Question 1

To calculate the amount of net income assignable to common shareholders' equity, the analyst does not

Accepted Answer

A) subtract all amounts required to compensate other providers of financing for the use of their funds. 
B) make any further adjustment for interest. 
C) subtract from net income any earnings allocable to preferred stock equity usually the dividends on preferred stock declared during the period. 
D) subtract dividends on common stock. 
E) none of the above 
A) subtract all amounts required to compensate other providers of financing for the use of their funds. 
B) make any further adjustment for interest. 
C) subtract from net income any earnings allocable to preferred stock equity usually the dividends on preferred stock declared during the period. 
D) subtract dividends on common stock. 
E) none of the above

Question 2

Managing inventory turnover involves balancing which of the following consideration(s) in setting the optimum level of inventory and, thus, the rate of inventory turnover?

Accepted Answer

A) For a given amount of gross margin on the goods, firms prefer to sell as many goods as possible with a minimum of assets tied up in inventories. 
B) An increase in the rate of inventory turnover between periods indicates reduced costs of financing the investment in inventory. 
C) Management does not want to have so little inventory on hand that shortages result in lost sales. 
D) Increases in the rate of inventory turnover caused by inventory shortages could signal a loss of customers. 
E) All of the above. 
A) For a given amount of gross margin on the goods, firms prefer to sell as many goods as possible with a minimum of assets tied up in inventories. 
B) An increase in the rate of inventory turnover between periods indicates reduced costs of financing the investment in inventory. 
C) Management does not want to have so little inventory on hand that shortages result in lost sales. 
D) Increases in the rate of inventory turnover caused by inventory shortages could signal a loss of customers. 
E) All of the above.

Question 3

Analysts deciding between investments must consider the comparative risks.Which of the following factors affect the risk of business firms?

Accepted Answer

A) Economy-wide factors, such as increased inflation or interest rates, unemployment, and recessions. 
B) Industry-wide factors, such as increased competition, lack of availability of raw materials, changes in technology, and increased government regulatory actions, such as anti-trust or clean environment policies. 
C) Firm-specific factors, such as labor strikes, loss of facilities due to fire or other casualty, and poor health of key managerial personnel. 
D) The amount of liquid resources available to the firm to run smoothly and effectively. 
E) all of the above 
A) Economy-wide factors, such as increased inflation or interest rates, unemployment, and recessions. 
B) Industry-wide factors, such as increased competition, lack of availability of raw materials, changes in technology, and increased government regulatory actions, such as anti-trust or clean environment policies. 
C) Firm-specific factors, such as labor strikes, loss of facilities due to fire or other casualty, and poor health of key managerial personnel. 
D) The amount of liquid resources available to the firm to run smoothly and effectively. 
E) all of the above

Question 4

For each of the following independent situations, solve for the unknown amount.
 $\begin{array}{lllll}&\text { CASE A }&\text { CASE B }&\text { CASE C }&\text { CASE D }\
\text { Current ratio } & \text { A } & 1.14 & 2.0 & 0.67 \
\text { Quick ratio } & 0.2 & \text { B } & 1.0 & 0.60 \
\text { Current liabilities } & 400 & 175 & 100 & 360 \
\text { Current assets } & 150 & 200 & \text { C } & 240 \
\text { Highly liquid assets } & 80 & 75 & 100 & \text { D }
\end{array}$

Accepted Answer

A.0.375
B.

Question 5

The rate at which _____ turn(s) over measures how quickly a firm collects cash.

Accepted Answer

A) accounts receivable 
B) assets turnover 
C) inventory 
D) accounts payable 
E) notes receivable 
A) accounts receivable 
B) assets turnover 
C) inventory 
D) accounts payable 
E) notes receivable

Question 6

A measure of profitability for a firm engaging in operations selling merchandise in its stores to generate net income includes the rate of return on assets. Discuss the rate of return on assets.

Accepted Answer

RATE OF RETURN ON ASSETS
The rate of ret

Question 7

King Products Corporation King Products Corporation
Statement of Financial Position
(in thousands)
$\begin{array}{lll}&\text { June } 30\
&\text { Year } 6&\text { Year } 5\
\text { Cash } & \$ 60 & \$ 50 \
\text { Marketable securities (at market) } & 40 & 30 \
\text { Accounts receivable (net) } & 90 & 60 \
\text { Inventories (at lower of cost or market) } & 120 & 100 \
\text { Prepaid items } & {30} & 40\\text { Total current assets }&\$340&\$280\
\text { Long-term investments (at cost) } & 50 & 40 \
\text { Land (at cost) } & 150 & 150 \
\text { Building (net) } & 160 & 180 \
\text { Equipment (net) } & 190 & 200 \
\text { Patents (net) } & 70 & 34\
 \text {Gondwill (net) }&40&26\
\text { Total long-term assets }&\$660&\$630\
\text { Total assets }&\$1,000&\$910\\text { Notes payable } & \$ 46 & \$ 24 \
\text { Accounts payable } & 94 & 56 \
\text { Accrued interest } & 30 & 30\
(\text { Total current liabilities }&\$170&\$110\
 \text {Notes payable, $ 10 \% $ due $ 12 / 31 / $ Year 12 }&20 & 20 \
 \text {Bonds payable, $ 12 \% $ due $ 6 / 30 / $ Year 15 }&30 & 30 \
 \text {Total long-term debt }&\$50&\$50\
 \text {Total liabilities }&\$220&\$160\
 \text { \text { Preferred stock- } 5 \% \text { cumulative, } \$ 100 \text { par, non-participating, authorized, issued }}&200&200\ \text {and outstanding, 2,000 shares }\
\text { Common stock- } \$ 10 \text { par, } 40,000 \text { shares authorized, } 30,000 \text { shares issued and }&300&300\
\text { outstanding }\
\text { Additional paid-in capital--common } & 150 & 150 \
\text { Retained earnings } & 130 & 100\
\text { Total shareholders' equity }&\$780&\$750\
\text { Total liabilities and shareholders' equity }&\$1,000&\$910
\end{array}$
King Products Corporation
Income Statement
For the year ended June 30
(in thousands)
$\begin{array}{lc}&\text { Year } 6\
\text { Net sales } & \$ 600 \
\text { Costs and expenses } & \
\text { Cost of goods sold } & 440 \
\text { Selling, general, and administrative } & 60 \
\text { Interest expense } & 10\
\text { Income before taxes } & \$ 90 \
\text { Income taxes } & 45\
\text { Net income }&\$45
\end{array}$ (CMA adapted, Dec 96 #15) Refer to the King Products Corporation example.King Products Corporation's inventory turnover for the fiscal year ended at June 30, Year 6, was

Accepted Answer

A) 3.7 
B) 4.0 
C) 4.4 
D) 5.0 
E) none of the above 
A) 3.7 
B) 4.0 
C) 4.4 
D) 5.0 
E) none of the above

Question 8

A firm computes ROA, profit margin for ROA, and total assets turnover for each segment using the segment disclosures.The amounts for these ratios computed at a segment level differ from those at a corporate level for which of the following reason(s)?

Accepted Answer

A) The numerator of ROA at a firm-wide level includes all revenues and expenses except interest expense net of taxes, whereas the numerator of ROA using the segment data includes operating revenues and expenses only. 
B) The denominator of ROA at a firm-wide level is the average of assets at the beginning and end of the year, whereas total assets at the end of the year are used in computing segment ROAs. 
C) The denominator of ROA at a firm-wide level is the total assets at the end of the year, whereas the average of assets at the beginning and end of the year, are used in computing segment ROAs. 
D) choices a and b 
E) choices a and c 
A) The numerator of ROA at a firm-wide level includes all revenues and expenses except interest expense net of taxes, whereas the numerator of ROA using the segment data includes operating revenues and expenses only. 
B) The denominator of ROA at a firm-wide level is the average of assets at the beginning and end of the year, whereas total assets at the end of the year are used in computing segment ROAs. 
C) The denominator of ROA at a firm-wide level is the total assets at the end of the year, whereas the average of assets at the beginning and end of the year, are used in computing segment ROAs. 
D) choices a and b 
E) choices a and c

Question 9

Ramer Company and Matson Company
 Assume the following information for Ramer Company, Matson Company, and for their common industry for a recent year.
$\begin{array}{llll}&\text { Ramer } & \text { Matson } & \text { Industry Average }\
\text { Current ratio } & 3.50 & 2.80 & 3.00 \
\text { Accounts receivable turnover } & 5.00 & 8.10 & 6.00 \
\text { Inventory tumover } & 6.20 & 8.00 & 6.10 \
\text { Interest coverage ratio } & 9.00 & 12.30 & 10.40 \
\text { Debt-equity ratio } & 0.70 & 0.40 & 0.55 \
\text { Retum on investment } & 0.15 & 0.12 & 0.15 \
\text { Dividend payout ratio } & 0.80 & 0.60 & 0.55 \
\text { Earnings per share } & \$ 3.00 & \$ 2.00 & -
\end{array}$ (CMA adapted, Jun 90 #19) Regarding the data for Ramer Company and Matson Company, which one of the following is correct if both companies have the same total assets and the same sales?

Accepted Answer

A) Ramer has more cash than Matson. 
B) Ramer has fewer current liabilities than Matson. 
C) Matson has less shareholders' equity than Ramer. 
D) Matson has a shorter operating cycle than Ramer. 
E) None of the above is correct. 
A) Ramer has more cash than Matson. 
B) Ramer has fewer current liabilities than Matson. 
C) Matson has less shareholders' equity than Ramer. 
D) Matson has a shorter operating cycle than Ramer. 
E) None of the above is correct.

Question 10

What affect(s) the market price of common stock shares?

Accepted Answer

A) changes in international tensions 
B) economy-wide factors 
C) specific industry factors 
D) changes in exchange rates 
E) all of the above 
A) changes in international tensions 
B) economy-wide factors 
C) specific industry factors 
D) changes in exchange rates 
E) all of the above

Question 11

The capital provided by common shareholders during the period used for calculating the return on common equity equals

Accepted Answer

A) the average par value of common stock, capital contributed in excess of par value on common stock, retained earnings, and any other common shareholders' equity accounts for the period. 
B) average preferred shareholders' equity less average total shareholders' equity. 
C) the ending par value of common stock, capital contributed in excess of par value on common stock, retained earnings, and any other common shareholders' equity accounts for the period. 
D) ending preferred shareholders' equity less ending total shareholders' equity. 
E) choices a and b 
A) the average par value of common stock, capital contributed in excess of par value on common stock, retained earnings, and any other common shareholders' equity accounts for the period. 
B) average preferred shareholders' equity less average total shareholders' equity. 
C) the ending par value of common stock, capital contributed in excess of par value on common stock, retained earnings, and any other common shareholders' equity accounts for the period. 
D) ending preferred shareholders' equity less ending total shareholders' equity. 
E) choices a and b

Question 12

The capital structure leverage ratio

Accepted Answer

A) indicates the portion of total assets, or total financing, provided by common shareholders contrasted with the financing provided by creditors and preferred shareholders. 
B) is larger when there is more financial leverage. 
C) is smaller when there is less financial leverage. 
D) all of the above 
E) none of the above 
A) indicates the portion of total assets, or total financing, provided by common shareholders contrasted with the financing provided by creditors and preferred shareholders. 
B) is larger when there is more financial leverage. 
C) is smaller when there is less financial leverage. 
D) all of the above 
E) none of the above

Question 13

The fixed asset turnover ratio

Accepted Answer

A) measures the relation between sales and the investment in fixed assets such as property, plant, and equipment. 
B) measures the amount of sales generated from a particular level of investments in fixed assets. 
C) is calculated by dividing sales by the average fixed assets for the period. 
D) all of the above. 
E) none of the above. 
A) measures the relation between sales and the investment in fixed assets such as property, plant, and equipment. 
B) measures the amount of sales generated from a particular level of investments in fixed assets. 
C) is calculated by dividing sales by the average fixed assets for the period. 
D) all of the above. 
E) none of the above.

Question 14

Discuss measures of long-term liquidity risk.

Accepted Answer

MEASURES OF LONG-TERM LIQUIDITY RISK
Ana

Question 15

In assessing the debt ratios, analysts customarily vary the standard in relation to the stability of the firm's earnings and cash flows from operations.Public utilities have liabilities to assets ratios frequently on the order of

Accepted Answer

A) 0% to 10%. 
B) 10% to 20%. 
C) 30% to 40%. 
D) 60% to 70%. 
E) 90% to 100%. 
A) 0% to 10%. 
B) 10% to 20%. 
C) 30% to 40%. 
D) 60% to 70%. 
E) 90% to 100%.

Question 16

Devlin Company 
Devlin Company
Statement of Financial Position
as of May 31
(in thousands)
\(\begin{array}{lll}\text { Assets }&\text {year 7}&\text {year 6}\
\text { Current assets } & & \
\text { Cash } & \$ 45 & \$ 38 \
\text { Trading securities } & 30 & 20 \
\text { Accounts receivable (net) } & 68 & 48 \
\text { Inventories } & 90 & 80\\text { Prepaid expenses }&22&30\
\text { Total current assets } & \$ 255 & \$ 216 \
\text { Investments, at equity } & 38 & 30 \
\text { Property, plant, and equipment (net) } & 375 & 400 \
\text { Intangible assets (net) } & 80 & 45\
\text { Total assets } &\$ 748 &\$ 691 \
\text { Liabilities and shareholders' equity } & & \
\text { Current liabilities } &  \
\text { Notes payable } &\$ 35 & \$ 18  \
\text { Accounts payable } &70 & 42 \
\text { Accrued expenses } & 5 & 4 \
\text { Income taxes pavable } & 15 & 16\
\text { Total current liabilities } & 125 & 80 \
\text { Long-term debt } & 35 & 35 \
\text { Deferred taxes } & 3 & 2\\text { Total liabilities } &\$ 163 &\$ 117 \
\text { Shareholders' equity } & \
\text { Preferred stock, } 6 \%, \$ 100 \text { par value, cumulative } & 150 & 150\
\text { Common stock, } \$ 10 \text { par value } & 225 & 195 \
\text { Additional paid-in capital-common stock } & 114 & 100 \
\text { Retained earmings } & 96 & 129 \
\text { Total shareholders' equity }&\$585&\$574\
\text { Total liabilities and shareholders' equity }&\$748&\$691
\end{array}\)
Devlin Company
Income Statement
For the year ended May 31
(in thousands)
$\begin{array}{lll}&\text { Year } 7&\text { Year } 6\
\text { Net sales } & \$ 480 & \$ 460 \
\text { Costs and expenses } & & \
\text { Cost of goods sold } & 330 & 315 \
\text { Selling, general, and administrative } & 52 & 51\\text { Interest expense }&8&9\
\text { Income before taxes } & \$ 90 & \$ 85 \
\text { Income taxes } & 36 & 34\
\text { Net income }&\$54&\$51
\end{array}$ (CMA adapted, Jun 97 #15) Refer to the Devlin Company example.Devlin Company's inventory turnover for the year ended May 31, Year 7, was

Accepted Answer

A) 3.67 times 
B) 3.88 times 
C) 5.33 times 
D) 5.65 times 
E) 5.95 times 
A) 3.67 times 
B) 3.88 times 
C) 5.33 times 
D) 5.65 times 
E) 5.95 times

Question 17

(CMA adapted, Jun 90 #20) Regarding the data for Ramer Company and Matson Company, the attitudes of both Ramer and Matson concerning risk are best explained by the

Accepted Answer

A) current ratio, accounts receivable turnover, and inventory turnover. 
B) return on investment and dividend payout ratio. 
C) current ratio and earnings per share. 
D) debt-equity ratio and interest coverage ratio. 
E) none of the above. 
A) current ratio, accounts receivable turnover, and inventory turnover. 
B) return on investment and dividend payout ratio. 
C) current ratio and earnings per share. 
D) debt-equity ratio and interest coverage ratio. 
E) none of the above.

Question 18

Why are ratios useful?

Accepted Answer

USEFULNESS OF RATIOS
Readers cannot easi

Question 19

In a modern corporate environment, the trial balance is prepared from the

Accepted Answer

A) financial statements. 
B) computerized accounting systems. 
C) journals. 
D) subsidiary ledgers. 
E) chart of accounts. 
A) financial statements. 
B) computerized accounting systems. 
C) journals. 
D) subsidiary ledgers. 
E) chart of accounts.

Question 20

Analysts deciding between investments must consider the comparative risks.Which of the following is/are economy-wide factors that affect the risk of business firms?

Accepted Answer

A) increased inflation 
B) increased interest rates 
C) unemployment 
D) recessions 
E) all of the above 
A) increased inflation 
B) increased interest rates 
C) unemployment 
D) recessions 
E) all of the above

To calculate the amount of net income assignable to common shareholders' equity, the analyst does not

Managing inventory turnover involves balancing which of the following consideration(s) in setting the optimum level of inventory and, thus, the rate of inventory turnover?

Analysts deciding between investments must consider the comparative risks.Which of the following factors affect the risk of business firms?

For each of the following independent situations, solve for the unknown amount. CASE A CASE B CASE C CASE D Current ratio A 1.14 2.0 0.67 Quick ratio 0.2 B 1.0 0.60 Current liabilities 400 175 100 360 Current assets 150 200 C 240 Highly liquid assets 80 75 100 D

The rate at which _____ turn(s) over measures how quickly a firm collects cash.

A measure of profitability for a firm engaging in operations selling merchandise in its stores to generate net income includes the rate of return on assets. Discuss the rate of return on assets.

A firm computes ROA, profit margin for ROA, and total assets turnover for each segment using the segment disclosures.The amounts for these ratios computed at a segment level differ from those at a corporate level for which of the following reason(s)?

What affect(s) the market price of common stock shares?

The capital provided by common shareholders during the period used for calculating the return on common equity equals

The capital structure leverage ratio

The fixed asset turnover ratio

Discuss measures of long-term liquidity risk.

In assessing the debt ratios, analysts customarily vary the standard in relation to the stability of the firm's earnings and cash flows from operations.Public utilities have liabilities to assets ratios frequently on the order of

(CMA adapted, Jun 90 #20) Regarding the data for Ramer Company and Matson Company, the attitudes of both Ramer and Matson concerning risk are best explained by the

Why are ratios useful?

In a modern corporate environment, the trial balance is prepared from the

Analysts deciding between investments must consider the comparative risks.Which of the following is/are economy-wide factors that affect the risk of business firms?

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

Exam 7: Introduction to Financial Statement Analysis

To calculate the amount of net income assignable to common shareholders' equity, the analyst does not

Managing inventory turnover involves balancing which of the following consideration(s) in setting the optimum level of inventory and, thus, the rate of inventory turnover?

Analysts deciding between investments must consider the comparative risks.Which of the following factors affect the risk of business firms?

For each of the following independent situations, solve for the unknown amount. CASE A CASE B CASE C CASE D Current ratio A 1.14 2.0 0.67 Quick ratio 0.2 B 1.0 0.60 Current liabilities 400 175 100 360 Current assets 150 200 C 240 Highly liquid assets 80 75 100 D

The rate at which _____ turn(s) over measures how quickly a firm collects cash.

A measure of profitability for a firm engaging in operations selling merchandise in its stores to generate net income includes the rate of return on assets. Discuss the rate of return on assets.

A firm computes ROA, profit margin for ROA, and total assets turnover for each segment using the segment disclosures.The amounts for these ratios computed at a segment level differ from those at a corporate level for which of the following reason(s)?

What affect(s) the market price of common stock shares?

The capital provided by common shareholders during the period used for calculating the return on common equity equals

The capital structure leverage ratio

The fixed asset turnover ratio

Discuss measures of long-term liquidity risk.

In assessing the debt ratios, analysts customarily vary the standard in relation to the stability of the firm's earnings and cash flows from operations.Public utilities have liabilities to assets ratios frequently on the order of

(CMA adapted, Jun 90 #20) Regarding the data for Ramer Company and Matson Company, the attitudes of both Ramer and Matson concerning risk are best explained by the

Why are ratios useful?

In a modern corporate environment, the trial balance is prepared from the

Analysts deciding between investments must consider the comparative risks.Which of the following is/are economy-wide factors that affect the risk of business firms?

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters