ADM 1340 Lecture Notes - Lecture 22: Comprehensive Income, Inventory Turnover, Current Liability
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Chapter 12âFinancial Statement Analysis (10points)
MUMULTIPLECHOICE
1. 1. The relationship of $325,000to $125,000, expressed as a ratio, is
a. | 2.0 to 1 |
b. | 2.6 to 1 |
c. | 2.5 to 1 |
d. | 0.45 to 1 |
2. In a common size income statement,the 100% figure is:
a. | net cost of goods sold. |
b. | net income. |
c. | gross profit. |
d. | net sales. |
3. Based on the following data for thecurrent year, what is the number of days' sales in accountsreceivable?
Net sales on account during year | $584,000 |
Cost of merchandise sold during year | 300,000 |
Accounts receivable, beginning of year | 45,000 |
Accounts receivable, end of year | 35,000 |
Inventory, beginning of year | 90,000 |
Inventory, end of year | 110,000 |
a. | 7.3 |
b. | 2.5 |
c. | 14.6 |
d. | 25 |
4. Based on the following data for thecurrent year, what is the number of days' sales in inventory?
Net sales on account during year | $1,204,500 |
Cost of merchandise sold during year | 657,000 |
Accounts receivable, beginning of year | 75,000 |
Accounts receivable, end of year | 85,000 |
Inventory, beginning of year | 85,600 |
Inventory, end of year | 98,600 |
a. | 51.2 |
b. | 44.4 |
c. | 6.5 |
d. | 7.5 |
5. The number of times interest expenseis earned is computed as
a. | net income plus interest expense, divided by interestexpense |
b. | income before income tax plus interest expense, divided byinterest expense |
c. | net income divided by interest expense |
d. | income before income tax divided by interest expense |
6. The current ratio is
a. | used to evaluate a company's liquidity and short-term debtpaying ability. |
b. | is a solvency measure that indicated the margin of safety of anoteholder or bondholder. |
c. | calculated by dividing current liabilities by currentassets. |
d. | calculated by subtracting current liabilities from currentassets. |
7. A company with $70,000 in current assets and $50,000 incurrent liabilities pays a $1,000 current liability. As a result ofthis transaction, the current ratio and working capital will
a. | both decrease. |
b. | both increase. |
c. | increase and remain the same,respectively. |
d. | remain the same and decrease,respectively. |
8. Hsu Company reported the following onits income statement:
Income before income taxes | $420,000 | |
Income tax expense | 120,000 | |
Net income | $300,000 |
An analysis of the income statement revealed that interestexpense was $80,000. Hsu Company's times interest earned was
a. | 8 times. |
b. | 6.25 times. |
c. | 5.25 times. |
d. e. | 5 times. None of the above |
9. The following information pertains toBrock Company. Assume that all balance sheet amounts represent bothaverage and ending balance figures. Assume that all sales were oncredit.
Assets
Cash and short-term investments | $ 40,000 | ||
Accounts receivable (net) | 30,000 | ||
Inventory | 25,000 | ||
Property, plant and equipment | 215,000 | ||
Total Assets | $310,000 | ||
Liabilities and Stockholdersâ Equity
Current liabilities | $ 60,000 | ||
Long-term liabilities | 95,000 | ||
Stockholdersâ equity-common | 155,000 | ||
Total Liabilities and stockholdersâ equity | $310,000 | ||
Income Statement
Sales | $ 90,000 | ||
Cost of goods sold | 45,000 | ||
Gross margin | 45,000 | ||
Operating expenses | 20,000 | ||
Net income | $ 25,000 | ||
Number of shares of common stock | 6,000 |
Market price of common stock | $20 |
What is the current ratio for thiscompany?
a. | 1.42 |
b. | 0.78 |
c. | 1.58 |
d. e | 0.67 None of the above |
11. Basedon the above data, what is the amount of quick assets?
a. | $168,000 |
b. | $96,000 |
c. | $60,000 |
d. e | $61,000 None of the above |
12. Basedon the above data, what is the amount of working capital?
a. | $213,000 |
b. | $113,000 |
c. | $153,000 |
d. e | $39,000 None of the above |
13. Thetendency of the rate earned on stockholders' equity to varydisproportionately from the rate earned on total assets issometimes referred to as
a. | leverage |
b. | solvency |
c. | yield |
d. | quick assets |
The balance sheets at the end of each of the first two years ofoperations indicate the following:
2012 | 2011 | |
Total current assets | $600,000 | $560,000 |
Total investments | 60,000 | 40,000 |
Total property, plant, and equipment | 900,000 | 700,000 |
Total current liabilities | 125,000 | 65,000 |
Total long-term liabilities | 350,000 | 250,000 |
Preferred 9% stock, $100 par | 100,000 | 100,000 |
Common stock, $10 par | 600,000 | 600,000 |
Paid-in capital in excess of par-common stock | 75,000 | 75,000 |
Retained earnings | 310,000 | 210,000 |
14. Ifnet income is $115,000 and interest expense is $30,000 for 2012what is the rate earned on total assets for 2012 (round percent toone decimal point)?
a. | 9.3% |
b. | 10.1% |
c. | 8.0% |
d. e. | 7.4% None of the above |
15. Ifnet income is $115,000 and interest expense is $30,000 for 2012,what is the rate earned on stockholders' equity for 2012 (roundpercent to one decimal point)?
a. | 10.6% |
b. | 11.1% |
c. | 12.4% |
d. e. | 14.0% None of the above |
16. Ifnet income is $115,000 and interest expense is $30,000 for 2012,what are the earnings per share on common stock for 2012, (round totwo decimal places)?
a. | $2.07 |
b. | $1.92 |
c. | $1.77 |
d. e. | $1.64 None of the above |
17. Theparticular analytical measures chosen to analyze a company may beinfluenced by all of the following except:
a. | industry type |
b. | capital structure |
c. | diversity of business operations |
d. | product quality or service effectiveness |
18. In2012 Robert Corporation had net income of $250,000 and paiddividends to common stockholders of $50,000. They had 50,000 sharesof common stock outstanding during the entire year. RobertCorporation's common stock is selling for $50 per share on the NewYork Stock Exchange.
Robert Corporation's price-earnings ratio is
a. | 10 times. |
b. | 5 times. |
c. | 2 times. |
d. e. | 8 times. None of the above |
19. Leveraging implies that a company
a. | contains debt financing. |
b. | contains equity financing. |
c. | has a high current ratio. |
d. | has a high earnings per share. |
20. Percentage analyses, ratios, turnovers, and other measures offinancial position and operating results are
a. | a substitute for sound judgment. |
b. | useful analytical measures. |
c. | enough information for analysis, industry information is notneeded. |
d. | unnecessary for analysis, but reaction is better. |