Question 1

Karl Company has total assets of $170,000 and total liabilities of $110,000.The company's debt-to-equity ratio is closest to:
A) 0.35 to 1.
B) 0.39 to 1.
C) 0.65 to 1.
D) 1.83 to 1.

Accepted Answer

The debt-to-equity ratio is calculated as total liabilities divided by total equity. Total equity is total assets minus total liabilities, which is $170,000 - $110,000 = $60,000. The debt-to-equity ratio is $110,000 / $60,000 = 1.83 to 1.

Question 2

Jimbob Co.is considering ways to finance a planned business expansion after which the company will have $150,000 in earnings before interest and income taxes.The income tax rate is 30%.One alternative being considered is to issue new common shares.If this alternative is chosen the company's common shareholders' equity is expected to average $1,000,000.What will be the return on common shareholders' equity if this alternative is taken?
A) 0%.
B) 10.5%.
C) 15%.
D) 30%.

Accepted Answer

To calculate the return on common shareholders' equity, we need to use the following formula:

Return on Common Shareholders' Equity = Earnings Available to Common Shareholders / Average Common Shareholders' Equity

First, we need to calculate the earnings available to common shareholders by subtracting the income tax from earnings before interest and income taxes:

Earnings Available to Common Shareholders = Earnings Before Interest and Income Taxes x (1 - Tax Rate)
Earnings Available to Common Shareholders = $150,000 x (1 - 0.3)
Earnings Available to Common Shareholders = $105,000

Next, we need to use the given information that if new common shares are issued, the average common shareholders' equity will be $1,000,000.

Now we can calculate the return on common shareholders' equity:

Return on Common Shareholders' Equity = $105,000 / $1,000,000
Return on Common Shareholders' Equity = 0.105 or 10.5%

Therefore, the best choice is B, with an explanation that the return on common shareholders' equity will be 10.5% if the company decides to issue new common shares to finance its planned business expansion.

Question 3

Krakov Company has total assets of $170,000 and total liabilities of $80,000.The company's debt-to-equity ratio is closest to:
A) 0.32 to 1.
B) 0.47 to 1.
C) 0.53 to 1.
D) 0.89 to 1.

Accepted Answer

The debt-to-equity ratio is calculated as total liabilities divided by total equity. Total equity is total assets minus total liabilities, which is $170,000 - $80,000 = $90,000. The ratio is $80,000 / $90,000 = 0.89 to 1.

Question 4

Mariah Company has a times interest earned ratio of 3.0 for the year just ended.The company's tax rate is 40% and the interest expense for the year was $25,000.Mariah Company's after-tax net income was:
A) $25,000.
B) $30,000.
C) $50,000.
D) $75,000.

Accepted Answer

The times interest earned ratio is calculated by dividing the earnings before interest and taxes (EBIT) by the interest expense. In this case, we know that the times interest earned ratio is 3.0 and the interest expense is $25,000.

3.0 = EBIT / $25,000

Multiplying both sides by $25,000 gives:

EBIT = 3.0 x $25,000 = $75,000

We also know that the tax rate is 40%, so the after-tax net income can be calculated as:

After-tax net income = EBIT x (1 - tax rate) 
= $75,000 x (1 - 0.40) 
= $45,000

Therefore, the correct answer is B) $30,000, which is the after-tax net income when the interest expense is taken out.

Question 5

Last year Jackson Company had a net income of $160,000,income tax expense of $66,000,and interest expense of $20,000.The company's times interest earned was closest to:
A) 3.70 times.
B) 8.00 times.
C) 9.00 times.
D) 12.30 times.

Accepted Answer

The answer of Last year Jackson Company had a net...

Question 6

Which of the following is not a source of financial leverage?
A) Bonds payable.
B) Accounts payable.
C) Preferred shares.
D) Retained earnings.

Accepted Answer

Retained earnings are a source of internal financing and not financial leverage. Financial leverage refers to the use of debt or other fixed cost sources of financing to increase the potential return on investment. Bonds payable, accounts payable, and preferred shares are all examples of financial leverage.

Question 7

Last year Javer Company had a net income of $200,000,income tax expense of $74,000,and interest expense of $20,000.The company's times interest earned was closest to:
A) 5.30 times.
B) 10.00 times.
C) 11.00 times.
D) 14.70 times.

Accepted Answer

The answer of Last year Javer Company had a net...

Question 8

Irally Company,a retailer,had cost of goods sold of $150,000 last year.The beginning inventory balance was $26,000 and the ending inventory balance was $24,000.The company's average sale period (turnover in days)was closest to:
A) 58.40 days.
B) 60.83 days.
C) 63.27 days.
D) 121.67 days.

Accepted Answer

First, we need to find out the cost of goods available for sale:

Beginning inventory + Cost of goods sold - Ending inventory = 
$26,000 + $150,000 - $24,000 = $152,000

Then, we can use the formula for average sale period (also known as inventory turnover in days):

Average sale period = 365 days / Inventory turnover ratio

Inventory turnover ratio = Cost of goods sold / Average inventory

To find the average inventory, we can use the following formula:

Average inventory = (Beginning inventory + Ending inventory) / 2

Average inventory = ($26,000 + $24,000) / 2 = $25,000

Now we can calculate the inventory turnover ratio:

Inventory turnover ratio = $150,000 / $25,000 = 6

Finally, we can calculate the average sale period:

Average sale period = 365 days / 6 = 60.83 days

Therefore, the closest option is B.

Question 9

Stephanie Co.has total assets of $170,000 of which $110,000 are not current assets.Working capital is $50,000 and long term-liabilities total $30,000.The company's debt-to-equity ratio is closest to:
A) 0.18 to 1.
B) 0.31 to 1.
C) 0.53 to 1.
D) 0.89 to 1.

Accepted Answer

The answer of Stephanie Co.has total assets of $170,000 of...

Question 10

The times interest earned ratio of McHugh Company is 4.5 times.The interest expense for the year was $20,000,and the company's tax rate is 40%.The company's net income is:
A) $22,000.
B) $42,000.
C) $54,000.
D) $66,000.

Accepted Answer

The times interest earned ratio is calculated by dividing earnings before interest and taxes (EBIT) by the interest expense. Therefore, if the times interest earned ratio is 4.5 times, we can find the EBIT by multiplying the interest expense by the times interest earned ratio:

EBIT = times interest earned ratio x interest expense
EBIT = 4.5 x $20,000
EBIT = $90,000

Now, we can use the EBIT to calculate net income:

Net income = EBIT - taxes
Net income = $90,000 - 0.4($90,000)
Net income = $54,000

Therefore, the correct answer is B) $42,000.

Question 11

Harker Company,a retailer,had cost of goods sold of $160,000 last year.The beginning inventory balance was $26,000 and the ending inventory balance was $20,000.The company's inventory turnover was closest to:
A) 3.48 times.
B) 6.15 times.
C) 6.96 times.
D) 8.00 times.

Accepted Answer

Inventory turnover is calculated by dividing the cost of goods sold by the average inventory. To find the average inventory, we add the beginning and ending inventory balances and divide by 2:

Average inventory = (Beginning inventory + Ending inventory) / 2 = ($26,000 + $20,000) / 2 = $23,000

Inventory turnover = Cost of goods sold / Average inventory = $160,000 / $23,000 ≈ 6.96

Therefore, the closest inventory turnover is option C) 6.96 times.

Question 12

Last year Jabber Company had a net income of $180,000,income tax expense of $62,000,and interest expense of $20,000.The company's times interest earned was closest to:
A) 4.90 times.
B) 9.00 times.
C) 10.00 times.
D) 13.10 times.

Accepted Answer

The times interest earned (TIE) ratio is calculated as (Net Income + Income Tax Expense + Interest Expense) / Interest Expense. For Jabber Company, this is ($180,000 + $62,000 + $20,000) / $20,000 = $262,000 / $20,000 = 13.10 times.

Question 13

Harton Company,a retailer,had cost of goods sold of $250,000 last year.The beginning inventory balance was $20,000 and the ending inventory balance was $22,000.The company's inventory turnover was closest to:
A) 5.95 times.
B) 11.36 times.
C) 11.90 times.
D) 12.50 times.

Accepted Answer

Inventory turnover is calculated as Cost of Goods Sold / Average Inventory.

First, we need to find the average inventory balance:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2 
Average Inventory = ($20,000 + $22,000) / 2 
Average Inventory = $21,000

Now we can calculate the inventory turnover:

Inventory Turnover = Cost of Goods Sold / Average Inventory 
Inventory Turnover = $250,000 / $21,000 
Inventory Turnover = 11.90 times

Therefore, the closest inventory turnover is 11.90 times, which is answer choice C.

Question 14

Irappa Company,a retailer,had cost of goods sold of $170,000 last year.The beginning inventory balance was $28,000 and the ending inventory balance was $26,000.The company's average sale period (turnover in days)was closest to:
A) 55.82 days.
B) 57.97 days.
C) 60.12 days.
D) 115.94 days.

Accepted Answer

To calculate the average sale period (turnover in days), we can use the following formula:

Average sale period = (Inventory / Cost of goods sold) x 365

First, we need to find the average inventory balance for the year, which is the average of the beginning and ending inventory balances:

Average inventory = (Beginning inventory + Ending inventory) / 2
= ($28,000 + $26,000) / 2
= $27,000

Now we can plug in the values we have into the formula:

Average sale period = ($27,000 / $170,000) x 365
= 58.01 days (rounded to two decimal places)

So the closest answer is B) 57.97 days.

Question 15

PFM Company has sales of $210,000,interest expense of $8,000,a tax rate of 30%,and a net profit after tax of $35,000.PFM Company's times interest earned ratio is:
A) 4.375 times.
B) 5.375 times.
C) 7.25 times.
D) 15.5 times.

Accepted Answer

Times interest earned ratio is calculated as EBIT (earnings before interest and taxes) divided by interest expense.

EBIT = Sales - Cost of goods sold - Operating expenses
     = $210,000 - COGS - Operating expenses (not given)

Net profit after tax is given as $35,000, which is after paying taxes and interest expense. So, we can assume that the $8,000 interest expense is already deducted from EBIT.

EBIT = Net profit after tax + Interest expense / (1- Tax rate)
     = $35,000 + $8,000 / (1- 0.30)
     = $57,143

Now, we can calculate times interest earned ratio as follows:

Times interest earned ratio = EBIT / Interest expense
                                  = $57,143 / $8,000
                                  = 7.143 times
                                  
The closest answer choice is C) 7.25 times, which is the best answer.

Question 16

Last year Dunn Company purchased $1,920,000 of inventory.The cost of goods sold was $1,800,000 and the ending inventory was $360,000.What was the inventory turnover?
A) 5.0 times.
B) 5.3 times.
C) 6.0 times.
D) 6.4 times.

Accepted Answer

The answer of Last year Dunn Company purchased $1,920,000 of...

Question 17

Karma Company has total assets of $190,000 and total liabilities of $90,000.The company's debt-to-equity ratio is closest to:
A) 0.32 to 1.
B) .047 to 1.
C) 0.53 to 1.
D) 0.90 to 1.

Accepted Answer

The debt-to-equity ratio is calculated as total liabilities divided by total equity. Total equity is total assets minus total liabilities, which is $190,000 - $90,000 = $100,000. Therefore, the debt-to-equity ratio is $90,000 / $100,000 = 0.90 to 1.

Question 18

Jimbob Co.is considering ways to finance a planned business expansion after which the company will have $150,000 in earnings before interest and income taxes.The income tax rate is 30%.One alternative being considered is to issue $500,000 in new preferred shares which will carry an annual dividend rate of 8%.The company's common shareholders' equity is expected to average $500,000.What will be the return on common shareholders' equity if this alternative is taken?
A) 0%.
B) 13%.
C) 15%.
D) 21%.

Accepted Answer

The answer of Jimbob Co.is considering ways to finance a...

Question 19

During the year just ended,James Company purchased $425,000 of inventory.The inventory balance at the beginning of the year was $175,000.If the cost of goods sold for the year was $450,000,then the inventory turnover for the year was:
A) 2.57 times.
B) 2.62 times.
C) 2.77 times.
D) 3.00 times.

Accepted Answer

Inventory turnover is calculated as cost of goods sold divided by average inventory. To find the average inventory, we add the beginning inventory to the ending inventory and divide by two. In this case, we are not given the ending inventory, but we can use the inventory purchases to estimate it.

Ending inventory = Beginning inventory + Inventory purchases - Cost of goods sold
Ending inventory = $175,000 + $425,000 - $450,000
Ending inventory = $150,000

Average inventory = ($175,000 + $150,000) / 2
Average inventory = $162,500

Inventory turnover = Cost of goods sold / Average inventory
Inventory turnover = $450,000 / $162,500
Inventory turnover = 2.77 times

Therefore, the best choice is (C) 2.77 times.

Question 20

Irawaddy Company,a retailer,had cost of goods sold of $230,000 last year.The beginning inventory balance was $24,000 and the ending inventory balance was $22,000.The company's average sale period (turnover in days)was closest to:
A) 34.91 days.
B) 36.50 days.
C) 38.09 days.
D) 73.00 days.

Accepted Answer

The answer of Irawaddy Company,a retailer,had cost of goods sold...

Quiz 13: How Well Am I Doing Statement of Cash Flows

Karl Company has total assets of $170,000 and total liabilities of $110,000.The company's debt-to-equity ratio is closest to:

Krakov Company has total assets of $170,000 and total liabilities of $80,000.The company's debt-to-equity ratio is closest to:

Mariah Company has a times interest earned ratio of 3.0 for the year just ended.The company's tax rate is 40% and the interest expense for the year was $25,000.Mariah Company's after-tax net income was:

Last year Jackson Company had a net income of $160,000,income tax expense of $66,000,and interest expense of $20,000.The company's times interest earned was closest to:

Which of the following is not a source of financial leverage?

Last year Javer Company had a net income of $200,000,income tax expense of $74,000,and interest expense of $20,000.The company's times interest earned was closest to:

Irally Company,a retailer,had cost of goods sold of $150,000 last year.The beginning inventory balance was $26,000 and the ending inventory balance was $24,000.The company's average sale period (turnover in days) was closest to:

Stephanie Co.has total assets of $170,000 of which $110,000 are not current assets.Working capital is $50,000 and long term-liabilities total $30,000.The company's debt-to-equity ratio is closest to:

The times interest earned ratio of McHugh Company is 4.5 times.The interest expense for the year was $20,000,and the company's tax rate is 40%.The company's net income is:

Harker Company,a retailer,had cost of goods sold of $160,000 last year.The beginning inventory balance was $26,000 and the ending inventory balance was $20,000.The company's inventory turnover was closest to:

Last year Jabber Company had a net income of $180,000,income tax expense of $62,000,and interest expense of $20,000.The company's times interest earned was closest to:

Harton Company,a retailer,had cost of goods sold of $250,000 last year.The beginning inventory balance was $20,000 and the ending inventory balance was $22,000.The company's inventory turnover was closest to:

Irappa Company,a retailer,had cost of goods sold of $170,000 last year.The beginning inventory balance was $28,000 and the ending inventory balance was $26,000.The company's average sale period (turnover in days) was closest to:

PFM Company has sales of $210,000,interest expense of $8,000,a tax rate of 30%,and a net profit after tax of $35,000.PFM Company's times interest earned ratio is:

Last year Dunn Company purchased $1,920,000 of inventory.The cost of goods sold was $1,800,000 and the ending inventory was $360,000.What was the inventory turnover?

Karma Company has total assets of $190,000 and total liabilities of $90,000.The company's debt-to-equity ratio is closest to:

During the year just ended,James Company purchased $425,000 of inventory.The inventory balance at the beginning of the year was $175,000.If the cost of goods sold for the year was $450,000,then the inventory turnover for the year was:

Irawaddy Company,a retailer,had cost of goods sold of $230,000 last year.The beginning inventory balance was $24,000 and the ending inventory balance was $22,000.The company's average sale period (turnover in days) was closest to: