Question 1

Fullerton Co.has the following information from its accounting records: $\begin{array}{lr}
\text { Current assets } & \$ 80,000 \
\text { Total assets } & 200,000 \
\text { Current liabilities } & 40,000 \
\text { Total liabilities } & 120,000
\end{array}$ If Fullerton uses cash of $10,000 to pay a current liability,its:

Accepted Answer

The current ratio increases because the current assets decrease by $10,000 and the current liabilities decrease by $10,000, which results in a higher ratio (from 2.0 to 2.25). The debt-to-assets ratio decreases because the total liabilities decrease by $10,000 while total assets decrease by $10,000, resulting in a lower ratio (from 0.6 to 0.55).

Question 2

Which of these are liquidity ratios?

Accepted Answer

Liquidity ratios (such as receivables turnover)relate to the company's short-term survival,in particular,the company's ability to use current assets to repay liabilities as they become due.

Question 3

Which type of ratio indicates a company's ability to generate income in the current period?

Accepted Answer

Profitability ratios relate to the company's performance in the current period,in particular,the company's ability to generate income.Liquidity ratios relate to the company's short-term survival,in particular,the company's ability to use current assets to repay liabilities as they become due.Solvency ratios relate to the company's long-run survival,in particular,the company's ability to repay lenders when debt matures and to make the required interest payments prior to the date of maturity.

Question 4

A company has a debt-to-assets ratio of 0.45.If the company then borrows cash from the bank to finance a building acquisition,which of the following is a correct statement?

Accepted Answer

Debt-to-assets ratio = Total liabilities ÷ Total assets
Currently,the company's total liabilities are 45% of its total assets;as such,the numerator was less than the denominator when this ratio was calculated.Borrowing cash will increase the company's total liabilities and total assets by the same amount.The effect on the numerator will be greater since it is a smaller number,so the debt-to-assets ratio will increase.

Question 5

Which of the following ratios is calculated by dividing current assets by current liabilities?

Accepted Answer

Current ratio = Current assets ÷ Current liabilities

Question 6

Which of the following ratios does not use net income in its calculation?

Accepted Answer

Fixed asset turnover = Net revenue ÷ average net fixed assets

Question 7

Which of the following is a profitability ratio?

Accepted Answer

Profitability ratios (such as return on equity)relate to the company's performance in the current period,in particular,the company's ability to generate income.

Question 8

Southport Industries has current assets of $900,000 and a current ratio is 2.50.Assume that the company prepays rent for 9 months in the amount of $40,000.The current ratio after this transaction is closest to:

Accepted Answer

Current ratio = Current assets ÷ Current liabilities
This transaction increases one asset (Prepaid Rent)and decreases another asset (Cash).There would be no change in current assets or the current ratio.

Question 9

Wayne,Inc.has net sales revenue of $348,800,cost of goods sold of $274,400,and net income of $2,400.If interest expense is $8,000 and income tax expense is $800,the times interest earned ratio is:

Accepted Answer

Times interest earned = (Net income + Interest expense + Income tax)÷ Interest expense
= ($2,400 + $8,000 + $800)÷ $8,000 = 1.4

Question 10

Cost of goods sold divided by average inventory is the calculation for which of the following ratios?

Accepted Answer

Inventory turnover ratio = Cost of goods sold ÷ Average inventory

Question 11

The following information comes from the balance sheets and income statements of Crosby Co.: $$\begin{array} { l r r } 
& \text { As of or for the Year ended Decermber 31 } \
& \text { Curent Year } & { \text { Prior Year } } \
\text { Cash } & \$ 24,000 & \$ 20,000 \
\text { Accourts receivable } & 38,000 & 44,000 \
\text { Irventory } & 64,000 & 50,000 \
\text { Property ard equipment } & 224,000 & 218,000 \
\text { Current liabilities } & 88,000 & 80,000 \
\text { Long-term liabilities } & 106,000 & 100,000 \
\text { Stockholders equity } & 156,000 & 152,000 \
\text { Net sales reverules } & 680,000 & 630,000 \
\text { Cost of goods sold } & 440,000 & 420,000 \
\text { Operating expenses } & 160,000 & 150,000 \
\text { Interest expense } & 10,000 & 8,000 \
\text { Income tax expense } & 18,000 & 16,000
\end{array}$$ What is the times interest earned ratio for the current year?

Accepted Answer

The answer of The following information comes from the balance...

Question 12

Which of the following is calculated by dividing cost of goods sold by average inventory and then dividing this result into 365 days?

Accepted Answer

Inventory turnover ratio = Cost of goods sold ÷ Average Inventory
Days to sell = 365 ÷ Inventory turnover ratio

Question 13

Sheffield Company has $145,000 of inventory at the beginning of the year and $131,000 at the end of the year.Sales revenue is $1,972,800,cost of goods sold is $1,145,400,and net income is $248,400 for the year.The inventory turnover ratio is:

Accepted Answer

Inventory turnover ratio = Cost of goods sold ÷ Average Inventory
= $1,145,400 ÷ [(145,000 + $131,000)÷ 2] = 8.3

Question 14

The following information is taken from the financial statements of Burton Industries: $\begin{array}{lr}
\text { Total Assets } & \$ 360,000 \
\text { Total Liabilities } & 162,000 \
\text { Total Stockholder's' Equity } & 198,000 \
\text { Net Income } & 126,000 \
\text { Income Tax Expense } & 37,800 \
\text { Interest Expense } & 9,000
\end{array}$ The company's times interest earned ratio is:

Accepted Answer

Times interest earned ratio = Net income / Interest expense= 126,000 / 9,000= 14

Question 15

Sheffield Company has $145,000 of inventory at the beginning of the year and $131,000 at the end of the year.Sales revenue is $1,972,800,cost of goods sold is $1,145,400,and net income is $248,400 for the year.On average,the number of days to sell inventory is approximately:

Accepted Answer

Inventory turnover ratio = Cost of goods sold ÷ Average Inventory
= $1,145,400 ÷ [($145,000 + $131,000)÷ 2] = 8.3
Days to sell = 365 ÷ Inventory turnover ratio
= 365 ÷ 8.3 = 44.0

Question 16

If a company increases the selling price of the product it sells and all other data on the financial statements remains the same,which of the following ratios will be unaffected?

Accepted Answer

If sales revenue increases and all other data on the financial statements remains the same,there will be an increase in gross profit (sales revenues minus cost of goods sold),an increase in operating income,and an increase in net income.The fixed asset turnover ratio increases because its numerator is net sales revenue which has been increased.The net profit margin and earnings per share increase because both ratios have net income in their numerators.Inventory turnover is not affected by an increase in the selling price since neither cost of goods sold (numerator)nor the average inventory (denominator)is impacted by an increase in the selling price.

Question 17

Which of these is not one of the categories of ratio analysis?

Accepted Answer

The three types of ratios include liquidity,profitability,and solvency.

Question 18

During the current accounting period,revenue from credit sales is $536,800.The Accounts Receivable balance is $41,184 at the beginning of the period and $41,760 at the end of the period.Which of the following statements is correct?

Accepted Answer

Receivables turnover ratio = Net sales revenue ÷ Average net receivables
= $536,800 ÷ [($41,184 + $41,760)÷ 2] = 12.9
Days to collect = 365 ÷ 12.9 = 28.3

Question 19

Which of these ratios measure liquidity?

Accepted Answer

Liquidity ratios (such as receivables turnover)relate to the company's short-term survival,in particular,the company's ability to use current assets to repay liabilities as they become due.

Question 20

At the end of last year,Ace Company had total assets in the amount of $6,000,000 and total liabilities in the amount of $4,000,000.The company issued shares to new stockholders at the beginning of the current year for $1,000,000.As a direct result of this transaction,the:

Accepted Answer

Stock issuance causes an increase in total assets and an increase in stockholders' equity.The increase in total assets would cause a decrease in the debt-to-assets ratio (because the denominator increases),and no change in the net profit margin (because a stock issuance does not affect Sales or Net Income).

Quiz 13: Measuring and Evaluating Financial Performance

Which of these are liquidity ratios?

Which type of ratio indicates a company's ability to generate income in the current period?

A company has a debt-to-assets ratio of 0.45.If the company then borrows cash from the bank to finance a building acquisition,which of the following is a correct statement?

Which of the following ratios is calculated by dividing current assets by current liabilities?

Which of the following ratios does not use net income in its calculation?

Which of the following is a profitability ratio?

Southport Industries has current assets of $900,000 and a current ratio is 2.50.Assume that the company prepays rent for 9 months in the amount of $40,000.The current ratio after this transaction is closest to:

Wayne,Inc.has net sales revenue of $348,800,cost of goods sold of $274,400,and net income of $2,400.If interest expense is $8,000 and income tax expense is $800,the times interest earned ratio is:

Cost of goods sold divided by average inventory is the calculation for which of the following ratios?

Which of the following is calculated by dividing cost of goods sold by average inventory and then dividing this result into 365 days?

Sheffield Company has $145,000 of inventory at the beginning of the year and $131,000 at the end of the year.Sales revenue is $1,972,800,cost of goods sold is $1,145,400,and net income is $248,400 for the year.The inventory turnover ratio is:

Sheffield Company has $145,000 of inventory at the beginning of the year and $131,000 at the end of the year.Sales revenue is $1,972,800,cost of goods sold is $1,145,400,and net income is $248,400 for the year.On average,the number of days to sell inventory is approximately:

If a company increases the selling price of the product it sells and all other data on the financial statements remains the same,which of the following ratios will be unaffected?

Which of these is not one of the categories of ratio analysis?

During the current accounting period,revenue from credit sales is $536,800.The Accounts Receivable balance is $41,184 at the beginning of the period and $41,760 at the end of the period.Which of the following statements is correct?

Which of these ratios measure liquidity?

At the end of last year,Ace Company had total assets in the amount of $6,000,000 and total liabilities in the amount of $4,000,000.The company issued shares to new stockholders at the beginning of the current year for $1,000,000.As a direct result of this transaction,the: