Deck 12: Analyzing and Interpreting Financial Statements

Question 1

An equity investor would be primarily concerned with:

A)the amount of assets that the company has pledged as collateral.
B)the current and future value of the company's shares.
C)a company's ability to pay their creditors in the near term.
D)the company's ability to pay their income taxes.

Answer 1

B

Question 2

What are revenues, expenses, gains and losses that are part of the normal operations of the firm, but that are not expected to occur frequently, called?

A)Extraordinary items
B)Unusual items
C)Irregular items
D)Discontinued items

Answer 2

B

Question 3

Which of the following are the two primary concerns of creditors?

A)Security and the ability of the borrower to make payments
B)Security and profitability
C)Solvency and the ability of the borrower to make payments
D)Solvency and profitability

Answer 3

A

Question 4

Which of the following statements regarding high quality earnings is true?

A)High quality earnings are strongly correlated to past earnings.
B)High quality earnings contain a lot of transitory items.
C)High quality earnings are primarily composed of permanent items.
D)High quality earnings are those that increase over the prior period.

Question 5

Which of the following is most likely to be classified as an unusual item?

A)An expropriation of land by the local government.
B)A discontinued operation
C)A gain on the sale of capital assets.
D)Investment income

Question 6

What are restrictions that impose limits on the actions of a borrower called?

A)Conditions
B)Collateral
C)Covenants
D)Chattels

Question 7

Barrhead Ltd.has a covenant that requires them to maintain a current ratio of 1 to 3.Which of the following users most likely imposed the covenant?

A)Banker
B)Shareholders
C)Canada Revenue Agency
D)Management

Question 8

An analyst has calculated the ratio of research and development expenses to sales for a company he is following and noticed that it is significantly lower this year than in the previous years.What might this be an indication of?

A)That management might be attempting to increase current earnings.
B)That management might be attempting to increase future earnings.
C)That the earnings quality is higher than it was before.
D)That the profitability of the company is higher than it was before.

Question 9

All of the following are items that management could use to manage earnings except:

A)unearned revenue.
B)inventory purchases.
C)obsolete inventory.
D)useful life of assets.

Question 10

The type of analysis a creditor requires depends on the nature of the credit being provided.The nature of the credit means:

A)the amount of the credit.
B)the value and type of security.
C)whether the credit is for the short or long term.
D)the ability of the borrower to pay interest.

Question 11

Ratio analysis and analytical tools are grouped into themes.All of the following are analytical themes except:

A)liquidity.
B)management stewardship.
C)evaluating performance.
D)solvency and leverage.

Question 12

What is the first step in the successful analysis of an entity?

A)Read the financial statements.
B)Prepare a financial ratio analysis.
C)Interview management.
D)Find as much information as possible about the entity.

Question 13

High earnings quality is most likely to:

A)result in steady earnings growth.
B)improve the ability to predict future earnings.
C)be based on conservative accounting choices.
D)result in fewer bad debts.

Question 14

All of the following are items that management could use to manage earnings except:

A)bad debt expense.
B)warranty expense.
C)asset write-downs.
D)sales expense.

Question 15

Why is it important to separate a company's earnings into permanent earnings and transitory earnings?

A)To aid in the evaluation of management.
B)To help predict future earnings and cash flows.
C)To assist short-term creditors with their decisions.
D)To aid in determining taxable income.

Question 16

Which of the following will have an impact on a company's quality of earnings?

A)The delay of payments to suppliers.
B)The use of monthly statements to encourage payment of receivables.
C)The deferral of expenditures for research and development.
D)The decision to delay the purchase of inventory until after year-end.

Question 17

Which of the following would increase current income but decrease future income?

A)The deferral of maintenance costs.
B)The purchase of capital assets.
C)An increase in the allowance for doubtful accounts.
D)The reduction in the estimated useful lives of assets.

Question 18

What section of the annual report is intended to provide readers with a view of the entity through the eyes of management?

A)Financial statements
B)Audit report
C)Statement of management's responsibility
D)Management discussion and analysis

Question 19

Which of the following mechanisms is least likely to discourage management bias in the presentation of financial information?

A)Debt covenants
B)Securities regulators
C)Class action lawsuits
D)External Auditors

Question 20

Which of the following types of income would be considered to be permanent earnings?

A)A gain on the sale of equipment resulting from the discontinuance of a business segment.
B)Income from a business segment that is expected to be sold within the next year.
C)Income resulting from the successful settlement of a major lawsuit.
D)Income resulting from a store opened during the most recent fiscal year.

Question 21

A user has decided to perform a horizontal analysis of Nanton Company.The year 2012 is used as the base year.Sales in 2012 were $4,250,000.Sales in 2013 and 2014 were $5,788,000 and $6,125,000, respectively.The trend data amount for 2014 for sales would be closest to?

A)106%
B)113%
C)136%
D)144%

Question 22

A common size analysis of the balance sheet is most likely to signal investors that:

A)the company is collecting receivables faster.
B)the company has increased sales.
C)the company is using assets efficiently.
D)the company is becoming more leveraged.

Question 23

Assuming no changes in other variables, which of the following would decrease ROA?

A)A decrease in the effective tax rate
B)An increase in interest expense
C)An increase in average assets
D)A decrease in average assets

Question 24

In performing a vertical analysis, what would property, plant, and equipment be expressed as a percentage of?

A)Total current assets
B)Total assets
C)Total liabilities
D)Sales revenue

Question 25

In performing a vertical analysis, what would accounts payable be expressed as a percentage of?

A)Total current liabilities
B)Total assets
C)Sales revenue
D)Total shareholders' equity

Question 26

What are the receivables turnover and inventory turnover used to analyze?

A)Solvency
B)Profitability
C)Liquidity
D)Leverage

Question 27

An analyst gathered the following data for a company: $\begin{array}{lccc}&2013&2014&2015\\\text { Sales } & \$ 5,000,000 & \$ 4,900,000 & \$ 4,770,000 \\\text { Net assets } & \$ 1,630,000 & \$ 1,625,000 & \$ 1,623,000 \\\text { ROE } & 9.8 \% & 10.0 \% & 11.2^{\circ} \% \\\text { Total asset turnover } & 2.0 & 2.1 & 2.2 \\\text { Gross margin } & 33.0 \% & 33.6 \% & 34.2 \%\end{array}$ Based only on the information above, the most appropriate conclusion is that:

A)the company's net profit margin and debt levels have decreased.
B)the company's net profit margin and debt levels have increased.
C)the company's net profit margin has decreased but debt levels have increased.
D)the company's net profit margin has increased and it has more liquidity.

Question 28

Which of the following is the best measure of performance that is independent of the way an entity is financed?

A)Gross margin percentage
B)Profit margin
C)Return on equity
D)Return on assets

Question 29

In a horizontal or trend analysis, what is each item expressed as a percentage of?

A)Total assets
B)Total sales
C)The base year amount
D)Net earnings

Question 30

What does the profit margin measure?

A)The percentage of each sales dollar that the entity earns in profit.
B)The amount of profit available to meet operating expenses.
C)The amount of profit being generated by the company's assets.
D)The average time it takes the company to turn inventory into profit.

Question 31

What is the another name for vertical analysis?

A)Horizontal analysis
B)Common size analysis
C)Trend analysis
D)Percentage analysis

Question 32

If a user wanted to analyze the discretionary expenses, which of the following would be the most useful analytical tool?

A)Horizontal analysis
B)Vertical analysis
C)Gross margin
D)Return on sales

Question 33

Assuming no changes in other variables, which of the following would increase ROA?

A)An increase in the effective tax rate.
B)A decrease in interest expense.
C)An increase in average assets.
D)A decrease in average assets.

Question 34

What is another name for horizontal analysis?

A)Vertical analysis
B)Common size analysis
C)Trend analysis
D)Percentage analysis

Question 35

If you wanted to compare the increase in sales to the increase in assets, which of the following tools would you use?

A)Vertical analysis
B)Horizontal analysis
C)Return on asset
D)Asset turnover

Question 36

The return on assets ratio is the product of which of the following?

A)Asset turnover times gross margin percentage
B)Asset turnover times profit margin
C)Profit margin times sales
D)Profit margin times total assets

Question 37

What does the gross margin percentage measure?

A)The percentage of each sales dollar that the entity earns in profit.
B)The amount of profit available to meet operating expenses.
C)The amount of profit being generated by the company's assets.
D)The average time it takes the company to turn inventory into profit.

Question 38

Gross margin would be a meaningful ratio to calculate for all of the following types of businesses except:

A)retailer.
B)wholesaler.
C)service provider.
D)manufacturer.

Question 39

All of the following ratios would be useful in assessing an entity's liquidity except:

A)profit margin.
B)current ratio.
C)quick ratio.
D)accounts receivable turnover.

Question 40

Which analytical tool gives the best indication of the growth and decline of an entity?

A)Vertical analysis
B)Horizontal analysis
C)Return on asset
D)Profit margin

Question 41

The following data comes from Beaumont Company's financial statements for the year ended December 31, 2014.(Assume that the balance sheet amounts represent both average and ending balances.) $$\begin{array} { l r } \text { Cash } & \$ 5,000 \\\text { Accounts receivable } & 75,000 \\\text { Inventory } & 32,500 \\\text { Sales } & 525,000 \\\text { Cost of goods sold } & 315,000 \\\text { Net income } & 42,500\end{array}$$ What are Beaumont's average collection period of accounts receivable and their average number of inventory days on hand closest to? $\begin{array}{ll}\text { Accounts } & \text { Inventory } \\\text { receivable } & \text { days on } \\\text { collection } & \text { hand }\\\text { A) } 52 \text { days } & 38 \text { days } \\\text { B) } 52 \text { days } & 23 \text { days } \\\text { C) } 87 \text { days } & 38 \text { days } \\\text { D) } 87 \text { days } & 23 \text { days }\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 42

Wu Limited had $350,000 of current assets and $120,000 of current liabilities before borrowing $60,000 from the bank with a 6-month note payable.What effect did the borrowing transaction have on Wu
Limited's current ratio?

A)The ratio remained unchanged.
B)The ratio decreased.
C)The ratio increased.
D)The change in the current ratio cannot be determined.

Question 43

Bank of Royal's credit manager, Massimo Rozzi is interested in assessing the efficiency, profitability and liquidity of Spherion PLC.Rozzi has collected the following data for Spherion: $\begin{array}{llll}&2015&2014&2013\\\text { Days of sales outstanding } & 28 & 25 & 23 \\\text { Days of inventory on hand } & 32 & 34 & 40 \\\text { Number of days of payables } & 40 & 35 & 35\end{array}$ Based on this data, what is Rozzi least likely to conclude?

A)Management is aggressively recognizing revenues.
B)Inventory management has contributed to improved liquidity.
C)Management of payables has contributed to improved liquidity.
D)Management of receivables has contributed to improved liquidity.

Question 44

Entwhistle Ltd.supplied the following information for the years-ended December 31, 2013 and 2014: $\begin{array}{lcc} \text { Current Assets: } & 2014 & 2013 \\\text { Cash } & \$ 15,000 & 16,750 \\\text { Accounts Receivable } & 247,500 & 299,000 \\\text { Inventory } & 275,000 & 166,250 \\\text { Prepaid expenses } & 4,000 & 4,000 \\\\\text { Current liabilities }&\$541,500&\$1,084,000\\\\\text { Net credit sales } & \$ 2,400,000 & \$ 2,255,000 \\\text { Purchases } & \$ 1,700,000 & \$ 1,590,000\end{array}$ Entwhistle's credit terms are net 30 days On average Entwhistle holds inventory for how many days?

A)47.4 days
B)50.6 days
C)59 days
D)65 days

Question 45

What does an increase in the accounts receivable turnover mean?

A)The collection of receivables is deteriorating.
B)The collection of receivables is improving.
C)The company's liquidity is deteriorating.
D)The company is selling more items on credit.

Question 46

The following data comes from Beaumont Company's financial statements for the year ended December 31, 2014.(Assume that the balance sheet amounts represent both average and ending balances.) $$\begin{array} { l r } \text { Cash } & \$ 5,000 \\\text { Accounts receivable } & 75,000 \\\text { Inventory } & 32,500 \\\text { Sales } & 525,000 \\\text { Cost of goods sold } & 315,000 \\\text { Net income } & 42,500\end{array}$$ What are Beaumont's accounts receivable turnover ratio and their inventory turnover ratio closest to? $\begin{array}{lr}\text { A/R } & \text { Inventory } \\\text { Turnover } & \text { Turnover }\\\text { A) } 7 \text { times } & 9.7 \text { times } \\\text { B) } 7 \text { times } & 16.1 \text { times } \\\text { C) } 1.4 \text { times } & 9.7 \text { times } \\\text { D) } 1.4 \text { times } & 16.1 \text { times }\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 47

Entwhistle Ltd.supplied the following information for the years-ended December 31, 2013 and 2014: $\begin{array}{lcc} \text { Current Assets: } & 2014 & 2013 \\\text { Cash } & \$ 15,000 & 16,750 \\\text { Accounts Receivable } & 247,500 & 299,000 \\\text { Inventory } & 275,000 & 166,250 \\\text { Prepaid expenses } & 4,000 & 4,000 \\\\\text { Current liabilities }&\$541,500&\$1,084,000\\\\\text { Net credit sales } & \$ 2,400,000 & \$ 2,255,000 \\\text { Purchases } & \$ 1,700,000 & \$ 1,590,000\end{array}$ Entwhistle's credit terms are net 30 days. On average, Entwhistle has been collecting its accounts receivable:

A)within the 30 days required by its credit terms.
B)after the 30 days has passed.
C)within the discount period of 10 days.
D)more information is needed to answer this question.

Question 48

A company bought inventory for cash.Which of the following statements about their current ratio and quick ratio is true?

A)Both ratios would increase.
B)The current ratio would not change, but the quick ratio would decrease.
C)The current ratio would not change, but the quick ratio would increase.
D)Both ratios would decrease.

Question 49

What is Wang's gross margin closest to?

A)6.25%
B)10.4%
C)13.8%
D)19.4%

Question 50

What are Wang's current ratio and acid test ratio? $\begin{array}{ll}&\text { Current } & \text { Acid Test } \\&\text { Ratio } & \text { Ratio }\\\text { A) } & 1.4 & .50 \\\text { B) } & 1.4 & .80 \\\text { C) } & 6.0 & .50 \\\text { D) } & 6.0 & .80\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 51

If a company is experiencing cash flow problems which of the following would help alleviate the problem?

A)Increasing the rate of sales growth.
B)Paying suppliers more quickly.
C)Increasing the amount of goods sold on credit.
D)Hiring a credit manager to collect overdue receivables.

Question 52

A company had the following partial list of assets and liabilities: $$\begin{array} { l r } \text { Cash } & \$ 5,000 \\\text { FVTOCI securities } & 15,000 \\\text { Accounts receivable } & 75,000 \\\text { Inventory } & 32,500 \\\text { Prepaid insurance } & 2,500 \\\text { Accounts payable } & 18,500 \\\text { Unearned revenue } & 20,000 \\\text { Current portion of long-term debt } & 5,000\end{array}$$ What is their current ratio closest to?

A)2.2
B)2.5
C)3.0
D)3.4

Question 53

What is Wang's return on assets closest to?

A)6.05%
B)6.25%
C)6.45%
D)6.52%

Question 54

A company had the following current assets and current liabilities: $$\begin{array} { l r } \text { Cash } & \$ 5,000 \\\text { FVTOCI securities } & 15,000 \\\text { Accounts receivable } & 75,000 \\\text { Inventory } & 32,500 \\\text { Prepaid insurance } & 2,500 \\\text { Accounts payable } & 18,500 \\\text { Unearned revenue } & 20,000 \\\text { Current portion of long-term debt } & 5,000\end{array}$$ What is their quick ratio closest to?

A)2.2
B)2.5
C)3.0
D)3.4

Question 55

What is Wang's return on equity closest to?

A)11.72 %
B)8.3%
C)10.4%
D)60%

Question 56

Which of the following would raise a red flag about the cash cycle of a company?

A)Increase in both accounts receivable and accounts payable
B)Decrease in both accounts receivable and accounts payable
C)Increase in accounts receivable and decrease in accounts payable
D)Stable levels of accounts receivable and accounts payable.

Question 57

What is a general rule to use in assessing the average collection period?

A)It should not exceed 30 days.
B)It should not exceed the credit term period.
C)It should not exceed the inventory turnover period.
D)It can be any length as long as the customer continues to make monthly payments.

Question 58

Which of the following would best explain an increase in receivables turnover?

A)The company adopted new credit policies last year and began offering credit to customers with weak credit histories.
B)Due to problems with an error in its old credit system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables.
C)To match the terms offered by its closest competitor, the company adopted new payment terms now requiring net payment within 30 days rather than 15 days, which had been its previous requirement.
D)To keep its share price from falling in a highly competitive market, the company began to recognize revenues from their distributors upon delivery instead of waiting until the right to return period has passed.

Question 59

Which of the following would you most likely expect when analyzing a successful grocery store?

A)A high level of receivables
B)A high inventory turnover
C)A high gross profit percentage
D)A high profit margin

Question 60

What is Wang's profit margin closest to?

A)6.25%
B)10.4%
C)13.8%
D)19.4%

Question 61

What are Kang's current ratio and quick ratio closest to? $\begin{array}{ll}\text { Current } & \text { Quick } \\\text { Ratio } & \text { Ratio }\\\text { A) } 4.8 & .50 \\\text { B) } 4.8 & 2.2 \\\text { C) } 2.2 & .50 \\\text { D) } 2.2 & 2.2\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 62

A company had accounts payable at the beginning of the year of $63,000 and at the end of the year of $69,000.Inventory at the beginning of the year was $102,000 and at the end of the year $118,000.Cost of sales for the year was $600,000.What was their accounts payable turnover ratio closest too?

A)5.5 times
B)9.1 times
C)9.3 times
D)12.4 times

Question 63

The components of Tofield Ltd.'s capital structure and their related costs are as follows: $\begin{array}{lr}\text { Current liabilities } & \$ 400,000 \\\text { Long-term liabilities } & \$ 1,000,000^{1} \\\text { Preferred shares } & \$ 250,000^{2} \\\text { Common shares } & \$ 250,000^{3}\\\text { Retained earnings } & \$ 672,500 \\\text { Net income } & \$ 112,500 \\{ }^{1} \$ 80.000 \text { interest paid } &\\{ }^{2} \$ 12,500 \text { dividends paid }\\{ }^{3} \$ 2,500 \text { dividends paid }\end{array}$ If Tofield's corporate tax rate was 25%, what was their return on assets closest to?

A)4.4%
B)6.7%
C)7.5%
D)ROA cannot be determined from the data given.

Question 64

Kang's management has the option of converting $100,000 in debt into common shares of the company.What impact would the conversion have on the company's solvency as measured by the debt-to-total-assets and its liquidity as measured by the current ratio?

A)The solvency would improve, but the liquidity would deteriorate.
B)Both the solvency and the liquidity would improve.
C)The solvency would improve, but the liquidity would remain unchanged.
D)The solvency would not be affected, but the liquidity would improve.

Question 65

What does the P/E ratio measure?

A)The value that the stock market places on a company's earnings and growth prospects.
B)The relationship between dividends and market prices.
C)The earnings for one common share of stock.
D)The future prospects of the company.

Question 66

For 2014, Pink Flamingo Products had net income of $1,000,000.On January 1, 2014, there were 1,000,000 shares outstanding.On July 1, 2014 the company issued 100,000 new
Shares for $20 per share.The company paid $200,000 in dividends to common shareholders.What is Pink Flamingo's basic earnings per share for 2014?

A)$0.76
B)$0.91
C)$0.95
D)$1.00

Question 67

What is Kang's interest coverage ratio closest to?

A)2.3 times
B)8.2 times
C)9.2 times
D)10.2 times

Question 68

The following information is from Drayton Valley Company's December 31, 2014 and 2013, financial statements: $$\begin{array} { l r r } & \underline { 2014 } & \underline { 2013 } \\\text { Accounts receivable } & \$ 80,000 & \$ 72,000 \\\text { Inventory } & 56,000 & 70,000 \\\text { Sales } & 380,000 & 372,000 \\\text { Cost of goods sold } & 228,000 & 216,000 \\\text { Net income } & 65,000 & 56,000\end{array}$$ What are Drayton Valley's accounts receivables turnover and inventory turnover ratios closest to? $\begin{array}{ll}\text { A/R } & \text { Inventory } \\\text { turnover } & \text { turnover }\\\text { A) } 2.85 & 3.96 \\\text { B) } 4.70 & 3.62 \\\text { C) } 5.00 & 3.62 \\\text { D) } 4.75 & 6.03\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 69

What are Kang's return on equity (ROE) and earnings per share (EPS) closest to? $\begin{array}{ll}\text { ROE } & \underline{E P S}\\\text { A) } 28.5 \% & \$ 13.125 \\\text { B) } 28.5 \% & \$ 14.55 \\\text { C) } 65.6 \% & \$ 13.125 \\\text { D) } 65.6 \% & \$ 14.55\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 70

What would an increase in the accrual based interest coverage ratio be an indication of?

A)That interest rates have risen.
B)That the company's solvency has improved.
C)That the company's solvency has deteriorated.
D)That the company's use of financial leverage has increased.

Question 71

The shareholder's equity section of Killam Company contains the following accounts and amounts: $$\begin{array}{l}\begin{array} { l r } \text { Preferred shares } ^ { 1 } , 50,000 \text { outstanding } & \$ 1,250,000 \\\text { Common shares } ^ { 2 } , 1,000,000 \text { outstanding } & \$ 2,500,000 \\\text { Retained earnings } & \$ 3,500,000 \\\text { Net income } & \$ 875,000\end{array}\\{ } ^ { 1 } \$ 100,000 \text { dividends paid; } { } ^ { 2 } \$ 500,000 \text { dividends paid }\end{array}$$ What was Killam's return on equity closest too?

A)10.6%
B)12.0%
C)12.9%
D)14.5%

Question 72

Which of the following is a benefit of using debt over equity as a source of long-term financing?

A)Interest on debt is tax deductible.
B)An increase in the use of debt makes a company less risky.
C)Debt financing may contain covenants that help management manage the company.
D)Interest payments on debt may be deferred.

Question 73

What does an increase in a company's price-to-earnings ratio generally indicate?

A)That the market expects earnings to decrease in the future.
B)That the market expects earnings to grow in the future.
C)That the market expects the payout ratio increase.
D)That the shareholders expect the market price of the shares to decline.

Question 74

Leiminster Co.is analyzing the solvency of Acme Manufacturing and has collected the following data: $\begin{array}{llll} & \mathbf{2 0 1 5} & \mathbf{2 0 1 4} & \mathbf{2 0 1 3} \\\text { Total debt } & \$ 2,000 & \$ 1,900 & \$ 1,750 \\\text { Total equity } & \$ 4,000 & \$ 4,500 & \$ 5,000\end{array}$ What would be a reasonable explanation of these financial results?

A)The decline in the company's equity results from a decline in the market value of the company's common shares.
B)The increase of $250 in the company's debt from 2013 to 2015 indicates that lenders are viewing the company as increasingly creditworthy.
C)The decline in the company's equity indicates that the company may be incurring losses on its operations, paying dividends greater than income, or repurchasing shares.
D)The increase of $250 in the company's debt from 2013 to 2015 indicates that the company is generating low level of cash and needs to borrow.

Question 75

What might a decreasing accounts payable turnover ratio indicate?

A)That the company is paying their bills more slowly.
B)That the company is paying their bills more quickly.
C)That the company is buying more on credit.
D)That the company's liquidity is improving.

Question 76

Aslam Company reported the following on its income statement for the year-ended June 30, 2014. $$\begin{array} { l r } \text { Earnings before income tax } & \$ 550,000 \\\text { Income tax expense } & \underline { 160,000 } \\\text { Net income } & \$ 390,000\end{array}$$ An analysis of the income statement revealed that interest expense was $60,000 for the year.What was Aslam's interest coverage ratio closest to?

A)6.5 times
B)9.2 times
C)9.9 times
D)10.2 times
($550,000 + $60,000)/$60,000 = 10.2 times

Question 77

What is Kang's return on assets closest to?

A)17.4%
B)19.5%
C)21.7%
D)22.4%

Question 78

Which of the following actions would reduce a company's cash lag?

A)Extending the length of credit offered to customers.
B)Extending the amount of time it takes to pay suppliers.
C)Selling inventory more quickly.
D)Decreasing the gross margin percentage.

Question 79

What are Kang's debt-to-total assets ratio and debt-to-equity ratio closest to? $\begin{array}{ll}\text { Debt-to- } & \text { Debt-to- } \\\text { total Assets } & \underline{\text { equity }}\end{array}$
A. $\quad31.3 \% \quad\quad\quad 45.6 \%$
B. $\quad31.3 \% \quad\quad\quad 31.3 \%$
C. $\quad23.8 \% \quad\quad\quad 45.6 \%$
D. $\quad23.8 \% \quad\quad\quad 31.3 \%$

A)Option A
B)Option B
C)Option C
D)Option D

Question 80

Leiminster Co.is analyzing the solvency of Acme Manufacturing and has collected the following data: $$\begin{array} { l l l r } & \mathbf { 2 0 1 5 } & \mathbf { 2 0 1 4 } & \mathbf { 2 0 1 3 } \\\text { Total debt } & \$ 2,000 & \$ 1,900 & \$ 1,750 \\\text { Total equity } & \$ 4,000 & \$ 4,500 & \$ 5,000\end{array}$$ Which of the following would be the most appropriate about Acme?

A)The company is becoming increasingly less solvent, as evidenced by the increase in its debt-to-equity ratio from 0.35 to 0.50 from 2013 to 2015.
B)The company is becoming less liquid, as evidenced by the increase in its debt-to equity ratio from 0.35 to 0.50 from 2013 to 2015.
C)The company is becoming increasingly more liquid, as evidenced by the increase in its debt-to-equity ratio from 0.35 to 0.50 from 2013 to 2015.
D)The company is becoming more risky as equity investment has declined by $1,000 or 20% from 2013 to 2015.