Question 1

Total liabilities divided by total stockholders' equity is the calculation for the
A) current ratio.
B) ratio of liabilities to stockholders' equity.
C) return on equity ratio.
D) times interest earned ratio.

Accepted Answer

The ratio of liabilities to stockholders' equity is calculated by dividing total liabilities by total stockholders' equity. It shows the proportion of a company's financing that comes from debt compared to equity.

Question 2

Dividing quick assets by total current liabilities is the calculation for the
A) current ratio.
B) return on investment.
C) quick or acid-test ratio.
D) ratio of liabilities to owner's equity.

Accepted Answer

Dividing quick assets (cash, marketable securities, and accounts receivable) by total current liabilities gives the quick or acid-test ratio. This ratio measures a company's ability to pay off its current liabilities using only its most liquid assets. It is similar to the current ratio (choice A), but excludes inventory as a component of current assets. Return on investment (choice B) and ratio of liabilities to owner's equity (choice D) are unrelated to this calculation.

Question 3

A company has net sales on account of $1,750,000. Net accounts receivable at the beginning of the year are $147,000 and net accounts receivable at the end of the year are $153,000. The accounts receivable turnover is
A) 11.9.
B) 11.7.
C) 11.4.
D) 1.0.

Accepted Answer

Accounts Receivable Turnover = Net Sales ÷ Average Accounts Receivable

Average Accounts Receivable = (Net Accounts Receivable at the Beginning of the Year + Net Accounts Receivable at the End of the Year) ÷ 2

= ($147,000 + $153,000) ÷ 2

= $150,000

Therefore, Accounts Receivable Turnover = $1,750,000 ÷ $150,000 = 11.7

The correct answer is B.

Question 4

The liabilities of a company at the end of the year are $500,000 and the total stockholders' equity at the end of the year is $1,500,000. The ratio of liabilities to stockholders' equity is
A) 0.50 to 1.
B) 0.33 to 1.
C) 0.67 to 1.
D) 3 to 1.

Accepted Answer

The ratio of liabilities to stockholders' equity is calculated by dividing the total liabilities by the total stockholders' equity: $500,000 / $1,500,000 = 0.33 to 1.

Question 5

Merchandise inventory turnover measures the relationship between
A) assets and current liabilities.
B) merchandise inventory and current liabilities.
C) expenses and merchandise inventory.
D) cost of goods sold and merchandise inventory.

Accepted Answer

Merchandise inventory turnover measures how many times a company sells and replaces its inventory in a given period of time. This calculation involves comparing the cost of goods sold to the average inventory value. Therefore, the relationship being measured is between the cost of goods sold (an income statement item) and merchandise inventory (a balance sheet item).

Question 6

The net income for the year ended was $720,000; total assets at the beginning of the year was $2,100,000; and total assets at the end of the was $2,300,000. The return on total assets would be
A) 1.1%.
B) 3.1%.
C) 11.2%.
D) 32.7%.

Accepted Answer

The answer of The net income for the year ended...

Question 7

A company has cash, $80,000; temporary investments, $20,000; net receivables, $60,000; and inventory, $450,000. Current liabilities are $200,000. The quick or acid-test ratio is
A) 0.54 to 1.
B) 0.80 to 1.
C) 2.25 to 1.
D) 3.05 to 1.

Accepted Answer

The quick or acid-test ratio is calculated by adding cash, temporary investments, and net receivables, and then dividing by current liabilities. This gives a quick snapshot of the company's ability to pay off its liabilities in the short term without relying on inventory sales.

So, the calculation is: 
($80,000 + $20,000 + $60,000) / $200,000 = 0.8

Therefore, the quick or acid-test ratio is 0.80 to 1.

Question 8

The cost of goods sold for a company for the year was $1,900,000. Merchandise inventory at the beginning of the year was $125,000 and merchandise inventory at the end of the year was $133,000. The merchandise inventory turnover for the year was
A) 0.1.
B) 14.7.
C) 33.8.
D) 65.5.

Accepted Answer

Merchandise inventory turnover = cost of goods sold / average merchandise inventory
Average merchandise inventory = (beginning merchandise inventory + ending merchandise inventory) / 2
Average merchandise inventory = ($125,000 + $133,000) / 2 = $129,000

Merchandise inventory turnover = $1,900,000 / $129,000 = 14.72

Therefore, the merchandise inventory turnover for the year was 14.7, closest to choice B.

Question 9

A company has cash, $85,000; temporary investments, $30,000; net receivables, $60,000; and inventory, $350,000. Current liabilities are $300,000. The current ratio is
A) 0.58 to 1.
B) 0.74 to 1.
C) 1.75 to 1.
D) 1.86 to 1.

Accepted Answer

The answer of A company has cash, $85,000; temporary investments,...

Question 10

Dividing the net income for the year by the average assets for the year is the calculation for the
A) return on assets.
B) earnings per share.
C) book value per share.
D) quick or acid-test ratio.

Accepted Answer

Dividing the net income for the year by the average assets for the year is the calculation for the return on assets (ROA). This ratio provides insight into how efficiently a company is using its assets to generate profit.

Question 11

A comparison of the amounts for the same item in financial statements of two or more periods is called
A) vertical analysis.
B) competitive analysis.
C) earnings per share.
D) horizontal analysis.

Accepted Answer

Horizontal analysis compares the amounts for the same item in financial statements of two or more periods to show the changes in dollar amounts and percentages. Vertical analysis compares each line item on the financial statements to a base amount, typically the total revenue or total assets, to show the proportionate size of each item. Competitive analysis compares the financial performance and ratios of a company to its competitors. Earnings per share (EPS) is a calculation that shows the amount of profits attributable to each share of stock.

Question 12

The net income of a company is $175,000. The average book value of the company's assets is $1,300,000. The return on total assets would be
A) 20.00%.
B) 7.43%.
C) 600.00%.
D) 13.46%.

Accepted Answer

Return on total assets (ROA) = Net income / Average total assets
ROA = $175,000 / $1,300,000 = 0.1346 or 13.46%

Question 13

Dividing cost of goods sold by the average of merchandise inventory is the calculation for the
A) accounts receivable turnover.
B) working capital turnover.
C) merchandise inventory turnover.
D) plant and equipment turnover.

Accepted Answer

Dividing cost of goods sold by the average of merchandise inventory is used to calculate merchandise inventory turnover, which measures how many times a company's inventory is sold and replaced in a period of time. This ratio is important in determining how efficiently a company is managing its inventory levels.

Question 14

A company has net sales on account of $1,200,000. Net accounts receivable at the beginning of the year are $500,000 and net accounts receivable at the end of the year are $700,000. The average number of days that the accounts receivables were on the books was
A) 8.7 days.
B) 182.5 days.
C) 304.0 days.
D) 439.8 days.

Accepted Answer

Average accounts receivable for the year can be calculated as:

[(Beginning Accounts Receivable) + (Ending Accounts Receivable)] / 2
= [(500,000) + (700,000)] / 2
= 600,000

The average daily sales on account can be calculated as:

(Total Net Sales on Account) / (Number of Days in Year)
= (1,200,000) / (365)
≈ 3,287.67

The average number of days that the accounts receivables were on the books can be calculated as:

(Average Accounts Receivable) / (Average Daily Sales on Account)
= (600,000) / (3,287.67)
≈ 182.5 days

Question 15

Dividing net sales on account by the average amount of net accounts receivable is the calculation for the
A) accounts receivable turnover.
B) working capital turnover.
C) merchandise inventory turnover.
D) plant and equipment turnover.

Accepted Answer

Dividing net sales on account by the average amount of net accounts receivable is the formula for calculating accounts receivable turnover. This ratio measures a company's effectiveness in collecting its accounts receivable.

Question 16

The net sales for a company were $3,600,000; gross profit was $600,000; and net income was $260,000. The net income to net sales ratio would be
A) 7.22%.
B) 16.67%.
C) 23.89%.
D) 43.33%.

Accepted Answer

The net income to net sales ratio is calculated by dividing net income by net sales and then multiplying by 100 to get a percentage. So, ($260,000 / $3,600,000) * 100 = 7.22%.

Question 17

Dividing the total stockholders' equity by the average number of shares outstanding at the end of the year (if only common stock is outstanding) is the calculation for
A) book value per share.
B) earnings per share.
C) return on equity.
D) the times interest earned ratio.

Accepted Answer

Dividing the total stockholders' equity by the average number of shares outstanding at the end of the year gives the book value per share. This calculation shows the theoretical liquidation value of a share of stock if the company were to go out of business and all assets were sold and debts paid off.

Question 18

The cost of goods sold for a company for the year was $1,600,000. Merchandise inventory at the beginning of the year was $195,000 and merchandise inventory at the end of the year was $205,000. The average number of days that the inventory was held during the year was
A) 8.0 days.
B) 25.0 days.
C) 39.6 days.
D) 45.6 days.

Accepted Answer

The answer of The cost of goods sold for a...

Question 19

An expression of the amount of each item in a statement as a percentage of some designated total for comparative purposes is called
A) vertical analysis.
B) return on total assets.
C) earnings per share.
D) horizontal analysis.

Accepted Answer

This type of analysis is known as vertical analysis, where each item on a financial statement is shown as a percentage of a designated total, typically sales or total assets, for comparison purposes. Return on total assets and earnings per share are specific financial ratios, while horizontal analysis compares financial data over time.

Question 20

Leverage is
A) the ability to earn a satisfactory return on the investments in the business.
B) the proportion of debt to stockholders' equity.
C) the ability to pay current debts when they come due.
D) also called profit margin.

Accepted Answer

Leverage refers to the proportion of debt to stockholders' equity, so choice B is the correct answer. Choice A refers to return on investment, choice C refers to liquidity, and choice D refers to profit margin, which are all different concepts unrelated to leverage.

Quiz 24: Analysis of Financial Statements

Total liabilities divided by total stockholders' equity is the calculation for the

Dividing quick assets by total current liabilities is the calculation for the

A company has net sales on account of $1,750,000. Net accounts receivable at the beginning of the year are $147,000 and net accounts receivable at the end of the year are $153,000. The accounts receivable turnover is

The liabilities of a company at the end of the year are $500,000 and the total stockholders' equity at the end of the year is $1,500,000. The ratio of liabilities to stockholders' equity is

Merchandise inventory turnover measures the relationship between

The net income for the year ended was $720,000; total assets at the beginning of the year was $2,100,000; and total assets at the end of the was $2,300,000. The return on total assets would be

A company has cash, $80,000; temporary investments, $20,000; net receivables, $60,000; and inventory, $450,000. Current liabilities are $200,000. The quick or acid-test ratio is

The cost of goods sold for a company for the year was $1,900,000. Merchandise inventory at the beginning of the year was $125,000 and merchandise inventory at the end of the year was $133,000. The merchandise inventory turnover for the year was

A company has cash, $85,000; temporary investments, $30,000; net receivables, $60,000; and inventory, $350,000. Current liabilities are $300,000. The current ratio is

Dividing the net income for the year by the average assets for the year is the calculation for the

A comparison of the amounts for the same item in financial statements of two or more periods is called

The net income of a company is $175,000. The average book value of the company's assets is $1,300,000. The return on total assets would be

Dividing cost of goods sold by the average of merchandise inventory is the calculation for the

A company has net sales on account of $1,200,000. Net accounts receivable at the beginning of the year are $500,000 and net accounts receivable at the end of the year are $700,000. The average number of days that the accounts receivables were on the books was

Dividing net sales on account by the average amount of net accounts receivable is the calculation for the

The net sales for a company were $3,600,000; gross profit was $600,000; and net income was $260,000. The net income to net sales ratio would be

Dividing the total stockholders' equity by the average number of shares outstanding at the end of the year (if only common stock is outstanding) is the calculation for

The cost of goods sold for a company for the year was $1,600,000. Merchandise inventory at the beginning of the year was $195,000 and merchandise inventory at the end of the year was $205,000. The average number of days that the inventory was held during the year was

An expression of the amount of each item in a statement as a percentage of some designated total for comparative purposes is called

Leverage is