Question 1

If management wishes to measure how effectively the assets were used in generating a profit, they could use the:
A) rate of return on total assets.
B) rate of return on common stockholders' equity.
C) return on sales.
D) times interest earned.

Accepted Answer

The rate of return on total assets measures how effectively a company uses its assets to generate profit, by comparing net income plus interest expense (to neutralize the effect of leverage) to the average total assets.

Question 2

If management wishes to evaluate the ability of a business to use sales to cover the operating expenses, they could use the:
A) rate of return on total assets.
B) rate of return on common stockholders' equity.
C) gross profit rate.
D) times interest earned.

Accepted Answer

The gross profit rate, which is calculated by dividing gross profit by net sales, helps management evaluate how effectively a business is using its sales to cover its operating expenses, excluding interest and taxes. It measures the portion of sales revenue that exceeds the cost of goods sold, indicating the efficiency in managing production and pricing.

Question 3

The inventory turnover ratio calculates:
A) how many times the inventory turns over in one period.
B) number of times inventory is purchased in one period.
C) the dollar amount of change in inventory in one period.
D) None of these answers are correct.

Accepted Answer

The inventory turnover ratio measures how many times a company's inventory is sold and replaced over a period, typically a year, indicating the efficiency of inventory management.

Question 4

If beginning and ending inventories are $12,000 and $29,000, respectively, and cost of goods sold is $480,000, what is the inventory turnover ratio? (Round your answer two decimal places.)
A) 23.41
B) 11.71
C) 40.00
D) 16.55

Accepted Answer

Inventory turnover ratio = Cost of goods sold / (Beginning inventory + Ending inventory) / 2= 480,000 / (12,000 + 29,000) / 2= 480,000 / 20,500= 23.41

Question 5

An acid test (quick) ratio of 0.75 to 1 would indicate:
A) a ratio that would not allow a company to pay off all current liabilities with quick assets.
B) for every $0.75 of short-term debt there is $1.00 of quick assets to meet short-term obligations.
C) for every $1 of current assets there is $0.75 of short-term debt.
D) Both A and B are correct.

Accepted Answer

An acid test ratio of 0.75 to 1 means that for every $1 of current liabilities, the company has $0.75 in quick assets, indicating it cannot cover all current liabilities with quick assets.

Question 6

Alliance Plus has total liabilities of $181,000, current liabilities $46,000, and stockholders' equity $310,000. What is the debt to total stockholders' equity ratio? (Round your answer to two decimal places, X.XX%.)
A) 171.27%
B) 25.41%
C) 14.84%
D) 58.39%

Accepted Answer

The answer of Alliance Plus has total liabilities of $181,000,...

Question 7

John's Market's total assets are $310,000, current assets $126,000, total liabilities $162,000, and current liabilities $51,000. What is the debt to total assets ratio? (Round your answer to the nearest percentage.)
A) 40.65%
B) 77.78%
C) 52.26%
D) 37.50%

Accepted Answer

The debt to total assets ratio is calculated by dividing total liabilities by total assets. So, $162,000 / $310,000 = 0.5226, which is 52.26% when converted to a percentage.

Question 8

Orange Designers has net income before taxes of $4,480,000, total assets of $3,500,000, and net sales of $5,530,000. What is the return on net sales? (Round your answer to two decimal places, X.XX%.)
A) 23.44%
B) 81.01%
C) 63.29%
D) None of the above are correct.

Accepted Answer

The answer of Orange Designers has net income before taxes...

Question 9

If the average collection period is 35 days, this means:
A) from the date of purchase to the date of payment is 35 days.
B) from the date of sale to the date of receipt of payment is 35 days.
C) from the date of discount to the date of receipt of payment is 35 days.
D) None of these answers are correct.

Accepted Answer

The average collection period refers to the average number of days between the date a company makes a sale on credit and the date it receives payment for that sale. Therefore, option B is correct as it accurately describes this period from the date of sale to the date of receipt of payment.

Question 10

The ratio that indicates how many days it takes to turn accounts receivable into cash is the:
A) accounts receivable turnover ratio.
B) average turnover ratio.
C) average collection period.
D) quick assets turnover ratio.

Accepted Answer

The average collection period is the correct answer because it specifically measures the average number of days it takes for a company to collect cash from its accounts receivable. This ratio is directly related to the efficiency of the company's credit policies and its ability to manage its receivables.

Question 11

May Cooperative has total assets of $456,000, current assets $133,000, total liabilities $263,000, and current liabilities 87,000. What is the debt to total assets ratio?
A) 24.33%
B) 19.08%
C) 197%
D) 57.68%

Accepted Answer

The debt to total assets ratio is calculated by dividing total liabilities by total assets. So, $263,000 / $456,000 = 0.5768 or 57.68%.

Question 12

May Cooperative has total liabilities of $263,000, current liabilities 87,000, and stockholders' equity $347,000. What is the debt to total stockholders' equity ratio?
A) 33.08%
B) 75.79%
C) 25.07%
D) 24.21%

Accepted Answer

The debt to total stockholders' equity ratio is calculated by dividing total liabilities by total stockholders' equity. Here, it is $263,000 / $347,000 = 0.7579 or 75.79%.

Question 13

Profitability ratios:
A) measure a company's ability to earn a profit.
B) measure a company's ability to pay off short-term debts.
C) measure a company's mix of debt and equity financing.
D) All of the above are correct.

Accepted Answer

Profitability ratios specifically measure a company's ability to generate earnings relative to its revenue, assets, equity, or other financial metrics, focusing on its efficiency in generating profits.

Question 14

With a beginning Accounts Receivable balance of $60,000, an ending balance of $66,000, and net credit sales of $520,000, compute accounts receivable turnover ratio. (Round your answer two decimal places.)
A) 0.12
B) 8.25
C) 8.67
D) 7.88

Accepted Answer

The accounts receivable turnover ratio is calculated as net credit sales divided by the average accounts receivable. The average accounts receivable is the sum of the beginning and ending balances divided by 2, which is ($60,000 + $66,000) / 2 = $63,000. The turnover ratio is then $520,000 / $63,000 = 8.25.

Question 15

Elegant Operators has net sales in the amount of $622,000, a cash amount of $333,000, and accounts receivables of $50,000. What is the asset turnover ratio?
A) 12.44 times
B) 1.87 times
C) 1.62 times
D) 0.08 times

Accepted Answer

The answer of Elegant Operators has net sales in the...

Question 16

If management wishes to evaluate how effectively the assets of a business are being used, they could use the:
A) asset turnover ratio.
B) rate of return on common stockholders' equity.
C) acid test ratio.
D) debt to total stockholders' equity ratio.

Accepted Answer

The asset turnover ratio measures how efficiently a company uses its assets to generate sales, making it a relevant metric for evaluating the effectiveness of asset utilization.

Question 17

If management wishes to evaluate the amount of assets which were financed by creditors, they could use the:
A) debt to total assets.
B) rate of return on common stockholders' equity.
C) debt to total liabilities.
D) times interest earned.

Accepted Answer

The debt to total assets ratio is used to evaluate the amount of assets financed by creditors, as it measures the proportion of a company's assets that are financed by debt.

Question 18

Accounts Receivable Turnover is an example of what type of ratio?
A) Liquidity
B) Asset Management
C) Debt Management
D) Profitability

Accepted Answer

Accounts Receivable Turnover is an example of an Asset Management ratio, as it measures how efficiently a company can manage its assets, specifically its accounts receivable, to generate sales.

Question 19

If management wishes to know how long it takes to collect from a charge customer, they could use the:
A) rate of return on total assets.
B) average collection period.
C) acid test ratio.
D) current ratio.

Accepted Answer

The average collection period is a metric used to assess how long it takes for a business to collect payments from its credit customers. It directly measures the time between a sale on credit and the receipt of payment, providing management with insight into the efficiency of the company's credit policies and collection processes.

Question 20

A company has $54,000 in cash, $22,000 in accounts receivable, $33,000 in temporary investments and $134,000 in merchandise inventory. The company has $56,000 in current liabilities. The company's acid test (quick) ratio is: (Round your answer two decimal places, X.XX%.)
A) 1.36.
B) 0.51.
C) 4.34.
D) 1.95.

Accepted Answer

The answer of A company has $54,000 in cash, $22,000...

Quiz 22: Analyzing Financial Statements

If management wishes to measure how effectively the assets were used in generating a profit, they could use the:

If management wishes to evaluate the ability of a business to use sales to cover the operating expenses, they could use the:

The inventory turnover ratio calculates:

If beginning and ending inventories are $12,000 and $29,000, respectively, and cost of goods sold is $480,000, what is the inventory turnover ratio? (Round your answer two decimal places.)

An acid test (quick) ratio of 0.75 to 1 would indicate:

Alliance Plus has total liabilities of $181,000, current liabilities $46,000, and stockholders' equity $310,000. What is the debt to total stockholders' equity ratio? (Round your answer to two decimal places, X.XX%.)

John's Market's total assets are $310,000, current assets $126,000, total liabilities $162,000, and current liabilities $51,000. What is the debt to total assets ratio? (Round your answer to the nearest percentage.)

Orange Designers has net income before taxes of $4,480,000, total assets of $3,500,000, and net sales of $5,530,000. What is the return on net sales? (Round your answer to two decimal places, X.XX%.)

If the average collection period is 35 days, this means:

The ratio that indicates how many days it takes to turn accounts receivable into cash is the:

May Cooperative has total assets of $456,000, current assets $133,000, total liabilities $263,000, and current liabilities 87,000. What is the debt to total assets ratio?

May Cooperative has total liabilities of $263,000, current liabilities 87,000, and stockholders' equity $347,000. What is the debt to total stockholders' equity ratio?

Profitability ratios:

With a beginning Accounts Receivable balance of $60,000, an ending balance of $66,000, and net credit sales of $520,000, compute accounts receivable turnover ratio. (Round your answer two decimal places.)

Elegant Operators has net sales in the amount of $622,000, a cash amount of $333,000, and accounts receivables of $50,000. What is the asset turnover ratio?

If management wishes to evaluate how effectively the assets of a business are being used, they could use the:

If management wishes to evaluate the amount of assets which were financed by creditors, they could use the:

Accounts Receivable Turnover is an example of what type of ratio?

If management wishes to know how long it takes to collect from a charge customer, they could use the:

A company has $54,000 in cash, $22,000 in accounts receivable, $33,000 in temporary investments and $134,000 in merchandise inventory. The company has $56,000 in current liabilities. The company's acid test (quick) ratio is: (Round your answer two decimal places, X.XX%.)