Question 1

Use the information below for Privett Company to answer the questions that follow.
​
 $$\begin{array}{l}
\text { Privett Company }\
\begin{array} { l r } 
\text { Accounts payable } & \$ 30,000 \
\text { Accounts receivable } & 35,000 \
\text { Accrued liabilities } & 7,000 \
\text { Cash } & 25,000 \
\text { Intangible assets } & 40,000 \
\text { Inventory } & 72,000 \
\text { Long-term investments } & 100,000 \
\text { Long-term liabilities } & 75,000 \
\text { Marketable securities } & 36,000 \
\text { Notes payable (short-term) } & 20,000 \
\text { Property, plant, and equipment } & 400,000 \
\text { Prepaid expenses } & 2,000
\end{array}
\end{array}$$
-Based on the data for Privett Company, what is the amount of quick assets?

Accepted Answer

Quick assets include cash, accounts receivable, and marketable securities. Therefore, the quick assets amount is $25,000 (cash) + $35,000 (accounts receivable) + $36,000 (marketable securities) = $96,000.

Question 2

Which of the following measures a company's ability to pay its current liabilities?

Accepted Answer

The current ratio measures a company's ability to pay its current liabilities (debts due within one year) with its current assets (cash, accounts receivable, inventory, etc.). A ratio of 2 or higher is generally considered healthy, as it indicates that the company has twice as many current assets as current liabilities available to meet its obligations. Earnings per share measure a company's profitability, inventory turnover measures how quickly a company sells its inventory, and times interest earned measures a company's ability to make interest payments on its debt. While these measures are important, they do not directly assess a company's ability to pay its creditors in the short term.

Question 3

Which of the following is not included in the computation of the quick ratio?

Accepted Answer

The quick ratio, also known as the acid-test ratio, is a measure of a company's liquidity and ability to meet short-term obligations. It is calculated by subtracting inventory from current assets and dividing the result by current liabilities. Since inventory is not considered a highly liquid asset, it is not included in the calculation of the quick ratio. Marketable securities, accounts receivable, and cash are typically included in the calculation.

Question 4

Balance sheet and income statement data indicate the following:? $$\begin{array} { l r } 
\text { Bonds payable, } 10 \% \text { (due in two years) } & \$ 1,000,000 \
\text { Preferred } 5 \% \text { stock, } \$ 100 \text { par (no change during year) } & 300,000 \
\text { Common stock, } \$ 50 \text { par (no change during year) } & 2,000,000 \
\text { Income before income tax for year } & 550,000 \
\text { Income tax for year } & 80,000 \
\text { Common dividends paid } & 50,000 \
\text { Preferred dividends paid } & 15,000
\end{array}$$ Based on the data presented, what is the times interest earned ratio? (Round to one decimal point.)

Accepted Answer

The times interest earned ratio is calculated as (Income before income tax + Interest expense) / Interest expense. Interest expense on bonds payable is $1,000,000 * 10% = $100,000. Thus, the ratio is ($550,000 + $100,000) / $100,000 = 6.5.

Question 5

Brock Company's financial information is listed below. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit.​​  What is the current ratio?

Accepted Answer

Current Ratio = Current Assets / Current Liabilities
Current Assets = $41,500 + $26,000 + $5,900 = $73,400
Current Liabilities = $26,500 + $7,500 = $34,000
Current Ratio = $73,400 / $34,000 = 2.16
Therefore, the current ratio is 2.16, and the best choice is (C) 1.58.

Question 6

Based on the following data for the current year, what is the number of days' sales in receivables? $$\begin{array} { l r } 
\text { Sales on account during year } & \$ 584,000 \
\text { Cost of goods sold during year } & 300,000 \
\text { Accounts receivable, beginning of year } & 45,000 \
\text { Accounts receivable, end of year } & 35,000 \
\text { Inventory, beginning of year } & 90,000 \
\text { Inventory, end of year } & 110,000
\end{array}$$

Accepted Answer

The answer of Based on the following data for the...

Question 7

Use the information below for Privett Company to answer the questions that follow.
​
 $$\begin{array}{l}
\text { Privett Company }\
\begin{array} { l r } 
\text { Accounts payable } & \$ 30,000 \
\text { Accounts receivable } & 35,000 \
\text { Accrued liabilities } & 7,000 \
\text { Cash } & 25,000 \
\text { Intangible assets } & 40,000 \
\text { Inventory } & 72,000 \
\text { Long-term investments } & 100,000 \
\text { Long-term liabilities } & 75,000 \
\text { Marketable securities } & 36,000 \
\text { Notes payable (short-term) } & 20,000 \
\text { Property, plant, and equipment } & 400,000 \
\text { Prepaid expenses } & 2,000
\end{array}
\end{array}$$
-Based on the data for Privett Company, what is the amount of working capital?

Accepted Answer

Working capital is calculated as Current Assets minus Current Liabilities. Here, Current Assets = $35,000 (Accounts Receivable) + $25,000 (Cash) + $72,000 (Inventory) + $36,000 (Marketable Securities) + $2,000 (Prepaid Expenses) = $170,000. Current Liabilities = $30,000 (Accounts Payable) + $7,000 (Accrued Liabilities) + $20,000 (Notes Payable) = $57,000. Therefore, Working Capital = $170,000 - $57,000 = $113,000.

Question 8

A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will

Accepted Answer

The current ratio will increase because the reduction in current liabilities improves the ratio of current assets to current liabilities. Working capital remains the same because both current assets and current liabilities decrease by the same amount ($1,000).

Question 9

Based on the following data for the current year, what is the number of days' sales in inventory? $$\begin{array} { l r } 
\text { Sales on account during year } & \$ 1,204,500 \
\text { Cost of goods sold during year } & 657,000 \
\text { Accounts receivable, beginning of year } & 75,000 \
\text { Accounts receivable, end of year } & 85,000 \
\text { Inventory, beginning of year } & 85,600 \
\text { Inventory, end of year } & 98,600
\end{array}$$

Accepted Answer

The number of days' sales in inventory is calculated as (Average Inventory / Cost of Goods Sold) * 365. The average inventory is (85,600 + 98,600) / 2 = 92,100. Thus, (92,100 / 657,000) * 365 = 51.2 days.

Question 10

An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to

Accepted Answer

If the collection of receivables is accelerated, it means that the company is collecting the receivables faster, which will result in a higher frequency of turnover. Thus, the accounts receivable turnover will increase.

Question 11

A company with working capital of $720,000 and a current ratio of 2.2 pays a $125,000 short-term liability. The amount of working capital immediately after payment is

Accepted Answer

The answer of A company with working capital of $720,000...

Question 12

Based on the following data for the current year, what is the inventory turnover? $$\begin{array} { l r } 
\text { Sales on account during year } & \$ 700,000 \
\text { Cost of goods sold during year } & 270,000 \
\text { Accounts receivable, beginning of year } & 45,000 \
\text { Accounts receivable, end of year } & 35,000 \
\text { Inventory, beginning of year } & 90,000 \
\text { Inventory, end of year } & 110,000
\end{array}$$

Accepted Answer

The answer of Based on the following data for the...

Question 13

Use the information below for Privett Company to answer the questions that follow.
​
 $$\begin{array}{l}
\text { Privett Company }\
\begin{array} { l r } 
\text { Accounts payable } & \$ 30,000 \
\text { Accounts receivable } & 35,000 \
\text { Accrued liabilities } & 7,000 \
\text { Cash } & 25,000 \
\text { Intangible assets } & 40,000 \
\text { Inventory } & 72,000 \
\text { Long-term investments } & 100,000 \
\text { Long-term liabilities } & 75,000 \
\text { Marketable securities } & 36,000 \
\text { Notes payable (short-term) } & 20,000 \
\text { Property, plant, and equipment } & 400,000 \
\text { Prepaid expenses } & 2,000
\end{array}
\end{array}$$
-Based on the data for Privett Company, what is the quick ratio, rounded to one decimal point?

Accepted Answer

The answer of Use the information below for Privett Company...

Question 14

Based on the following data, what is the accounts receivable turnover?Sales on account during year$700,000Cost of goods sold during year270,000Accounts receivable, beginning of year45,000Accounts receivable, end of year35,000Inventory, beginning of year90,000Inventory, end of year110,000

Accepted Answer

The accounts receivable turnover is calculated as Sales on Account divided by the Average Accounts Receivable. Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2 = (45,000 + 35,000) / 2 = 40,000. Therefore, Accounts Receivable Turnover = 700,000 / 40,000 = 17.5.

Question 15

The numerator in calculating the accounts receivable turnover is

Accepted Answer

The accounts receivable turnover ratio is calculated by dividing total sales by the average accounts receivable during the period, making sales the numerator in the formula.

Question 16

The ability of a business to pay its debts as they come due and to earn a reasonable net income includes

Accepted Answer

Solvency refers to a company's ability to pay off its obligations as they come due, while profitability refers to a company's ability to generate earnings in excess of its expenses. Therefore, the ability of a business to pay its debts as they come due and to earn a reasonable net income includes solvency and profitability. Choice A is incorrect because while leverage is related to solvency, it does not directly address the ability to earn a reasonable net income. Choice C is incorrect because while liquidity is related to solvency, it does not directly address the ability to earn a reasonable net income. Choice D is incorrect because equity is related to a company's ownership structure, and does not directly address either solvency or profitability.

Question 17

Which of the following ratios provides a solvency measure that shows the margin of safety of bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?

Accepted Answer

The ratio of fixed assets to long-term liabilities, also known as the fixed charge coverage ratio, provides a solvency measure that shows the margin of safety of bondholders. It indicates whether a company has enough fixed assets to cover its long-term debt obligations. Additionally, this ratio gives an indication of the potential ability of the business to borrow additional funds on a long-term basis. A high fixed charge coverage ratio indicates that the company is less risky and can borrow more funds on a long-term basis.

Question 18

Hsu Company reported the following on its income statement:?? $$\begin{array} { l r } 
\text { Income before income taxes } & \$ 420,000 \
\text { Income tax expense } & 120,000 \
\text { Net income } & \mathbf { \$ 30 0 , 0 0 0 }
\end{array}$$ Interest expense was $80,000. Hsu Company's times interest earned ratio is

Accepted Answer

The times interest earned ratio is calculated as (Income before income taxes + Interest expense) / Interest expense. Here, it is ($420,000 + $80,000) / $80,000 = 6.25 times.

Question 19

The current ratio is

Accepted Answer

The current ratio is a liquidity ratio that evaluates a company's short-term debt-paying ability by dividing its current assets by its current liabilities. This gives an indication of how easily a company can meet its short-term financial obligations.

Question 20

Times interest earned is computed as

Accepted Answer

Times interest earned is a financial metric used to evaluate a company's ability to meet its debt obligations. It is calculated by dividing the company's income before tax and interest by its interest expense. This provides an indication of the company's ability to make interest payments on its outstanding debt. Therefore, option B is the correct answer as it divides income before income tax and interest expenses by interest expenses.

Quiz 17: Financial Statement Analysis

Which of the following measures a company's ability to pay its current liabilities?

Which of the following is not included in the computation of the quick ratio?

Brock Company's financial information is listed below. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. What is the current ratio?

A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will

An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to

A company with working capital of $720,000 and a current ratio of 2.2 pays a $125,000 short-term liability. The amount of working capital immediately after payment is

Based on the following data, what is the accounts receivable turnover?Sales on account during year$700,000Cost of goods sold during year270,000Accounts receivable, beginning of year45,000Accounts receivable, end of year35,000Inventory, beginning of year90,000Inventory, end of year110,000

The numerator in calculating the accounts receivable turnover is

The ability of a business to pay its debts as they come due and to earn a reasonable net income includes

Which of the following ratios provides a solvency measure that shows the margin of safety of bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?

The current ratio is

Times interest earned is computed as

Quiz 17: Financial Statement Analysis

Which of the following measures a company's ability to pay its current liabilities?

Which of the following is not included in the computation of the quick ratio?

Brock Company's financial information is listed below. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit.​​ What is the current ratio?

A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will

An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to

A company with working capital of $720,000 and a current ratio of 2.2 pays a $125,000 short-term liability. The amount of working capital immediately after payment is

Based on the following data, what is the accounts receivable turnover?Sales on account during year$700,000Cost of goods sold during year270,000Accounts receivable, beginning of year45,000Accounts receivable, end of year35,000Inventory, beginning of year90,000Inventory, end of year110,000

The numerator in calculating the accounts receivable turnover is

The ability of a business to pay its debts as they come due and to earn a reasonable net income includes

Which of the following ratios provides a solvency measure that shows the margin of safety of bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?

The current ratio is

Times interest earned is computed as

Brock Company's financial information is listed below. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. What is the current ratio?