Question 1

A successful grocery store would probably have
A) a low inventory turnover.
B) a high inventory turnover.
C) zero profit margin.
D) low volume.

Accepted Answer

A high inventory turnover is desirable for a successful grocery store as it indicates that products are selling quickly and there is little waste. It also allows for a more efficient use of space and resources. A low inventory turnover can lead to expired products, storage and maintenance costs, and lower profits.

Question 2

The inventory turnover is calculated by dividing
A) cost of goods sold by the ending inventory.
B) cost of goods sold by the beginning inventory.
C) cost of goods sold by the average inventory.
D) average inventory by cost of goods sold.

Accepted Answer

The inventory turnover is calculated by dividing the cost of goods sold by the average inventory. This ratio measures how efficiently a company is managing its inventory, and a higher ratio indicates that a company is selling its products more frequently and effectively. Using the average inventory instead of the ending or beginning inventory acknowledges the fact that inventory levels can fluctuate throughout the year.

Question 3

An aircraft company would most likely have
A) a high inventory turnover.
B) a low profit margin.
C) high volume.
D) a low inventory turnover.

Accepted Answer

An aircraft company would have a low inventory turnover because the production process for aircrafts often takes a long time and requires significant investments in materials and labor. Additionally, the demand for aircrafts may not be as consistently high as other industries, leading to slower sales and turnover of inventory.

Question 4

Which of the following is an example of liquidity analysis?
A) Bonds payable are divided by total liabilities and stockholders' equity.
B) Current assets are divided by current liabilities.
C) Net income is divided by the number of shares of stock outstanding.
D) Net income is divided by total assets.

Accepted Answer

Liquidity analysis involves assessing a company's ability to meet short-term obligations. One commonly used liquidity ratio is the current ratio, which is calculated by dividing current assets by current liabilities. Therefore, choice B is an example of liquidity analysis. Choice A is a measure of leverage, choice C is a measure of earnings per share, and choice D is a measure of return on assets.

Question 5

Which of the following formulas would be used to determine the inventory turnover ratio?
A) Net credit sales/Average inventory
B) Average inventory/Net credit sales
C) Cost of goods sold/Average inventory
D) Average inventory/Cost of goods sold

Accepted Answer

The formula for inventory turnover ratio is cost of goods sold divided by average inventory. This ratio helps you understand how quickly you're turning over inventory, or how many times you're selling through your entire inventory in a given time period.

Question 6

Dartmouth Company has a quick ratio of 2.5 to 1. It has current liabilities of $40,000 and noncurrent assets of $70,000. If Dartmouth's current ratio is 3.1 to 1, its inventory and prepaid expenses must be
A) $12,400.
B) $24,000.
C) $30,000.
D) $40,000.

Accepted Answer

We can use the formulas for quick ratio and current ratio to solve for the unknown variable, which is the value of inventory and prepaid expenses: Quick ratio = (Current assets - Inventory - Prepaid expenses) / Current liabilities 2.5 = (70,000 - Inventory - Prepaid expenses) / 40,000 100,000 - 2.5(40,000) = Inventory + Prepaid expenses Inventory + Prepaid expenses = 100,000 - 100,000/2.5 Inventory + Prepaid expenses = 60,000 Current ratio = Current assets / Current liabilities 3.1 = (Inventory + Prepaid expenses + Current liabilities) / Current liabilities 3.1 = (60,000 + 40,000) / 40,000 3.1 = 2 + Inventory/40,000 + Prepaid expenses/40,000 1.1 = Inventory/40,000 + Prepaid expenses/40,000 Inventory + Prepaid expenses = 44,000 Solving these two equations simultaneously, we get: Inventory + Prepaid expenses = 60,000 Inventory + Prepaid expenses = 44,000 Subtracting the second equation from the first, we get: 16,000 = Inventory + Prepaid expenses Since we are asked to find the value of just Inventory and Prepaid expenses, we can divide this by 2 to get: Inventory + Prepaid expenses = 8,000 x 2 = $<<16000/2=8000>>8,000 Therefore, the answer is B, $24,000.

Question 7

Arnold Company had $650,000 in sales on account last year. The beginning accounts receivable balance was $24,000 and the ending accounts receivable balance was $36,000. The company's accounts receivable turnover ratio was closest to
A) 21.67.
B) 10.83.
C) 27.08.
D) 18.06.

Accepted Answer

The accounts receivable turnover ratio is calculated by dividing net credit sales by the average accounts receivable. Net credit sales are equal to sales on account, which is $650,000. The average accounts receivable is calculated by adding the beginning and ending accounts receivable balances and dividing by 2, which is ($24,000 + $36,000) / 2 = $30,000. Therefore, the accounts receivable turnover ratio is $650,000 / $30,000 = 21.67.

Question 8

Miller Company had $120,000 in sales on account last year. The beginning accounts receivable balance was $8,000 and the ending accounts receivable balance was $14,000. The company's accounts receivable turnover ratio was closest to
A) 5.45.
B) 8.57.
C) 10.91.
D) 15.00.

Accepted Answer

Accounts receivable turnover ratio can be calculated using the formula:

Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable

Where,
Net Credit Sales = Total Sales - Cash Sales
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Given,
Total Sales = $120,000
Beginning Accounts Receivable = $8,000
Ending Accounts Receivable = $14,000

Therefore,
Net Credit Sales = $120,000 - $0 = $120,000
Average Accounts Receivable = ($8,000 + $14,000) / 2 = $11,000

Accounts Receivable Turnover Ratio = $120,000 / $11,000 = 10.91

Hence, the closest answer is C) 10.91.

Question 9

Toller Drug Store had net credit sales of $6,000,000 and cost of goods sold of $2,000,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $350,000 and $250,000, respectively. The accounts receivable turnover ratio was
A) 17.1 times.
B) 10.0 times.
C) 13.3 times.
D) 20.0 times.

Accepted Answer

The answer of Toller Drug Store had net credit sales...

Question 10

Phillips Company had $300,000 in sales on account last year. The beginning accounts receivable balance was $25,000 and the ending accounts receivable balance was $18,000. The company's accounts receivable turnover ratio was closest to
A) 16.67.
B) 12.00.
C) 3.85.
D) 13.95.

Accepted Answer

Accounts receivable turnover ratio = net credit sales / average accounts receivable

Net credit sales = total sales - cash sales = $300,000 - 0 = $300,000

Average accounts receivable = (beginning accounts receivable + ending accounts receivable) / 2
= ($25,000 + $18,000) / 2
= $21,500

Therefore, accounts receivable turnover ratio = $300,000 / $21,500
= 13.95, rounded to the nearest hundredth

Thus, the closest answer choice is D) 13.95.

Question 11

The quick ratio
A) does not include inventory as part of the numerator.
B) does not include all current liabilities in the calculation.
C) is a quick calculation of an approximation of the current ratio.
D) includes prepaid expenses as part of the numerator.

Accepted Answer

The quick ratio, also known as the acid test ratio, is a financial metric that measures a company's ability to pay off its current liabilities quickly. It is calculated by dividing a company's current assets by its current liabilities, excluding inventory from the assets. This is because inventory may not be easily converted into cash and therefore may not be readily available to pay off the company's debts in the short term.

Question 12

A company has an account receivable turnover ratio of 6. The average accounts receivable during the period are $350,000. What is the amount of net sales for the period?
A) $350,000
B) $2,100,000
C) $58,333
D) Cannot be determined from the information given.

Accepted Answer

The account receivable turnover ratio is calculated as net sales divided by average accounts receivable. We are given the turnover ratio as 6 and the average accounts receivable as $350,000. Rearranging the formula, we get:

Net sales = Account receivable turnover ratio x Average accounts receivable

Net sales = 6 x $350,000

Net sales = $2,100,000

Therefore, the amount of net sales during the period was $2,100,000. The answer is option B.

Question 13

Which of the following is considered a liquidity analysis ratio?
A) return on total assets ratio
B) quick ratio
C) dividend yield ratio
D) return on sales ratio

Accepted Answer

The quick ratio is a liquidity analysis ratio that measures a company's ability to meet its short-term obligations with its most liquid assets. The return on total assets ratio, return on sales ratio, and dividend yield ratio are considered profitability ratios, not liquidity analysis ratios.

Question 14

Siri Company has $20,000 in cash, $8,000 in marketable securities, $36,000 in current receivables, $18,000 in inventories, and $68,000 in current liabilities. The company's quick ratio is closest to
A) .94.
B) .41.
C) 1.88.
D) 1.21.

Accepted Answer

The quick ratio is calculated as (Cash + Marketable Securities + Current Receivables) / Current Liabilities. For Siri Company, this is ($20,000 + $8,000 + $36,000) / $68,000 = $64,000 / $68,000 = .94.

Question 15

If the accounts receivable turnover is 42 days, what is the account receivable turnover ratio (assuming a 365 day year)?
A) 7.14 times
B) 8.69 times
C) 4.52 times
D) None of these

Accepted Answer

Accounts Receivable Turnover Ratio = 365 / Accounts Receivable Turnover

Accounts Receivable Turnover = 42 days

Accounts Receivable Turnover Ratio = 365 / 42 days = 8.69 times

Therefore, the answer is B) 8.69 times.

Question 16

Kringle Company, a retailer, had cost of goods sold of $1,400,000 last year. The beginning inventory balance was $125,000 and the ending inventory balance was $142,000. The company's inventory turnover ratio was closest to
A) 10.49.
B) 5.24.
C) 11.20.
D) 9.86.

Accepted Answer

The inventory turnover ratio is calculated as Cost of Goods Sold / Average Inventory. Average Inventory = (Beginning Inventory + Ending Inventory) / 2 = ($125,000 + $142,000) / 2 = $133,500. Inventory Turnover Ratio = $1,400,000 / $133,500 ≈ 10.49.

Question 17

The Grand Department Store had net credit sales of $12,000,000 and cost of goods sold of $8,000,000 for the year. The average inventory for the year amounted to $1,600,000. The inventory turnover ratio for the year is
A) 4.0 times.
B) 7.2 times.
C) 5.0 times.
D) 2.5 times.

Accepted Answer

Inventory turnover ratio = Cost of goods sold / Average inventory
Inventory turnover ratio = $8,000,000 / $1,600,000
Inventory turnover ratio = 5 times. 
Therefore, the answer is Choice C.

Question 18

The Gift Shoppe's inventory turned over five times during the year. Similar gift shops have an inventory turnover equal to ten times per year. What explains the Gift Shoppe's inventory management?
A) The Gift Shoppe sold too much inventory during the year.
B) The Gift Shoppe needs to increase sales and decrease the amount of goods on hand.
C) The Gift Shoppe is performing twice as well as it competitors.
D) The Gift Shoppe should increase the amount of goods on hand to accommodate the additional inventory demand.

Accepted Answer

The lower inventory turnover rate indicates that the Gift Shoppe has a higher amount of goods on hand, which may lead to higher storage costs and reduced cash flow. Increasing sales and decreasing the amount of goods on hand would help the Gift Shoppe improve its inventory turnover rate and make more efficient use of its resources.

Question 19

Eagle Company has $9,000 in cash, $11,000 in marketable securities, $26,000 in current receivables, $34,000 in inventories, and $40,000 in current liabilities. The company's quick ratio is closest to
A) 1.35.
B) 1.15.
C) 2.00.
D) 1.73.

Accepted Answer

The quick ratio is calculated as (Cash + Marketable Securities + Current Receivables) / Current Liabilities = ($9,000 + $11,000 + $26,000) / $40,000 = $46,000 / $40,000 = 1.15.

Question 20

The quick ratio differs from the current ratio in that it
A) represents the amount of cash on hand instead of the amount of working capital.
B) is a stricter test of a company's ability to pay its current debts as they are due.
C) excludes inventories and accounts receivable from the numerator of the fraction because of obsolescence and possible default on payment.
D) is more difficult to calculate.

Accepted Answer

The quick ratio is a stricter test of a company's ability to pay its current debts as they are due as it excludes inventories and accounts receivable from the numerator of the fraction. This is because these assets may not be easily convertible to cash in a timely manner, unlike cash and marketable securities, which are included in the numerator. The current ratio, on the other hand, includes all current assets in the numerator, regardless of their liquidity.

Quiz 16: Financial Statement Analysis

A successful grocery store would probably have

The inventory turnover is calculated by dividing

An aircraft company would most likely have

Which of the following is an example of liquidity analysis?

Which of the following formulas would be used to determine the inventory turnover ratio?

Dartmouth Company has a quick ratio of 2.5 to 1. It has current liabilities of $40,000 and noncurrent assets of $70,000. If Dartmouth's current ratio is 3.1 to 1, its inventory and prepaid expenses must be

Arnold Company had $650,000 in sales on account last year. The beginning accounts receivable balance was $24,000 and the ending accounts receivable balance was $36,000. The company's accounts receivable turnover ratio was closest to

Miller Company had $120,000 in sales on account last year. The beginning accounts receivable balance was $8,000 and the ending accounts receivable balance was $14,000. The company's accounts receivable turnover ratio was closest to

Toller Drug Store had net credit sales of $6,000,000 and cost of goods sold of $2,000,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $350,000 and $250,000, respectively. The accounts receivable turnover ratio was

Phillips Company had $300,000 in sales on account last year. The beginning accounts receivable balance was $25,000 and the ending accounts receivable balance was $18,000. The company's accounts receivable turnover ratio was closest to

The quick ratio

A company has an account receivable turnover ratio of 6. The average accounts receivable during the period are $350,000. What is the amount of net sales for the period?

Which of the following is considered a liquidity analysis ratio?

Siri Company has $20,000 in cash, $8,000 in marketable securities, $36,000 in current receivables, $18,000 in inventories, and $68,000 in current liabilities. The company's quick ratio is closest to

If the accounts receivable turnover is 42 days, what is the account receivable turnover ratio (assuming a 365 day year) ?

Kringle Company, a retailer, had cost of goods sold of $1,400,000 last year. The beginning inventory balance was $125,000 and the ending inventory balance was $142,000. The company's inventory turnover ratio was closest to

The Grand Department Store had net credit sales of $12,000,000 and cost of goods sold of $8,000,000 for the year. The average inventory for the year amounted to $1,600,000. The inventory turnover ratio for the year is

The Gift Shoppe's inventory turned over five times during the year. Similar gift shops have an inventory turnover equal to ten times per year. What explains the Gift Shoppe's inventory management?

Eagle Company has $9,000 in cash, $11,000 in marketable securities, $26,000 in current receivables, $34,000 in inventories, and $40,000 in current liabilities. The company's quick ratio is closest to

The quick ratio differs from the current ratio in that it