Question 1

Off the Record's quick assets are $127,000. With current liabilities of $143,000, Off the Record's acid-test ratio is 1.03 to 1.

Accepted Answer

A) True 
 B)False

Question 2

Wonka Co. had cost of goods sold of $4,000 million, beginning inventory of $2,500 million and ending inventory of $1,500 million. The days' sales in inventory is:

Accepted Answer

A)   1,095.
B)   182.5.
C)   876.
D)   136.8.
E)   30.5.F) A) and E)
G) B) and C)

Question 3

Music City had profit of $43,000, net sales of $380,500 and average total assets of$220,000. Its profit margin and total asset turnover were respectively:

Accepted Answer

A)   19.5%; 11.3.
B)   11.3%; 1.73.
C)   11.3%; 19.5.
D)   11.3%; 11.3.
E)   1.73%; 19.5.F) A) and E)
G) A) and D)

Question 4

Current assets minus current liabilities is called:

Accepted Answer

A)   Profit margin.
B)   Working capital.
C)   Quick assets.
D)   Financial leverage.
E)   Current ratio.F) C) and D)
G) A) and E)

Question 5

Accounts receivable turnover is calculated by:

Accepted Answer

A)   Dividing average accounts receivable by net sales and multiplying by 365.
B)   Dividing net sales by average accounts receivable.
C)   Dividing profit by average accounts receivable.
D)   Dividing net sales by average accounts receivable and multiplying by 365.
E)   Dividing average accounts receivable by net sales.F) B) and E)
G) B) and C)

Question 6

Comparative financial statements in which each amount is expressed as a percentage of a base amount, and in which the base amount is expressed as 100%, are called:

Accepted Answer

A)   Common-size comparative statements.
B)   Comparative statements.
C)   Index statements.
D)   Base line statements.
E)   General-purpose financial statements.F) C) and D)
G) A) and D)

Question 7

The annual amount of cash dividends per share distributed to common shareholders relative to the share's market price is called the:

Accepted Answer

A)   Earnings per share.
B)   Current yield.
C)   Dividend yield.
D)   Dividend payout ratio.
E)   Price-earnings ratio.F) A) and E)
G) A) and D)

Question 8

Evaluation of company performance includes 1) past and current performance, 2) current financial position, and 3) future performance and risk.

Accepted Answer

A) True 
 B)False

Question 9

If the times interest earned ratio:

Accepted Answer

A)   Increases, risk decreases.
B)   Is under 1.5, risk decreases.
C)   Increases, risk increases.
D)   Is over 1.5, risk increases.
E)   Increases and/or is under 1.5, risk decreases.F) D) and E)
G) A) and E)

Question 10

Accounts payable turnover:

Accepted Answer

A)   Describes how much time it takes a company to meet its obligations to suppliers.
B)   Is also called inventory turnover.
C)   Describes how much time it takes a company to meet its obligations to suppliers and can be used to evaluate liquidity.
D)   Can be used to evaluate liquidity.
E)   All of these answers are correct.F) C) and D)
G) A) and E)

Question 11

The debt ratio is calculated by dividing total assets by total liabilities.

Accepted Answer

A) True 
 B)False

Question 12

GAP's earnings per share is $3.11. Its common dividend is $.36 per share and its market price is $40 per share. The dividend yield is 0.9%.

Accepted Answer

A) True 
 B)False

Question 13

Times interest earned is calculated by:

Accepted Answer

A)   Dividing income before interest and income taxes by interest expense.
B)   Dividing interest expense by income before interest.
C)   Dividing interest expense by income before interest times interest.
D)   Multiplying interest times income.
E)   Dividing income before interest and income taxes by interest expense times interest.F) B) and E)
G) B) and D)

Question 14

Total asset turnover measures:

Accepted Answer

A)   The quality of assets.
B)   Liquidity.
C)   Profitability.
D)   The company's ability to use its assets to generate sales.
E)   Both profitability and the company's ability to use its assets to generate sales.F) C) and D)
G) A) and D)

Question 15

Return on total assets measures:

Accepted Answer

A)   The percent of profit in each dollar of net sales.
B)   A company's ability to increase its asset base from sales.
C)   A company's ability to increase its asset base from profit.
D)   A company's ability to produce sales from their assets.
E)   A company's ability to produce profit from their assets.F) C) and D)
G) A) and B)

Question 16

Which of the following statements is incorrect?

Accepted Answer

A)   Higher financial leverage involves higher risk.
B)   Risk is higher if a company has higher assets.
C)   Risk is higher if a company has more liabilities.
D)   The debt ratio is used to measure financial risk.
E)   Lower financial leverage involves lower risk.F) C) and D)
G) A) and B)

Question 17

A company must have less than 30 days' sales uncollected in order to have enough liquidity.

Accepted Answer

A) True 
 B)False

Question 18

Liquidity refers to the availability of resources to meet short-term cash requirements.

Accepted Answer

A) True 
 B)False

Question 19

A company should maintain a current ratio of two to one when:

Accepted Answer

A)   Inventory turns over frequently.
B)   The company has little inventory.
C)   The company grants little or no credit.
D)   The company is selling low priced clothing.
E)   Estimating customer demand is difficult.F) A) and E)
G) B) and E)

Question 20

The common rule of thumb is that a company's acid-test ratio should be at least 1.5 to 1.

Accepted Answer

A) True 
 B)False

Exam 17: Analyzing Financial Statements

A company must have less than 30 days' sales uncollected in order to have enough liquidity.

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The common rule of thumb is that a company's acid-test ratio should be at least 1.5 to 1.

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Times interest earned is calculated by:

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Accounts payable turnover:

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Liquidity refers to the availability of resources to meet short-term cash requirements.

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Music City had profit of $43,000, net sales of $380,500 and average total assets of$220,000. Its profit margin and total asset turnover were respectively:

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Accounts receivable turnover is calculated by:

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The debt ratio is calculated by dividing total assets by total liabilities.

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Return on total assets measures:

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Current assets minus current liabilities is called:

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Total asset turnover measures:

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Evaluation of company performance includes 1) past and current performance, 2) current financial position, and 3) future performance and risk.

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GAP's earnings per share is $3.11. Its common dividend is $.36 per share and its market price is $40 per share. The dividend yield is 0.9%.

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A company should maintain a current ratio of two to one when:

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The annual amount of cash dividends per share distributed to common shareholders relative to the share's market price is called the:

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Wonka Co. had cost of goods sold of $4,000 million, beginning inventory of $2,500 million and ending inventory of $1,500 million. The days' sales in inventory is:

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Which of the following statements is incorrect?

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If the times interest earned ratio:

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Off the Record's quick assets are $127,000. With current liabilities of $143,000, Off the Record's acid-test ratio is 1.03 to 1.

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Comparative financial statements in which each amount is expressed as a percentage of a base amount, and in which the base amount is expressed as 100%, are called:

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