A company has a tax rate of 40%.Leverage would be beneficial for the company for each of the following combinations of interest rates and ROA except: \[\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Interest } \\ \text { rate } \end{array} & \text { ROA } \\ \hline \text { a. } & 4 \% & \mathbf { 6 \% } \\ \hline \text { b. } & \mathbf { 6 \% } & \mathbf { 6 } \% \\ \hline \text { c. } & 14 \% & 10 \% \\ \hline \text { d. } & 16 \% & 10 \% \\ \hline \end{array}\]

The answer of A company has a tax rate of...

Use the following information for questions: Blue Sea Corporation's books revealed the following for 2011 and 2010: \[\begin{array} { l c r } & 2011 & 2010 \\ \text { Cash } & 27,750 & \$ 21,250 \\ \text { Accounts receivable }& 42,000 & 37,500 \\ \text { Inventory } & 72,250 & 61,600 \\ \text { Other prepaid assets } & 12,500 & 12,500 \\ \text { Accounts payable } & 41,250 & 38,000 \\ \text { Other current payables } & 13,000 & 15,000 \\ \text { Sharehol ders' equity }& 100,250 & 79,850 \\ \text { Sales } & 525,000 & 450,750 \\ \text { Cost of sales }& 300,000 & 240,750 \\ \text { Operating expenses } & 70,000 & 65,000 \\ \text { Net income } & 155,000 & 145,000 \end{array}\] -The number of days to collect the average receivable in 2011 was closest to:

A) 28 days B) 29 days C) 30 days D) 31 days A) 28 days B) 29 days C) 30 days D) 31 days

Use the following information for questions: The following data was taken from the accounting records of Darias Corporation: $\begin{array}{lrr}&2011&2010\\\hline \text { Total assets } & \$ 950,000 & \$ 850,000 \\ \text { Total liabilities } & 250,000 & 240,000 \\ \text { Preferred shares } & 75,000 & 75,000 \\ \text { Common shares } & 300,000 & 300,000 \\ \text { Retained earnings } & 325,000 & 235,000\\\text { Additional data: } & \\ \text { Net income } & 140,000 \\ \text { Preferred dividend } & 15,000 \\ \text { Interest expense } & 25,000 \\ \text { Sales revenue } & 980,000 \\ \text { Tax rate } & 32 \% \end{array}$ -The return on assets for 2011 is closest to:

A) 15.5% B) 16.5% C) 17.4% D) 18.5% A) 15.5% B) 16.5% C) 17.4% D) 18.5%

Use the following information for questions: Consider the following income statement data for Milan Inc.: $\begin{array} { l }&2011&2010\\ \text {Sales revenue }&\$97,000&\$86,200\\ \text { Less: Cost of goods sold}&45,600&53,400\\ \text {Gross profit }&51,700&32,800\\ \text { Less: Selling and administration costs Income before }&22,500&18,300\\ \text {income tax }&29,200&14,500\\ \end{array}$ -The common size percentage for selling and administration costs in 2011 was:

A) 21.2% B) 23.1% C) 43.5% D) 77.0% A) 21.2% B) 23.1% C) 43.5% D) 77.0%

How are prepaid accounts used in each of the following ratios? $\begin{array} { lll } & \text {Current ratio }& \text { Quick ratio}\\\hline a.& \text { Numerator}& \text {Denominator }\\ b.& \text { Numerator}& \text { Numerator}\\ c.& \text {Numerator }& \text {Not used }\\ d.& \text { Not used}& \text {Numerator }\\ \end{array}$

The answer of How are prepaid accounts used in each...

Use the following information for questions: The following data was taken from the accounting records of Darias Corporation: $\begin{array}{lrr}&2011&2010\\\hline \text { Total assets } & \$ 950,000 & \$ 850,000 \\ \text { Total liabilities } & 250,000 & 240,000 \\ \text { Preferred shares } & 75,000 & 75,000 \\ \text { Common shares } & 300,000 & 300,000 \\ \text { Retained earnings } & 325,000 & 235,000\\\text { Additional data: } & \\ \text { Net income } & 140,000 \\ \text { Preferred dividend } & 15,000 \\ \text { Interest expense } & 25,000 \\ \text { Sales revenue } & 980,000 \\ \text { Tax rate } & 32 \% \end{array}$ -The profit margin ratio to be used in calculating ROA for 2011 is closest to:

A) 12.7% B) 14.3% C) 16.0% D) 16.8% A) 12.7% B) 14.3% C) 16.0% D) 16.8%

Exam 12: Financial Statement Analysis

A company has a tax rate of 40%.Leverage would be beneficial for the company for each of the following combinations of interest rates and ROA except: Interest rate ROA a. 4\% b. \% c. 14\% 10\% d. 16\% 10\%

(Short Answer)

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Question 21

The price investors are willing to pay for a dollar's worth of earnings is the:

(Multiple Choice)

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Question 22

When a company can leverage funds at a rate that is less than the after-tax return on assets, the return on equity will exceed the return on assets.

(True/False)

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Question 23

The appropriate tax rate to use in the return on assets formula is a company's average tax rate.

(True/False)

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Question 24

Which of the following depicts the current ratio?

(Multiple Choice)

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Question 25

Which of the following statements about ROA is true?

(Multiple Choice)

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Question 26

Use the following information for questions: sales $1,500,000; gross profit $640,000; net income $40,000 and income tax expense $35,000; -What is the common size percentage for operating expenses?

(Multiple Choice)

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Question 27

Use the following information for questions: Blue Sea Corporation's books revealed the following for 2011 and 2010: 2011 2010 Cash 27,750 \ 21,250 Accounts receivable 42,000 37,500 Inventory 72,250 61,600 Other prepaid assets 12,500 12,500 Accounts payable 41,250 38,000 Other current payables 13,000 15,000 Sharehol ders' equity 100,250 79,850 Sales 525,000 450,750 Cost of sales 300,000 240,750 Operating expenses 70,000 65,000 Net income 155,000 145,000 -The number of days to collect the average receivable in 2011 was closest to:

(Multiple Choice)

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Question 28

Use the following information for questions: The following data was taken from the accounting records of Darias Corporation: 2011 2010 Total assets \ 950,000 \ 850,000 Total liabilities 250,000 240,000 Preferred shares 75,000 75,000 Common shares 300,000 300,000 Retained earnings 325,000 235,000 Additional data: Net income 140,000 Preferred dividend 15,000 Interest expense 25,000 Sales revenue 980,000 Tax rate 32\% -The return on assets for 2011 is closest to:

(Multiple Choice)

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Question 29

Use the following information for questions: Consider the following income statement data for Milan Inc.: 2011 2010 Sales revenue \9 7,000 \8 6,200 Less: Cost of goods sold 45,600 53,400 Gross profit 51,700 32,800 Less: Selling and administration costs Income before 22,500 18,300 income tax 29,200 14,500 -The common size percentage for selling and administration costs in 2011 was:

(Multiple Choice)

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Question 30

Changes in the profit margin ratio could indicate changes in any of the following except changes in:

(Multiple Choice)

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Question 31

Cross-sectional analysis involves examining a company's financial data:

(Multiple Choice)

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Question 32

Place the following steps involved in financial statement analysis in the proper order: I.Read the auditor's report II.Perform detailed ratio analysis III.Read each of the major financial statements IV.Obtain an overall understanding of a company's range of businesses

(Multiple Choice)

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Question 33

Which of the following describes the return on equity ratio?

(Multiple Choice)

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Question 34

Ratio analysis provides a complete picture of the general financial health and wellbeing of a company.

(True/False)

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Question 35

Fully diluted earnings per share is a worst case scenario.

(True/False)

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Question 36

How are prepaid accounts used in each of the following ratios? Current ratio Quick ratio a. Numerator Denominator b. Numerator Numerator c. Numerator Not used d. Not used Numerator

(Short Answer)

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Question 37

Which of the return on investment ratios would be of most interest to the owners of a company?

(Multiple Choice)

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Question 38

Use the following information for questions: The following data was taken from the accounting records of Darias Corporation: 2011 2010 Total assets \ 950,000 \ 850,000 Total liabilities 250,000 240,000 Preferred shares 75,000 75,000 Common shares 300,000 300,000 Retained earnings 325,000 235,000 Additional data: Net income 140,000 Preferred dividend 15,000 Interest expense 25,000 Sales revenue 980,000 Tax rate 32\% -The profit margin ratio to be used in calculating ROA for 2011 is closest to:

(Multiple Choice)

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Question 39

When a company's ROE is greater than its ROA in a given time period, it could be that:

(Multiple Choice)

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Question 40

A company has a tax rate of 40%.Leverage would be beneficial for the company for each of the following combinations of interest rates and ROA except: Interest rate ROA a. 4\% b. \% c. 14\% 10\% d. 16\% 10\%

The price investors are willing to pay for a dollar's worth of earnings is the:

When a company can leverage funds at a rate that is less than the after-tax return on assets, the return on equity will exceed the return on assets.

The appropriate tax rate to use in the return on assets formula is a company's average tax rate.

Which of the following depicts the current ratio?

Which of the following statements about ROA is true?

Use the following information for questions: sales $1,500,000; gross profit $640,000; net income $40,000 and income tax expense $35,000; -What is the common size percentage for operating expenses?

Changes in the profit margin ratio could indicate changes in any of the following except changes in:

Cross-sectional analysis involves examining a company's financial data:

Place the following steps involved in financial statement analysis in the proper order: I.Read the auditor's report II.Perform detailed ratio analysis III.Read each of the major financial statements IV.Obtain an overall understanding of a company's range of businesses

Which of the following describes the return on equity ratio?

Ratio analysis provides a complete picture of the general financial health and wellbeing of a company.

Fully diluted earnings per share is a worst case scenario.

How are prepaid accounts used in each of the following ratios? Current ratio Quick ratio a. Numerator Denominator b. Numerator Numerator c. Numerator Not used d. Not used Numerator

Which of the return on investment ratios would be of most interest to the owners of a company?

When a company's ROE is greater than its ROA in a given time period, it could be that:

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