Question 1

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 the number of times a company's inventory is sold and replaced over a period of time. It is calculated by dividing the cost of goods sold by the average inventory. Therefore, choice A is the correct answer as it states that the inventory turnover ratio calculates how many times the inventory turns over in one period.

Question 2

Carla's Fashions has an average collection period of 30 days.You could infer that Carla's Fashions:
A)bills her customers monthly.
B)bills her customers quarterly.
C)has an accounts receivable turnover of approximately 12.
D)Both A and C can be inferred.

Accepted Answer

An average collection period of 30 days means that it takes Carla's Fashions about a month to collect payment from her customers. This implies that she bills her customers on a monthly basis (choice A). Additionally, the accounts receivable turnover is calculated by dividing the total credit sales by the average accounts receivable balance for a period. Since the average collection period is 30 days, this means that the accounts receivable turnover would be approximately 12 (12 months in a year divided by an average collection period of one month). Therefore, both choices A and C can be inferred.

Question 3

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 the profitability of a company's assets, indicating how effectively the assets are being utilized to generate profits. It is calculated as net income divided by total assets.

Question 4

If beginning and ending inventories are $20,000 and $30,000,respectively,and cost of goods sold is $400,000,what is the inventory turnover ratio?
A)18
B)16
C)15.5
D)15

Accepted Answer

The inventory turnover ratio is calculated as Cost of Goods Sold divided by the average inventory. The average inventory is ($20,000 + $30,000) / 2 = $25,000. Therefore, the inventory turnover ratio is $400,000 / $25,000 = 16.

Question 5

Which statement below best describes the quick (acid test)ratio?
A)The acid test ratio considers only the most liquid assets: cash,accounts receivable,and temporary investments.
B)The current ratio includes only the assets most easily converted into cash.
C)The acid test adds merchandise inventory and prepaid expenses in the computation of current assets.
D)None of these answers are correct.

Accepted Answer

The quick (acid test) ratio only considers the most liquid assets such as cash, accounts receivable, and temporary investments. It excludes inventory and other assets that may not be easily converted to cash.

Question 6

If beginning and ending inventories are $100,000 and 150,000,respectively,and the cost of goods sold is $450,000,what is the inventory turnover ratio?
A)4.50
B)3.00
C)3.60
D)0.28

Accepted Answer

Inventory turnover ratio = Cost of goods sold / Average inventory
Average inventory = (Beginning inventory + Ending inventory) / 2
Average inventory = ($100,000 + $150,000) / 2 = $125,000

Inventory turnover ratio = $450,000 / $125,000 = 3.60
Therefore, the answer is C.

Question 7

Chuck Company has a beginning Accounts Receivable balance of $65,000 and an ending balance of $60,000.Net credit sales are $250,000.The company's accounts receivable turnover ratio is:
A)3.846.
B)4.167.
C)4.000.
D)None of the above.

Accepted Answer

The accounts receivable turnover ratio is calculated as Net Credit Sales / Average Accounts Receivable. Average Accounts Receivable is (Beginning Accounts Receivable + Ending Accounts Receivable) / 2 = ($65,000 + $60,000) / 2 = $62,500. Therefore, the turnover ratio is $250,000 / $62,500 = 4.000.

Question 8

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 $1 of short-term debt there is $0.75 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

The acid test (quick) ratio of 0.75 to 1 indicates that for every $1 of short-term debt, there are only $0.75 of quick assets available to meet short-term obligations, which means the company would not be able to pay off all current liabilities with its quick assets. Both A and B correctly describe this situation.

Question 9

A company has $56,000 in cash,$12,000 in accounts receivable,$25,000 in temporary investments and $100,000 in merchandise inventory.The company has $60,000 in current liabilities.The company's acid test (quick)ratio is:
A)3.217.
B)1.550.
C)1.133.
D)0.933.

Accepted Answer

1.550.The acid test (quick) ratio is calculated by dividing the sum of cash, accounts receivable, and temporary investments by current liabilities. So, ($56,000 + $12,000 + $25,000) / $60,000 = $93,000 / $60,000 = 1.550.

Question 10

If management wishes to evaluate the ability of a business to provide funding 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 answer of If management wishes to evaluate the ability...

Question 11

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 the best choice for measuring how long it takes to collect from charge customers. This calculation gives the average number of days that it takes for a company to receive payment from its customers after making a sale.

Question 12

If management wishes to determine the average degree of delinquency of the charge customers,they could use the:
A)rate of return on total assets.
B)rate of return on common stockholders' equity.
C)accounts receivable turnover.
D)quick (acid test)ratio.

Accepted Answer

The accounts receivable turnover ratio is used to measure how quickly a company collects payments from its credit customers. A low accounts receivable turnover ratio may indicate a high degree of delinquency among the company's credit customers. Therefore, this ratio would be the best choice to determine the average degree of delinquency of the charge customers.

Question 13

With a beginning Accounts Receivable balance of $70,000,an ending balance of $140,000,and net credit sales of $800,000,compute accounts receivable turnover ratio (rounded to the nearest tenth):
A)7.6.
B)11.4.
C)5.7.
D)3.8.

Accepted Answer

The accounts receivable turnover ratio is calculated as net credit sales divided by the average accounts receivable. Average accounts receivable is ($70,000 + $140,000) / 2 = $105,000. The turnover ratio is $800,000 / $105,000 = 7.6.

Question 14

If management wishes to know the ability to pay off the upcoming debts of a business,they could use the:
A)debt to total assets.
B)current ratio
C)inventory turnover ratio.
D)times interest earned.

Accepted Answer

The current ratio is the best choice as it measures a company's ability to pay off short-term debts with its short-term assets. It is calculated by dividing current assets by current liabilities. A higher ratio indicates better ability to meet short-term obligations.

Question 15

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 ratio that indicates how many days it takes to turn accounts receivable into cash is called the average collection period or days sales outstanding ratio. The accounts receivable turnover ratio measures how quickly a company collects its outstanding accounts receivable in a general sense, while the quick assets turnover ratio measures how efficiently a company uses its quick assets to generate sales. The average turnover ratio is not a specific financial ratio term.

Question 16

Smith Company has the following account balances: $\begin{array} { | l | r | } 
\hline \text { Cash } & \$ 100,000 \
\hline \text { Accounts Receivable } & 30,000 \
\hline \text { Merchandise Inventory } & 250,000 \
\hline \text { Equipment } & 400,000 \
\hline \text { Accounts Payable } & 50,000 \
\hline \text { Bonds Payable } & 300,000 \
\hline
\end{array}$ Calculate Smith Company's current ratio.
A)8.0:1
B)7.6:1
C)2.2:
D)1.1:

Accepted Answer

We need to calculate the current ratio which is Current Assets / Current Liabilities. We do not have the account balances to calculate this ratio.

Question 17

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 measures the number of days it takes for a company to collect payment from its customers after a sale has been made. Therefore, option B is the correct answer. Option A represents the average payment period, while option C is not a relevant measure for average collection period. Option D is incorrect as there is a correct answer.

Question 18

With a beginning Accounts Receivable balance of $20,000,an ending balance of $26,000,and net credit sales of $408,000,compute accounts receivable turnover ratio.
A)0.05
B)20.4
C)17.7
D)68

Accepted Answer

Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
Average Accounts Receivable = (Beginning Accounts Receivable Balance + Ending Accounts Receivable Balance) / 2
Average Accounts Receivable = ($20,000 + $26,000) / 2 = $23,000
Accounts Receivable Turnover Ratio = $408,000 / $23,000 = 17.7. Therefore, the answer is option C.

Question 19

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 measures the proportion of a company's assets that have been financed by creditors. It is calculated by dividing total debt by total assets, and the resulting percentage indicates the extent to which assets are leveraged. This ratio is commonly used by management to assess the company's financial leverage and ability to meet its debt obligations.

Question 20

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

Accepted Answer

Asset turnover is a ratio that compares a company's revenue to its assets. It indicates how effectively a company is using its assets to generate revenue. A high asset turnover ratio suggests that a company is effectively using its assets to generate revenue, while a low asset turnover ratio implies that a company may not be using its assets efficiently. Therefore, asset turnover is the best choice for evaluating the effectiveness of a business's asset utilization.

Quiz 22: Analyzing Financial Statements

The inventory turnover ratio calculates:

Carla's Fashions has an average collection period of 30 days.You could infer that Carla's Fashions:

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

If beginning and ending inventories are $20,000 and $30,000,respectively,and cost of goods sold is $400,000,what is the inventory turnover ratio?

Which statement below best describes the quick (acid test) ratio?

If beginning and ending inventories are $100,000 and 150,000,respectively,and the cost of goods sold is $450,000,what is the inventory turnover ratio?

Chuck Company has a beginning Accounts Receivable balance of $65,000 and an ending balance of $60,000.Net credit sales are $250,000.The company's accounts receivable turnover ratio is:

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

A company has $56,000 in cash,$12,000 in accounts receivable,$25,000 in temporary investments and $100,000 in merchandise inventory.The company has $60,000 in current liabilities.The company's acid test (quick) ratio is:

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

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

If management wishes to determine the average degree of delinquency of the charge customers,they could use the:

With a beginning Accounts Receivable balance of $70,000,an ending balance of $140,000,and net credit sales of $800,000,compute accounts receivable turnover ratio (rounded to the nearest tenth) :

If management wishes to know the ability to pay off the upcoming debts of a business,they could use the:

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

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

With a beginning Accounts Receivable balance of $20,000,an ending balance of $26,000,and net credit sales of $408,000,compute accounts receivable turnover ratio.

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

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