Question 1

The following balance sheet information is provided for Duke Company for Year 2:   Assets  Cash $5,600 Accounts receivable 11,750 Inventory 14,800 Prepaid expenses 1,600 Plant and equipment, net of depreciation 19,500 Land 13,400‾ Total assets $66,650‾ Liabilities and Stockholders’ Equity  Accounts payable $2,790 Salaries payable 8,230 Bonds payable (Due in ten years)  12,000 Common stock, no par 16,500 Retained earnings 27,130‾ Total liabilities and stockholders’ equity $66,650\begin{array}{lr}	ext { Assets }\	ext { Cash } & \$ 5,600 \	ext { Accounts receivable } & 11,750 \	ext { Inventory } & 14,800 \	ext { Prepaid expenses } &1,600 \	ext { Plant and equipment, net of depreciation } & 19,500 \	ext { Land } & \underline{ 13,400 }\	ext { Total assets } &\underline{ \$ 66,650}\	ext { Liabilities and Stockholders&#x27; Equity }\	ext { Accounts payable } & \$2,790 \	ext { Salaries payable } &8,230 \	ext { Bonds payable (Due in ten years)  } & 12,000 \	ext { Common stock, no par } & 16,500 \	ext { Retained earnings } &\underline{ 27,130} \	ext { Total liabilities and stockholders&#x27; equity }& \$66,650\end{array} Assets  Cash  Accounts receivable  Inventory  Prepaid expenses  Plant and equipment, net of depreciation  Land  Total assets  Liabilities and Stockholders’ Equity  Accounts payable  Salaries payable  Bonds payable (Due in ten years)   Common stock, no par  Retained earnings  Total liabilities and stockholders’ equity ​$5,60011,75014,8001,60019,50013,400​$66,650​$2,7908,23012,00016,50027,130​$66,650​   What is the company's current ratio? (Round your answer to 2 decimal places.)

Accepted Answer

A)   1.40
B)   1.57
C)   3.06
D)   0.75 E) None of the above
F) A) and D)

Question 2

Which ratio measures the percentage of a company's assets that are financed by debt?

Accepted Answer

A)   Debt to assets ratio
B)   Asset turnover
C)   Debt to equity
D)   Return on investmentE) A) and B)
F) B) and C)

Question 3

Benson Company declared and paid a cash dividend totaling $500,000 on its common stock. As a result of this transaction, the company's debt to assets ratio will:

Accepted Answer

A)   Decrease.
B)   Increase.
C)   Remain the same.
D)   Cannot be determined.E) A) and D)
F) A) and C)

Question 4

Indicate whether each of the following statements about financial statement analysis is true or false.
Working capital is a measure of the amount of current assets a company would have left after paying its current liabilities. ______
If a transaction caused a company's working capital to increase, the transaction caused the company to become less liquid. ______
Interpretation of a company's current ratio can be difficult because it is an absolute amount. ______
The quick ratio is a more conservative variation of the current ratio. ______
The quick ratio is usually calculated by using the following equation: cash + receivables + current marketable securities ÷ current liabilities. ______

Accepted Answer

Working capital is a measure of the amou...

Question 5

On December 31, Year 1, Houston Company's total current assets were $560,000 and its total current liabilities were $420,000. On January 1, Year 2, Houston issued a long-term note to a bank for $30,000 cash.
Required:Compute Houston's working capital before and after issuing the note payable.Compute Houston's current ratio before and after issuing the note payable. (Round your answer to two decimal places.)

Accepted Answer

Working capital is calculated as the dif...

Question 6

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $29,000. The company uses a perpetual inventory system and sells merchandise for more than it cost.
- On January 1, Year 2, Gant purchased merchandise on account for $4,000. Which of the following statements is correct?

Accepted Answer

A)   Gant's current ratio will decrease.
B)   Gant's quick ratio will increase.
C)   Gant's working capital will increase.
D)   Gant's quick ratio will increase and its current ratio will decrease.E) B) and C)
F) C) and D)

Question 7

Match between columns
                        Premises:  An indication of the relative importance of an item of financial information
 Analysis technique that compares amounts of the same item over two or more time periods
 Measures of the long-term debt paying ability of the firm
 Measure of profitability calculated by dividing net income by average total stockholders' equity
 Dollar amounts of individual items on financial statements can be misleading because they make no reference to the size of the company
 Measurements of a firms ability to generate income
 Study of the performance of ratios or other financial measures over time
 Current assets divided by current liabilities
 Measures of short-term debt paying ability
 Measure to compare values of different stocks, calculated by dividing market price per share by amount of income per share
 Another way at looking at inventory turnover by converting the inventory turnover ratio into a number of days
 Calculated by dividing total stockholders' equity less preferred rights by the number of common shares outstanding

Accepted Answer

The Answer of Absolute amounts and Book value per share is...

Question 8

Current financial reporting standards assume that users of accounting information:

Accepted Answer

A)   Have an expert's understanding of economic and financial events and conditions.
B)   Have a reasonably informed knowledge of business.
C)   Have widely differing levels of knowledge about business, and that financial reporting must meet these differing needs.
D)   Have only minimal knowledge of business.E) None of the above
F) B) and C)

Question 9

Alpha Company provided the following balance sheet for Year 2:   Assets  Cash $5,400 Accounts receivable 15,500 Inventory 18,000 Prepaid expenses 1,600 Plant and equipment, net of depreciation 25,000 Land 19,950‾ Total assets $85,450‾ Liabilities and Stockholders’ Equity  Accounts payable $4,500 Salaries payable 11,500 Bonds payable (Due in ten years)  10,000 Common stock, no par 30,000 Retained earnings 29,450‾ Total liabilities and stockholders’ equity $85,450\begin{array}{lr}	ext { Assets }\	ext { Cash } & \$ 5,400 \	ext { Accounts receivable } & 15,500 \	ext { Inventory } & 18,000 \	ext { Prepaid expenses } & 1,600 \	ext { Plant and equipment, net of depreciation } & 25,000 \	ext { Land } & \underline{ 19,950 }\	ext { Total assets } &\underline{ \$ 85,450}\	ext { Liabilities and Stockholders&#x27; Equity }\	ext { Accounts payable } & \$ 4,500 \	ext { Salaries payable } & 11,500 \	ext { Bonds payable (Due in ten years)  } & 10,000 \	ext { Common stock, no par } & 30,000 \	ext { Retained earnings } &\underline{ 29,450} \	ext { Total liabilities and stockholders&#x27; equity }& \$ 85,450\end{array} Assets  Cash  Accounts receivable  Inventory  Prepaid expenses  Plant and equipment, net of depreciation  Land  Total assets  Liabilities and Stockholders’ Equity  Accounts payable  Salaries payable  Bonds payable (Due in ten years)   Common stock, no par  Retained earnings  Total liabilities and stockholders’ equity ​$5,40015,50018,0001,60025,00019,950​$85,450​$4,50011,50010,00030,00029,450​$85,450​  
 What is the company's plant assets to long-term liabilities ratio?

Accepted Answer

A)   2.5
B)   4.5
C)   1.7
D)   None of these answers are correct. E) A) and C)
F) A) and B)

Question 10

Which of the following is an (are)  objective(s)  of ratio analysis?

Accepted Answer

A)   Assessing past performance.
B)   Assessing the prospects for future performance.
C)   Analyzing how a company finances its operations.
D)   All of these answers are correct.E) B) and D)
F) A) and B)

Question 11

The study of an individual financial statement item over several accounting periods is called:

Accepted Answer

A)   Horizontal analysis.
B)   Vertical analysis.
C)   Ratio analysis.
D)   Time and motion analysis.E) C) and D)
F) A) and D)

Question 12

The following balance sheet information is provided for Patton Company:   Assets  Year 2  Year 1  Cash $3,300$2,900 Accounts receivable $12,800$14,800 Inventory $29,500$36,500\begin{array}{lrr}	ext { Assets } & 	ext { Year 2 } & 	ext { Year 1 } \	ext { Cash } & \$ 3,300 & \$ 2,900 \	ext { Accounts receivable } & \$ 12,800 & \$ 14,800 \	ext { Inventory } & \$ 29,500 & \$ 36,500\end{array} Assets  Cash  Accounts receivable  Inventory ​ Year 2 $3,300$12,800$29,500​ Year 1 $2,900$14,800$36,500​  Assuming Year 2 cost of goods sold is $373,000, what is the company's average days to sell inventory? (Use 365 days in a year. Do not round your intermediate calculations.)

Accepted Answer

A)   32.29 days
B)   28.87 days
C)   35.72 days
D)   54.00 days E) A) and B)
F) B) and C)

Question 13

The following balance sheet information is provided for Santana Company for Year 2:   Assets  Cash $6,000 Accounts receivable 12,150 Inventory 15,000 Prepaid expenses 1,800 Plant and equipment, net of depreciation 19,700 Land 13,600‾ Total assets $68,250‾ Liabilities and Stockholders’ Equity  Accounts payable $2,910 Salaries payable 8,030 Bonds payable (Due in ten years)  13,000 Common stock, no par 15,500 Retained earnings 28,810‾ Total liabilities and stockholders’ equity $78,250\begin{array}{lr}	ext { Assets }\	ext { Cash } & \$ 6,000 \	ext { Accounts receivable } & 12,150 \	ext { Inventory } & 15,000 \	ext { Prepaid expenses } &1,800 \	ext { Plant and equipment, net of depreciation } & 19,700 \	ext { Land } & \underline{ 13,600 }\	ext { Total assets } &\underline{ \$68,250}\	ext { Liabilities and Stockholders&#x27; Equity }\	ext { Accounts payable } & \$ 2,910 \	ext { Salaries payable } & 8,030 \	ext { Bonds payable (Due in ten years)  } & 13,000 \	ext { Common stock, no par } & 15,500 \	ext { Retained earnings } &\underline{ 28,810} \	ext { Total liabilities and stockholders&#x27; equity }& \$ 78,250\end{array} Assets  Cash  Accounts receivable  Inventory  Prepaid expenses  Plant and equipment, net of depreciation  Land  Total assets  Liabilities and Stockholders’ Equity  Accounts payable  Salaries payable  Bonds payable (Due in ten years)   Common stock, no par  Retained earnings  Total liabilities and stockholders’ equity ​$6,00012,15015,0001,80019,70013,600​$68,250​$2,9108,03013,00015,50028,810​$78,250​   What is the company's debt to equity ratio?

Accepted Answer

A)   135.11%
B)   33.28%
C)   40.73%
D)   54.03% E) None of the above
F) B) and D)

Question 14

Milton Company has total current assets of $63,000, including inventory of $19,000, and current liabilities of $39,000. The company's current ratio is:

Accepted Answer

A)   0.62.
B)   1.62.
C)   2.10.
D)   1.13.E) None of the above
F) A) and B)

Question 15

The following balance sheet information is provided for Apex Company for Year 2:   Assets  Cash $4,000 Accounts receivable 10,150 Inventory 14,000 Prepaid expenses 800 Plant and equipment, net of depreciation 18,700 Land 12,600 rotal assets $60,250 Liabilities and stockholders’ equity  Accounts payable $2,310 Salaries payable 9,030 Bonds payable (due in ten years)  8,000 Common stock, no par 20,910 Retained earnings 20,000 Total liabilities and stockholders’ equity $60,250\begin{array}{lr}	ext { Assets }\	ext { Cash } & \$ 4,000 \	ext { Accounts receivable } & 10,150 \	ext { Inventory } & 14,000 \	ext { Prepaid expenses } & 800\	ext { Plant and equipment, net of depreciation }&18,700 \	ext { Land }&12,600 \	ext { rotal assets }& \$ 60,250\	ext { Liabilities and stockholders&#x27; equity }\	ext { Accounts payable }&\$ 2,310 \	ext { Salaries payable }&9,030 \	ext { Bonds payable (due in ten years)  }&8,000 \	ext { Common stock, no par }&20,910 \	ext { Retained earnings }&20,000\	ext { Total liabilities and stockholders&#x27; equity }&\$60,250\end{array} Assets  Cash  Accounts receivable  Inventory  Prepaid expenses  Plant and equipment, net of depreciation  Land  rotal assets  Liabilities and stockholders’ equity  Accounts payable  Salaries payable  Bonds payable (due in ten years)   Common stock, no par  Retained earnings  Total liabilities and stockholders’ equity ​$4,00010,15014,00080018,70012,600$60,250$2,3109,0308,00020,91020,000$60,250​  What is the company's working capital?

Accepted Answer

A)   $2,810
B)   $25,840
C)   $8,810
D)   $17,610 E) A) and B)
F) None of the above

Question 16

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost.
- On January 1, Year 2, Gant sold inventory on account for $6,000. Which of the following statements is incorrect?

Accepted Answer

A)   Gant's current ratio will increase.
B)   Gant's quick ratio will decrease.
C)   Gant's working capital will increase.
D)   None of these answers are correct.E) A) and D)
F) A) and C)

Question 17

The Bernard Company provided the following information from its financial records:  Net income $250,000 Total stockholders equity $1,000,000 Common dividends $15,000 Common shares outstanding, 150,00012/31 Preferred rights $175,000\begin{array}{lrlr}	ext {Net income } & \$ 250,000 & 	ext { Total stockholders equity } & \$1,000,000 \	ext { Common dividends } & \$ 15,000 & 	ext { Common shares outstanding, } & 150,000 \& & 12 / 31 &\	ext { Preferred rights } &\$ 175,000 \end{array}Net income  Common dividends  Preferred rights ​$250,000$15,000$175,000​ Total stockholders equity  Common shares outstanding, 12/31​$1,000,000150,000​   What is the company's book value per share?

Accepted Answer

A)   $0.50
B)   $5.50
C)   $6.67
D)   $1.67 E) All of the above
F) A) and C)

Question 18

Indicate whether each of the following statements about financial statement analysis is true or false.
The ratio of plant assets to long-term liabilities is a measure of a company's ability to obtain additional long-term financing. ______
Generally, a company's current assets should be purchased using long-term financing such as bonds payable. ______
Ratios that measure a company's profitability provide some measure of the effectiveness of the company's management. ______
Net margin indicates the amount remaining from each sales dollar after cost of goods sold has been subtracted out. ______
Net margin is also sometimes called the return on assets ratio. ______

Accepted Answer

The ratio of plant assets to long-term l...

Question 19

The Bernard Company provided the following information from its financial records:  Net income $290,000 Total stockholders equity $890,000 Common dividends $19,000 Common shares outstanding, 129,00012/31 Preferred rights $240,000\begin{array}{lrlr}	ext {Net income } & \$ 290,000 & 	ext { Total stockholders equity } & \$ 890,000 \	ext { Common dividends } & \$ 19,000 & 	ext { Common shares outstanding, } & 129,000 \& & 12 / 31 &\	ext { Preferred rights } &\$ 240,000 \end{array}Net income  Common dividends  Preferred rights ​$290,000$19,000$240,000​ Total stockholders equity  Common shares outstanding, 12/31​$890,000129,000​   What is the company's book value per share?

Accepted Answer

A)   $2.25
B)   $6.90
C)   $5.04
D)   $2.10 E) B) and D)
F) A) and B)

Question 20

The following balance sheet information is provided for Apex Company for Year 2:   Assets  Cash $5,400 Accounts receivable 15,500 Inventory 18,000 Prepaid expenses 1,600 Plant and equipment, net of depreciation 20,200 Land 19,950‾ Total assets $80,650‾ Liabilities and Stockholders’ Equity  Accounts payable $4,500 Salaries payable 11,500 Bonds payable (Due in ten years)  19,000 Common stock, no par 30,000 Retained earnings 15,650‾ Total liabilities and stockholders’ equity $80,650\begin{array}{lr}	ext { Assets }\	ext { Cash } & \$ 5,400 \	ext { Accounts receivable } & 15,500 \	ext { Inventory } & 18,000 \	ext { Prepaid expenses } & 1,600 \	ext { Plant and equipment, net of depreciation } & 20,200 \	ext { Land } & \underline{ 19,950 }\	ext { Total assets } &\underline{ \$ 80,650}\	ext { Liabilities and Stockholders&#x27; Equity }\	ext { Accounts payable } & \$ 4,500 \	ext { Salaries payable } & 11,500 \	ext { Bonds payable (Due in ten years)  } & 19,000 \	ext { Common stock, no par } & 30,000 \	ext { Retained earnings } &\underline{ 15,650} \	ext { Total liabilities and stockholders&#x27; equity }& \$ 80,650\end{array} Assets  Cash  Accounts receivable  Inventory  Prepaid expenses  Plant and equipment, net of depreciation  Land  Total assets  Liabilities and Stockholders’ Equity  Accounts payable  Salaries payable  Bonds payable (Due in ten years)   Common stock, no par  Retained earnings  Total liabilities and stockholders’ equity ​$5,40015,50018,0001,60020,20019,950​$80,650​$4,50011,50019,00030,00015,650​$80,650​  
 What is the company's working capital?

Accepted Answer

A)   $20,300
B)   $4,900
C)   $22,900
D)   $24,500 E) B) and D)
F) None of the above

Exam 9: Financial Statement Analysis

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Benson Company declared and paid a cash dividend totaling $500,000 on its common stock. As a result of this transaction, the company's debt to assets ratio will:

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Which of the following is an (are) objective(s) of ratio analysis?

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The ratio of plant assets to long-term l...
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The study of an individual financial statement item over several accounting periods is called:

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Milton Company has total current assets of $63,000, including inventory of $19,000, and current liabilities of $39,000. The company's current ratio is:

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Working capital is calculated as the dif...
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Which ratio measures the percentage of a company's assets that are financed by debt?

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Select the term from the list provided that best matches each of the following descriptions or definitions:

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Working capital is a measure of the amou...
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Current financial reporting standards assume that users of accounting information:

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Exam 9: Financial Statement Analysis

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Benson Company declared and paid a cash dividend totaling $500,000 on its common stock. As a result of this transaction, the company's debt to assets ratio will:

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Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is an (are) objective(s) of ratio analysis?

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Correct AnswerverifiedThe ratio of plant assets to long-term l...View AnswerShow Answer

The study of an individual financial statement item over several accounting periods is called:

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Milton Company has total current assets of $63,000, including inventory of $19,000, and current liabilities of $39,000. The company's current ratio is:

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Correct AnswerAnswered by ExamLex AIWorking capital is calculated as the dif...View AnswerShow Answer

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Which ratio measures the percentage of a company's assets that are financed by debt?

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Select the term from the list provided that best matches each of the following descriptions or definitions:

Correct AnswerverifiedWorking capital is a measure of the amou...View AnswerShow Answer

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Current financial reporting standards assume that users of accounting information:

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The ratio of plant assets to long-term l...
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Correct Answer
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Correct Answer
Answered by ExamLex AI
Working capital is calculated as the dif...
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Working capital is a measure of the amou...
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