Question 1

Accounts receivable turnover is calculated by dividing gross sales by the average gross amount of accounts receivable.

Accepted Answer

Accounts receivable turnover is calculated by dividing net credit sales by the average accounts receivable, not gross sales by the average gross amount of accounts receivable.

Question 2

If current assets were $90,000,merchandise inventory was $60,000,and current liabilities were $15,000,the acid test ratio is:
A)6:1.
B)4:1.
C)2:1.
D)1:2.

Accepted Answer

The acid test ratio, also known as the quick ratio, is calculated by subtracting the value of merchandise inventory from current assets and dividing the result by current liabilities.

Acid Test Ratio = (Current Assets - Inventory) / Current Liabilities
Acid Test Ratio = ($90,000 - $60,000) / $15,000
Acid Test Ratio = $30,000 / $15,000
Acid Test Ratio = 2:1

Therefore, the acid test ratio is 2:1, making option C the correct choice.

Question 3

Isaiah Company has net income before interest and taxes of $720,000; beginning total assets of $2,100,000; and ending total assets of $2,300,000.Isaiah's return on total assets is:
A)32.7%.
B)11.2%.
C)3.1%.
D)31.3%.

Accepted Answer

The answer of Isaiah Company has net income before interest...

Question 4

The reasons for changes in key rations must be analyzed before drawing conclusions.

Accepted Answer

Key ratios can be affected by a variety of factors such as changes in market conditions, industry trends, company strategy, and financial performance. It's important to understand the underlying reasons for changes in these ratios before making any assumptions or conclusions about a company's financial health.

Question 5

Rick's Cars had a beginning account receivables balance of $325,000.The ending account receivables balance was $300,000.Net credit sales for the company were $4,200,000.The accounts receivable turnover for Rick's Cars is:
A)12.92.
B)14.
C)13.44.
D)None of the above are correct.

Accepted Answer

Accounts receivable turnover = net credit sales / average accounts receivable balance.

To calculate the average accounts receivable balance, we can add the beginning and ending balances and divide by 2:

Avg. accounts receivable = (beginning accounts receivable + ending accounts receivable) / 2
Avg. accounts receivable = ($325,000 + $300,000) / 2
Avg. accounts receivable = $312,500

Now we can calculate the accounts receivable turnover:

Accounts receivable turnover = $4,200,000 / $312,500
Accounts receivable turnover = 13.44

Therefore, the answer is C) 13.44.

Question 6

Tom's Toys has a cash balance of $80,000; temporary investments of $20,000; net receivables of $60,000; and inventory of $450,000.Tom's current liabilities total $200,000.His quick (acid test)ratio is:
A)3.05 to 1.
B)2.25 to 1.
C)0.80 to 1.
D)0.54 to 1.

Accepted Answer

The quick ratio is calculated as (Cash + Temporary Investments + Net Receivables) / Current Liabilities. Here, it is ($80,000 + $20,000 + $60,000) / $200,000 = $160,000 / $200,000 = 0.80 to 1.

Question 7

The net sales for James,Inc.were $4,000,000; net income was $510,000; and gross profit was $1,300,000.The return on sales ratio would be:
A)12.75%.
B)32.50%.
C)45.25%.
D)39.23%.

Accepted Answer

Return on sales ratio = net income / net sales x 100%

= $510,000 / $4,000,000 x 100%

= 12.75%

Question 8

The net income for the year ended was $300,000.Equity for common stockholders' at the end of the year was $1,600,000 and $1,400,000 at the beginning of the year.The return on common stockholders' equity would be:
A)87.50%.
B)21.43%.
C)20.00%.
D)18.75%.

Accepted Answer

The return on common stockholders' equity is calculated as net income divided by the average equity. The average equity is ($1,600,000 + $1,400,000) / 2 = $1,500,000. Thus, the return is $300,000 / $1,500,000 = 20%. However, the correct choice is D (18.75%), which suggests a calculation error in the options provided.

Question 9

What is the rate of return on common stockholders' equity if net income is $22,700,sales are $100,000,and common stockholders' equity is $86,000?
A)22.7%
B)26.4%
C)86%
D)None of these answers are correct.

Accepted Answer

The formula for calculating the rate of return on common stockholders' equity is:

Net Income / Common Stockholders' Equity

= $22,700 / $86,000

= 0.2637 or 26.37%

Rounding to one decimal place gives us 26.4%. Therefore, the answer is choice B (26.4%).

Question 10

Topiary's Unlimited has a cost of goods sold of $1,900,000.The beginning merchandise inventory was $125,000 and its ending merchandise inventory is $133,000.Topiary's merchandise inventory turnover ratio is:
A)65.5 times.
B)33.8 times.
C)14.7 times.
D)0.1 times.

Accepted Answer

The merchandise inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory. Average inventory is calculated as (Beginning Inventory + Ending Inventory) / 2. So, for Topiary's Unlimited, the average inventory is ($125,000 + $133,000) / 2 = $129,000. The cost of goods sold is $1,900,000. Therefore, the inventory turnover ratio is $1,900,000 / $129,000 = 14.7 times.

Question 11

Merchandise inventory turnover measures the relationship between
A)cost of goods sold and merchandise inventory.
B)expenses and merchandise inventory.
C)merchandise inventory and current liabilities.
D)assets and current liabilities.

Accepted Answer

Merchandise inventory turnover is calculated by dividing cost of goods sold by average merchandise inventory. Therefore, it measures the relationship between cost of goods sold and merchandise inventory.

Question 12

What is Jane's rate of return on total assets if total assets are $100,000,net income is $2,000,interest expense is $1,600,and income tax is $2,000?
A)4.6%
B)5.2%
C)5.6%
D)2.3%

Accepted Answer

The answer of What is Jane's rate of return on...

Question 13

The liabilities of a company at the end of the year are $500,000 and the total stockholders' equity at the end of the year is $1,500,000.The debt to stockholders' equity ratio is:
A)0.50 to 1.
B)0.33 to 1.
C)0.67 to 1.
D)3.00 to 1.

Accepted Answer

Debt to stockholders' equity ratio can be calculated by dividing total liabilities by total stockholders' equity.

Debt to stockholders' equity ratio = Total liabilities / Total stockholders' equity
= $500,000 / $1,500,000
= 0.33 to 1

Therefore, the correct answer is B, 0.33 to 1.

Question 14

The income before taxes and interest expense of Barry Builders for the year just ended is $230,000.Their interest expense is $20,000 and their income taxes are $80,500.The number of times interest would be earned is:
A)22.0.
B)10.5.
C)11.5.
D)0.5.

Accepted Answer

First, we need to calculate the earnings before interest and taxes (EBIT):
EBIT = Income before taxes + Interest expense
EBIT = $230,000 + $20,000
EBIT = $250,000

Next, we can use the formula for times interest earned (TIE) to calculate how many times the company could cover its interest expense with its EBIT:

TIE = EBIT / Interest expense
TIE = $250,000 / $20,000
TIE = 12.5

Therefore, the company could cover its interest expense 12.5 times with its EBIT. However, we need to adjust for income taxes:

Adjusted TIE = (EBIT + Income taxes) / Interest expense
Adjusted TIE = ($250,000 + $80,500) / $20,000
Adjusted TIE = 16.025

Since we cannot have partial times, we round down to the nearest whole number to get:

Adjusted TIE = 16

Therefore, the company could cover its interest expense 16 times with its EBIT after adjusting for income taxes.

Question 15

Topiary's Unlimited has a cost of goods sold of $1,600,000.The beginning merchandise inventory was $195,000 and its ending merchandise inventory is $205,000.Topiary's merchandise inventory turnover ratio is:
A)8.21 times.
B)7.80 times.
C)8.00 times.
D)None of the above are correct.

Accepted Answer

Inventory turnover ratio = Cost of goods sold / Average merchandise inventory

To find the average merchandise inventory, we take the sum of beginning and ending inventory and divide by 2:
Average merchandise inventory = (Beginning inventory + Ending inventory) / 2
= ($195,000 + $205,000) / 2
= $200,000

Now we can calculate the inventory turnover ratio:
Inventory turnover ratio = $1,600,000 / $200,000
= 8 times

So the closest answer choice is C, which is 8.00 times.

Question 16

A company has cash of $215,000; short-term investments of $35,000; net receivables of $75,000; and inventory of $150,000.Current liabilities total $90,000.The current ratio is:
A)5.28:1.
B)4.44:1.
C)3.61:1.
D)4.89:1.

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. In this case, current assets are $215,000 + $35,000 + $75,000 + $150,000 = $475,000. Current liabilities are $90,000. Therefore, the current ratio is $475,000 / $90,000 = 5.28:1.

Question 17

What is George's gross profit rate if net sales are $100,000,operating expenses are $25,000,and cost of goods sold is $40,000?
A)40.00%
B)25.0%
C)35.0%
D)60.0%

Accepted Answer

The answer of What is George's gross profit rate if...

Question 18

Net income before taxes - preferred dividends divided by common stockholders' equity is the calculation for:
A)earnings per share.
B)rate of return on stockholders' equity.
C)rate of return on total assets.
D)return on sales.

Accepted Answer

The formula described is for calculating the rate of return on stockholders' equity, which measures the profitability of the company for common shareholders.

Question 19

To be meaningful,a small business should compare ratios with large companies.

Accepted Answer

Comparing ratios with large companies may not be appropriate for a small business as their operations and financial structures can be significantly different. It's important for a small business to compare ratios with similar-sized and industry-specific companies to obtain more relevant insights.

Question 20

The debt-to-equity ratio measures the extent of (or proportion of)borrowed capital to equity,with which a business operates.

Accepted Answer

This statement is true. The debt-to-equity ratio is calculated by dividing a company's total liabilities by its total shareholders' equity, which gives an indication of how much of the company's assets are financed through debt as opposed to shareholder investments.

Quiz 22: Analyzing Financial Statements

Accounts receivable turnover is calculated by dividing gross sales by the average gross amount of accounts receivable.

If current assets were $90,000,merchandise inventory was $60,000,and current liabilities were $15,000,the acid test ratio is:

Isaiah Company has net income before interest and taxes of $720,000; beginning total assets of $2,100,000; and ending total assets of $2,300,000.Isaiah's return on total assets is:

The reasons for changes in key rations must be analyzed before drawing conclusions.

Rick's Cars had a beginning account receivables balance of $325,000.The ending account receivables balance was $300,000.Net credit sales for the company were $4,200,000.The accounts receivable turnover for Rick's Cars is:

Tom's Toys has a cash balance of $80,000; temporary investments of $20,000; net receivables of $60,000; and inventory of $450,000.Tom's current liabilities total $200,000.His quick (acid test) ratio is:

The net sales for James,Inc.were $4,000,000; net income was $510,000; and gross profit was $1,300,000.The return on sales ratio would be:

The net income for the year ended was $300,000.Equity for common stockholders' at the end of the year was $1,600,000 and $1,400,000 at the beginning of the year.The return on common stockholders' equity would be:

What is the rate of return on common stockholders' equity if net income is $22,700,sales are $100,000,and common stockholders' equity is $86,000?

Topiary's Unlimited has a cost of goods sold of $1,900,000.The beginning merchandise inventory was $125,000 and its ending merchandise inventory is $133,000.Topiary's merchandise inventory turnover ratio is:

Merchandise inventory turnover measures the relationship between

What is Jane's rate of return on total assets if total assets are $100,000,net income is $2,000,interest expense is $1,600,and income tax is $2,000?

The liabilities of a company at the end of the year are $500,000 and the total stockholders' equity at the end of the year is $1,500,000.The debt to stockholders' equity ratio is:

The income before taxes and interest expense of Barry Builders for the year just ended is $230,000.Their interest expense is $20,000 and their income taxes are $80,500.The number of times interest would be earned is:

Topiary's Unlimited has a cost of goods sold of $1,600,000.The beginning merchandise inventory was $195,000 and its ending merchandise inventory is $205,000.Topiary's merchandise inventory turnover ratio is:

A company has cash of $215,000; short-term investments of $35,000; net receivables of $75,000; and inventory of $150,000.Current liabilities total $90,000.The current ratio is:

What is George's gross profit rate if net sales are $100,000,operating expenses are $25,000,and cost of goods sold is $40,000?

Net income before taxes - preferred dividends divided by common stockholders' equity is the calculation for:

To be meaningful,a small business should compare ratios with large companies.

The debt-to-equity ratio measures the extent of (or proportion of)borrowed capital to equity,with which a business operates.