average inventory on hand by the inventory turnover ratio. The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory on hand. In this case, the cost of goods sold is not given, so we cannot calculate the inventory turnover ratio. However, we can use the average days in inventory to calculate the inventory turnover ratio. The inventory turnover ratio is calculated by dividing 365 days by the average days in inventory. In this case, the inventory turnover ratio is 365 days / 26.4 days = 13.82. The cost of goods sold is calculated by multiplying the average inventory on hand by the inventory turnover ratio. In this case, the cost of goods sold is $40,000 * 13.82 = $553,030.

Question 20

The records of ZZZZ Better Corporation include the following:  What is the return on equity?
A) 16%
B) 6%
C) 13%
D) 24%

Accepted Answer

The answer of The records of ZZZZ Better Corporation include...

Quiz 13: Analyzing Financial Statements

Calculate C Co's current ratio for 2012 and 2011 respectively.

Financial leverage will always be which of the following?

At the end of 20B, Storage Company reported 15,000 outstanding common shares. Total liabilities were $440,000 and total assets were $860,000. The company had no preferred shares. What was the book value per share of common share?

A general rule to use in assessing the average collection period is that it

Matt Company paid out $2.30 in dividends per share during 20B. The market price of the share on December 31, 20B was $21.00 per share. There were 15,000 shares of share outstanding for the entire year. What was the dividend yield as of December 31, 20B?

Calculate C Co's debt to equity ratio for 2012 and 2011 respectively.

The ratio that is calculated by dividing cash dividends declared on common shares by net earnings is called the:

Strait Company has outstanding shares as follows: 16,000 common shares and 5,000 preferred shares. What is the number of shares that should be used in the denominator to compute earnings per share?

In 2012, C Co's gross profit ratio was 70.4% and their profit margin was 18.8%. In 2012, P Co's gross profit ratio was 58.3% and their profit margin was 8.9%. Which of the following is false?

A company has a receivables turnover ratio of 12. The average gross accounts receivable during the period is $360,000. What is the amount of net credit sales for the period?

Some of the ratios that are used to determine a company's short-term debt paying ability are

A liquidity ratio measures the

All of the following ratios are investor measures of profitability except

The inventory turnover ratio is calculated by dividing

Calculate C Co's financial leverage and identify whether it was positive or negative.

Profit margin is calculated by dividing

A common measure of profitability is the

Which of the following ratios is not a test of solvency?

A company has an average inventory on hand of $40,000 and its average days in inventory are 26.4 days. What is the cost of goods sold?

The records of ZZZZ Better Corporation include the following: What is the return on equity?