Question 1

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:

Accepted Answer

= $24,000
 
2.5 × $40,000 = $100,000
3.1 × $40,000 = $124,000

Question 2

Mike's Sportswear Company, a retailer, had cost of goods sold of $420,000 last year.The beginning inventory balance was $31,000 and the ending inventory balance was $28,000.The company's average inventory turnover in days was closest to

Accepted Answer

Average inventory turnover in days = (Average inventory / Cost of goods sold) * 365 daysAverage inventory = (Beginning inventory + Ending inventory) / 2= ($31,000 + $28,000) / 2= $29,500Average inventory turnover in days = ($29,500 / $420,000) * 365 days= 25.63 days

Question 3

Lisa's Dress Company, a retailer, had cost of goods sold of $180,000 last year.The beginning inventory balance was $13,000 and the ending inventory balance was $18,000.The company's average inventory turnover in days was closest to

Accepted Answer

Inventory turnover in days = (Average inventory / Cost of goods sold) x 365
Average inventory = (Beginning inventory + Ending inventory) / 2
Average inventory = ($13,000 + $18,000) / 2
Average inventory = $15,500

Inventory turnover in days = ($15,500 / $180,000) x 365
Inventory turnover in days = 31.44 days

Therefore, option C is the closest to the calculated answer.

Question 4

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?

Accepted Answer

The fact that the Gift Shoppe's inventory turnover is only five times per year compared to similar gift shops that have turnover of ten times per year indicates that the Gift Shoppe has more goods on hand than it needs. Therefore, the Gift Shoppe should work to increase sales and decrease the amount of goods on hand in order to improve its inventory management.

Question 5

The accounts receivable turnover ratio is calculated by dividing:

Accepted Answer

The accounts receivable turnover ratio is calculated by dividing net sales by average accounts receivable. This ratio measures how many times a company's accounts receivable is turned over during a particular period of time, typically a year. It helps to evaluate the effectiveness of a company's credit and collection policies. A higher ratio indicates that a company is able to collect its receivables quickly, while a lower ratio suggests that the collection period is longer. Choices A, B, and D are incorrect because they do not involve the use of net sales or average accounts receivable in the calculation.

Question 6

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

Accepted Answer

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

Question 7

Which of the following is an example of liquidity analysis?

Accepted Answer

Liquidity analysis involves measuring a company's ability to meet short-term obligations. The calculation of current ratio (current assets divided by current liabilities) is an example of liquidity analysis as it measures a company's ability to pay off its short-term liabilities using its readily available current assets. The other options do not involve liquidity analysis.

Question 8

Emerald Company has $20,000 in cash, $10,000 in marketable securities, $40,000 in accounts receivables, $45,000 in inventories, and $50,000 in current liabilities.The company's quick ratio is closest to:

Accepted Answer

Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities 
= ($20,000 + $10,000 + $40,000) / $50,000
= 1.40

Question 9

Jackson Company, a retailer, had cost of goods sold of $140,000 last year.The beginning inventory balance was $8,000 and the ending inventory balance was $11,000.The company's inventory turnover ratio was closest to

Accepted Answer

The answer of Jackson Company, a retailer, had cost of...

Question 10

The liquidity position of a company is analyzed using its _____.

Accepted Answer

The liquidity position of a company refers to its ability to meet short-term obligations as they become due. The inventory turnover ratio measures how quickly inventory is sold and replenished, providing insight into the company's ability to convert inventory into cash. Therefore, option B, the inventory turnover ratio, is the best choice for analyzing a company's liquidity position. The times-interest-earned ratio measures a company's ability to meet interest payments on its debt, the dividend yield ratio measures the dividend return on an investment, and the debt-to-equity ratio measures a company's leverage and financial risk.

Question 11

Last year, Amber Company's net sales was $800,000.The beginning accounts receivable balance was $20,000, and the ending accounts receivable balance was $30,000.The company's accounts receivable turnover ratio was closest to:

Accepted Answer

Accounts Receivable Turnover Ratio = Net Sales / Average Accounts Receivable
Average Accounts Receivable = [(Beginning Receivables + Ending Receivables) / 2]
Accounts receivable turnover ratio = $800,000 / [($20,000 + $30,000) / 2]
= 32

Question 12

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

Accepted Answer

The accounts receivable turnover ratio is calculated by dividing 365 days by the accounts receivable turnover. Therefore, the accounts receivable turnover ratio would be 365/42 = 8.69 times. The correct answer is B.

Question 13

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

Accepted Answer

Accounts receivable turnover ratio = Sales on account / Average accounts receivable

Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2

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

Accounts receivable turnover ratio = $300,000 / $21,500 = 13.95

Question 14

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

Accepted Answer

Inventory turnover ratio = Cost of Goods Sold / Average Inventory
= $8,000,000 / $1,600,000
= 5 times.

Therefore, the correct choice is C) 5.0 times.

Question 15

A company has an account receivable turnover ratio of 4.The average accounts receivable during the period is $200,000.What is the amount of net sales for the period?

Accepted Answer

Accounts Receivable Turnover Ratio = Net Sales / Average Accounts Receivable
Net sales = 4 × $200,000  
= $800,000

Question 16

Nickel Store had net credit sales of $15,000,000 and cost of goods sold of $5,000,000 for the year.The Accounts Receivable balances at the beginning and end of the year were $875,000 and $375,000 respectively.The accounts receivable turnover ratio was:

Accepted Answer

Accounts Receivable Turnover Ratio = Net Sales / Average Accounts Receivable
Average Accounts Receivable = (Beginning Receivables + Ending Receivables) / 2
= ($875,000 + $375,000) / 2
= $625,000
 
Accounts Receivable Turnover Ratio = $15,000,000 / $625,000 = 24 times

Question 17

Chromel Company has $36,000 in cash, $12,000 in marketable securities, $40,000 in accounts receivables, $25,000 in inventories, and $80,000 in current liabilities.The company's quick ratio is closest to:

Accepted Answer

Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities 
= ($36,000 + $12,000 + $40,000) / $80,000
= 1.10

Question 18

Lost Shoe Company, a retailer, had cost of goods sold of $220,000 last year.The beginning inventory balance was $30,000 and the ending inventory balance was $21,000.The company's inventory turnover ratio was closest to

Accepted Answer

The inventory turnover ratio is calculated as Cost of Goods Sold divided by Average Inventory. Average Inventory is calculated as (Beginning Inventory + Ending Inventory) / 2. So, Average Inventory = ($30,000 + $21,000) / 2 = $25,500. Inventory Turnover Ratio = $220,000 / $25,500 = 8.63.

Question 19

Last year, Manganese Company's net sales was $420,000.The beginning accounts receivable balance was $25,000 and the ending accounts receivable balance was $35,000.The company's accounts receivable turnover ratio was closest to:

Accepted Answer

Accounts Receivable Turnover Ratio = Net Sales / Average Accounts Receivable
Average Accounts Receivable = [(Beginning Receivables + Ending Receivables) / 2]
Accounts receivable turnover ratio = $420,000 / [($25,000 + $35,000) / 2]
= 14

Question 20

The quick ratio differs from the current ratio in that it

Accepted Answer

The quick ratio is a stricter test of a company's ability to pay its current debts as they are due because it excludes inventories and prepaid expenses from the numerator, which are less likely to be converted into cash quickly in the case of an emergency.

Quiz 15: Financial Statement Analysis