Deck 14: Financial Statement Analysis

Question 1

A period of two consecutive years is sufficient to establish a trend analysis.

Answer 1

False

Question 2

Investors often evaluate a company by doing a trend analysis of several years' data.

Answer 2

True

Question 3

The formula to perform trend analysis is: Trend % = Any year's data / Base year data

Answer 3

True

Question 4

Horizontal analysis is the analysis of a financial statement that reveals the relationship of each statement item to a specified base.

Question 5

Which of the following is the definition of horizontal analysis?

A) Horizontal analysis is the study of percentage changes in comparative financial statements.
B) Horizontal analysis is the analysis of a financial statement that reveals the relationship of each statement item to a specified base, which is the 100% figure.
C) Horizontal analysis is the practice of comparing a company with other companies that are leaders.
D) None of the above is a definition of horizontal analysis.

Question 6

Which of the following is the definition of trend percentage analysis?

A) Trend percentage analysis is the analysis of a financial statement that reveals the relationship of each statement item to a specified base, which is the 100% figure.
B) Trend percentage analysis is the practice of comparing a company with other companies that are leaders.
C) Trend percentage analysis is the analysis in which percentages are computed by selecting a base year as 100% and expressing amounts for following years as a percentage of the base amount.
D) Trend percentage analysis is the study of percentage changes in comparative financial statements.

Question 7

Which of the following types of analysis includes the computation of the percentage change in total assets between two balance sheet dates?

A) Profitability analysis includes the computation of the percentage change in total assets between two balance sheet dates.
B) Vertical analysis includes the computation of the percentage change in total assets between two balance sheet dates.
C) Capital analysis includes the computation of the percentage change in total assets between two balance sheet dates.
D) Horizontal analysis includes the computation of the percentage change in total assets between two balance sheet dates.

Question 8

Which of the following types of analysis would reveal that sales increased by $20,000 from 2005 to 2006?

A) Capital analysis
B) Vertical analysis
C) Profitability analysis
D) Horizontal analysis

Question 9

A company reported the following amounts of net income:
$$\begin{array} { | l | l | } \hline 2006 & \$ 18,000 \\\hline 2007 & \$ 24,000 \\\hline 2008 & \$ 26,000 \\\hline\end{array}$$ Which of the following is the percentage change in net income from 2007 to 2008?

A) 2.00%
B) 10.00%
C) 8.33%
D) 7.69%

Question 10

A company reported the following amounts of net income:
$$\begin{array} { | l | l | } \hline 2006 & \$ 18,000 \\\hline 2007 & \$ 24,000 \\\hline 2008 & \$ 26,000 \\\hline\end{array}$$ Which of the following is the percentage change in net income from 2006 to 2007?

A) 33.33%
B) 8.33%
C) 10.00%
D) 30.00%

Question 11

What type of analysis is illustrated in the following table?
$$\begin{array} { | l | r | r | r | r | } \hline \text { Account } & 2007 & 2006 & \text { Change Amount } & \text { Change Percent } \\\hline \text { Current assets } & \$ 130,000 & \$ 100,000 & \$ 30,000 & 30.0 \% \\\hline \text { Accounts receivable } & 114,000 & 120,000 & - 6,000 & - 5.0 \% \\\hline\end{array}$$

A) The table illustrates capital analysis.
B) The table illustrates horizontal analysis.
C) The table illustrates ratio analysis.
D) The table illustrates vertical analysis.

Question 12

The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2007.
$$\begin{array} { | l | r | r | } \hline \text { Account } & 2007 & 2006 \\\hline \text { Current assets } & \$ 65,000 & \$ 50,000 \\\hline \text { Accounts receivable } & 80,000 & 75,000 \\\hline \text { Merchandise inventory } & 50,000 & 40,000 \\\hline \text { Current liabilities } & 75,000 & 50,000 \\\hline \text { Long-term liabilities } & 30,000 & 50,000 \\\hline \begin{array} { l } \text { Common stock (2007: } 5,000 \text { shares; } \\\text { 2006: } 4,000 \text { shares) }\end{array} & 50,000 & 40,000 \\\hline \text { Retained earnings } & 40,000 & 25,000 \\\hline & \\\hline \text { Net sales revenue } & \$ 525,000 & \$ 500,000 \\\hline \text { Cost of goods sold } & 400,000 & \underline{395,000} \\\hline \text { Gross profit } & 125,000 & 105,000 \\\hline \text { Selling and general expenses } & 45,000 & 50,000 \\\hline \text { Net income before income tax expense } & 80,000 & 55,000 \\\hline \text { Income tax expense } & \underline{24,000} & \underline{16,500} \\\hline \text { Net income } & \underline{\$ 56,000} & \$ 38,500 \\\hline\end{array}$$ What would horizontal analysis report with respect to net income before income tax expense and net income?

A) Horizontal analysis would report both net income before income tax expense and net income as 45.45% of net sales revenue.
B) Horizontal analysis would report a $25,000 increase in both net income before income tax expense and net income.
C) Horizontal analysis would report a 45.45% increase in both net income before income tax expense and net income.
D) None of the above is correct.

Question 13

The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2007.
$$\begin{array} { | l | r | r | } \hline \text { Account } & 2007 & 2006 \\\hline \text { Current assets } & \$ 65,000 & \$ 50,000 \\\hline \text { Accounts receivable } & 80,000 & 75,000 \\\hline \text { Merchandise inventory } & 50,000 & 40,000 \\\hline \text { Current liabilities } & 75,000 & 50,000 \\\hline \text { Long-term liabilities } & 30,000 & 50,000 \\\hline \begin{array} { l } \text { Common stock (2007: } 5,000 \text { shares; } \\\text { 2006: } 4,000 \text { shares) }\end{array} & 50,000 & 40,000 \\\hline \text { Retained earnings } & 40,000 & 25,000 \\\hline & \\\hline \text { Net sales revenue } & \$ 525,000 & \$ 500,000 \\\hline \text { Cost of goods sold } & 400,000 & \underline{395,000} \\\hline \text { Gross profit } & 125,000 & 105,000 \\\hline \text { Selling and general expenses } & 45,000 & 50,000 \\\hline \text { Net income before income tax expense } & 80,000 & 55,000 \\\hline \text { Income tax expense } & \underline{24,000} & \underline{16,500} \\\hline \text { Net income } & \underline{\$ 56,000} & \$ 38,500 \\\hline\end{array}$$ What would horizontal analysis report with respect to long-term liabilities?

A) Horizontal analysis would report that long-term liabilities decreased by $20,000.
B) Horizontal analysis would report that long-term liabilities decreased by 40%.
C) Both A and B are correct.
D) None of the above is correct.

Question 14

The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2007.
$$\begin{array} { | l | r | r | } \hline \text { Account } & 2007 & 2006 \\\hline \text { Current assets } & \$ 65,000 & \$ 50,000 \\\hline \text { Accounts receivable } & 80,000 & 75,000 \\\hline \text { Merchandise inventory } & 50,000 & 40,000 \\\hline \text { Current liabilities } & 75,000 & 50,000 \\\hline \text { Long-term liabilities } & 30,000 & 50,000 \\\hline \begin{array} { l } \text { Common stock (2007: } 5,000 \text { shares; } \\\text { 2006: } 4,000 \text { shares) }\end{array} & 50,000 & 40,000 \\\hline \text { Retained earnings } & 40,000 & 25,000 \\\hline & \\\hline \text { Net sales revenue } & \$ 525,000 & \$ 500,000 \\\hline \text { Cost of goods sold } & 400,000 & \underline{395,000} \\\hline \text { Gross profit } & 125,000 & 105,000 \\\hline \text { Selling and general expenses } & 45,000 & 50,000 \\\hline \text { Net income before income tax expense } & 80,000 & 55,000 \\\hline \text { Income tax expense } & \underline{24,000} & \underline{16,500} \\\hline \text { Net income } & \underline{\$ 56,000} & \$ 38,500 \\\hline\end{array}$$ What would horizontal analysis report with respect to selling and general expenses?

A) Horizontal analysis would report a 10.00% increase in selling and general expenses.
B) Horizontal analysis would report selling and general expenses as 10.00% of net sales revenue.
C) Horizontal analysis would report a 10.00% decrease in selling and general expenses.
D) Horizontal analysis would report selling and general expenses as 8.57% of net sales revenue.

Question 15

The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2007.
$$\begin{array} { | l | r | r | } \hline \text { Account } & 2007 & 2006 \\\hline \text { Current assets } & \$ 65,000 & \$ 50,000 \\\hline \text { Accounts receivable } & 80,000 & 75,000 \\\hline \text { Merchandise inventory } & 50,000 & 40,000 \\\hline \text { Current liabilities } & 75,000 & 50,000 \\\hline \text { Long-term liabilities } & 30,000 & 50,000 \\\hline \begin{array} { l } \text { Common stock (2007: } 5,000 \text { shares; } \\\text { 2006: } 4,000 \text { shares) }\end{array} & 50,000 & 40,000 \\\hline \text { Retained earnings } & 40,000 & 25,000 \\\hline & \\\hline \text { Net sales revenue } & \$ 525,000 & \$ 500,000 \\\hline \text { Cost of goods sold } & 400,000 & \underline{395,000} \\\hline \text { Gross profit } & 125,000 & 105,000 \\\hline \text { Selling and general expenses } & 45,000 & 50,000 \\\hline \text { Net income before income tax expense } & 80,000 & 55,000 \\\hline \text { Income tax expense } & \underline{24,000} & \underline{16,500} \\\hline \text { Net income } & \underline{\$ 56,000} & \$ 38,500 \\\hline\end{array}$$ What would horizontal analysis report with respect to common stock?

A) Horizontal analysis would report stockholders' equity as 25.64% of total capital.
B) Horizontal analysis would report a dividend yield of $8.20.
C) Horizontal analysis would report a rate of return on stockholders' equity of $11.20.
D) Horizontal analysis would report a 25% increase in common stock.

Question 16

The net income for a company was $630,000 last year and $540,000 this year. The percentage of increase or decrease was from last year to this year is:

A) 14.29%.
B) 16.67%.
C) 7.14%.
D) 8.33%.

Question 17

Vertical analysis is the study of percentage changes in comparative financial statements.

Question 18

The formula used in vertical analysis of the balance sheet is: The vertical percentage = (Each income statement item/Net sales).

Question 19

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.
$$\begin{array} { | l | r | r | r | } \hline \text { Account } & 2007 & & 2006 \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 \\\hline \text { Cost of goods sold } & 330,000 & 67.76 \% & 395,000 \\\hline \text { Gross profit } & 157,000 & 32.24 \% & 105,000 \\\hline \text { Selling and general expenses } & 70,000 & 14.37 \% & 50,000 \\\hline \text { Net income before income tax expense } & 87,000 & 17.86 \% & 55,000 \\\hline \text { Income tax expense } & \underline { 24,000 } & 4.93 \% & 16.500 \\\hline \text { Net income } & \underline { \$ 63,000 } & 12.94 \% & \$ 38,500 \\\hline\end{array}$$ What would vertical analysis report with respect to 2007 net income before income tax and income tax expense?

A) Vertical analysis would report net income before income tax as 17.86% and income tax expense as 4.93% of net sales revenue.
B) Vertical analysis would report a 58.18% increase in both net income before income tax and income tax expense.
C) Vertical analysis would report a $32,000 increase in both net income before income tax and income tax expense.
D) None of the above is correct.

Question 20

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.
$$\begin{array} { | l | r | r | r | } \hline \text { Account } & 2007 & & 2006 \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 \\\hline \text { Cost of goods sold } & 330,000 & 67.76 \% & 395,000 \\\hline \text { Gross profit } & 157,000 & 32.24 \% & 105,000 \\\hline \text { Selling and general expenses } & 70,000 & 14.37 \% & 50,000 \\\hline \text { Net income before income tax expense } & 87,000 & 17.86 \% & 55,000 \\\hline \text { Income tax expense } & \underline { 24,000 } & 4.93 \% & 16.500 \\\hline \text { Net income } & \underline { \$ 63,000 } & 12.94 \% & \$ 38,500 \\\hline\end{array}$$ What would vertical analysis report with respect to 2007 net sales revenue?

A) Vertical analysis would report cost of goods sold as 79.19% of net sales revenue.
B) Vertical analysis would report a dividend yield of $8.20.
C) Vertical analysis would report net sales revenue as the 100% base amount.
D) Vertical analysis would report a 2.60% decrease in net sales revenue.

Question 21

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.
$$\begin{array} { | l | r | r | r | } \hline \text { Account } & 2007 & & 2006 \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 \\\hline \text { Cost of goods sold } & 330,000 & 67.76 \% & 395,000 \\\hline \text { Gross profit } & 157,000 & 32.24 \% & 105,000 \\\hline \text { Selling and general expenses } & 70,000 & 14.37 \% & 50,000 \\\hline \text { Net income before income tax expense } & 87,000 & 17.86 \% & 55,000 \\\hline \text { Income tax expense } & \underline { 24,000 } & 4.93 \% & 16.500 \\\hline \text { Net income } & \underline { \$ 63,000 } & 12.94 \% & \$ 38,500 \\\hline\end{array}$$ What would vertical analysis report with respect to 2007 selling and general expenses?

A) Vertical analysis would report a 40.00% increase in selling and general expenses.
B) Vertical analysis would report a 40.00% decrease in selling and general expenses.
C) Vertical analysis would report selling and general expenses as 14.37% of net sales revenue.
D) Vertical analysis would report selling and general expenses as 10.00% of net sales revenue.

Question 22

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.
$$\begin{array} { | l | r | r | r | } \hline \text { Account } & 2007 & & 2006 \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 \\\hline \text { Cost of goods sold } & 330,000 & 67.76 \% & 395,000 \\\hline \text { Gross profit } & 157,000 & 32.24 \% & 105,000 \\\hline \text { Selling and general expenses } & 70,000 & 14.37 \% & 50,000 \\\hline \text { Net income before income tax expense } & 87,000 & 17.86 \% & 55,000 \\\hline \text { Income tax expense } & \underline { 24,000 } & 4.93 \% & 16.500 \\\hline \text { Net income } & \underline { \$ 63,000 } & 12.94 \% & \$ 38,500 \\\hline\end{array}$$ What would vertical analysis report with respect to the relationship between 2007 net sales revenue and cost of goods sold?

A) Vertical analysis would report that cost of goods sold was too high as a percentage of net sales revenue.
B) Vertical analysis would report that cost of goods sold was 67.76% of net sales revenue.
C) Vertical analysis would report that cost of goods sold increased more than net sales revenue.
D) Vertical analysis would report that cost of goods sold was too low as a percentage of net sales revenue.

Question 23

Which of the following is true of vertical analysis?

A) Vertical analysis is used to compare a balance sheet number from a previous period with an income statement number for the current period.
B) Vertical analysis is used to study only the income statement.
C) Vertical analysis is generally used to study both the income statement and the balance sheet.
D) Vertical analysis is used to study only the balance sheet.

Question 24

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.
$$\begin{array} { | l | r | r | r | } \hline \text { Account } & 2007 & & 2006 \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 \\\hline \text { Cost of goods sold } & 330,000 & 67.76 \% & 395,000 \\\hline \text { Gross profit } & 157,000 & 32.24 \% & 105,000 \\\hline \text { Selling and general expenses } & 70,000 & 14.37 \% & 50,000 \\\hline \text { Net income before income tax expense } & 87,000 & 17.86 \% & 55,000 \\\hline \text { Income tax expense } & \underline { 24,000 } & 4.93 \% & 16.500 \\\hline \text { Net income } & \underline { \$ 63,000 } & 12.94 \% & \$ 38,500 \\\hline\end{array}$$ What would vertical analysis report with respect to 2007 income tax expense?

A) Vertical analysis would report a $7,500 increase income tax expense.
B) Vertical analysis would report income tax expense as 4.93% of net sales revenue.
C) Vertical analysis would report income tax expense as 27.59% of net income before income tax.

Question 25

type of analysis is illustrated in the following table? $$\begin{array} { | l | r | r | } \hline & \text { Company A } & \text { Industry Average } \\\hline \text { Account } & 2007 - - \% & 2006 - \% \\\hline \text { Current assets } & 33.33 \% & 30.30 \% \\\hline \text { Accounts receivable } & 41.03 \% & 45.45 \% \\\hline \text { Merchandise inventory } & \underline { 25.64 \% } & \underline { 24.24 \% } \\\hline \text { Total assets } & 100.00 \% & 100.00 \% \\\hline \text { Current liabilities } & 38.46 \% & 30.30 \% \\\hline \text { Long-term liabilities } & 15.38 \% & 30.30 \% \\\hline \text { Common stock } & 25.64 \% & 24.24 \% \\\hline \text { Retained earnings } & \underline { 20.51 \% } & \underline { 15.15 \% } \\\hline \begin{array} { l } \text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline { 100.00 \% } & \underline { 100.00 \% } \\\hline\end{array}$$

A) The table illustrates horizontal analysis.
B) The table illustrates benchmarking.
C) The table illustrates vertical analysis.
D) The table illustrates ratio analysis.

Question 26

type of analysis is illustrated in the following table? $$\begin{array} { | l | r | r | } \hline & \text { Company A } & \text { Industry Average } \\\hline \text { Account } & 2007 - - \% & 2006 - \% \\\hline \text { Current assets } & 33.33 \% & 30.30 \% \\\hline \text { Accounts receivable } & 41.03 \% & 45.45 \% \\\hline \text { Merchandise inventory } & \underline { 25.64 \% } & \underline { 24.24 \% } \\\hline \text { Total assets } & 100.00 \% & 100.00 \% \\\hline \text { Current liabilities } & 38.46 \% & 30.30 \% \\\hline \text { Long-term liabilities } & 15.38 \% & 30.30 \% \\\hline \text { Common stock } & 25.64 \% & 24.24 \% \\\hline \text { Retained earnings } & \underline { 20.51 \% } & \underline { 15.15 \% } \\\hline \begin{array} { l } \text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline { 100.00 \% } & \underline { 100.00 \% } \\\hline\end{array}$$

A) The table illustrates a standard financial ratio analysis
B) The table illustrates vertical analysis.
C) The table illustrates benchmarking.
D) The table illustrates horizontal analysis.

Question 27

The following is a summary of information presented on the income statements of Haley Publications and Johnston Publications for December 31, 2007.
$$\begin{array} { | l | r | r | r | r | } \hline & \begin{array} { r } \text { Haley } \\\text { Publications }\end{array} & & \begin{array} { r } \text { Johnston } \\\text { Publications }\end{array} & \\\hline \text { Account } & 2007 & \% & 2007 & \% \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 & 100.00 \% \\\hline \text { Cost of goods sold } & 400,000 & 82.14 \% & \underline { 395,000 } & 79.00 \% \\\hline \text { Gross profit } & 87,000 & 17.86 \% & 105,000 & 21.00 \% \\\hline \text { Selling and general expenses } & 30,000 & 6.16 \% & \underline { 50,000 } & 10.00 \% \\\hline \text { Income from operations } & 57,000 & 11.70 \% & 55,000 & 11.00 \% \\\hline \text { Income tax expense } & 17,100 & 3.51 \% & \underline { 16,500 } & 3.30 \% \\\hline \text { Net income } & \$ 39,900 & 8.19 \% & \underline { \$ 38,500 } & 7.70 \% \\\hline\end{array}$$ Which company has the better relationship between selling and general expenses and net sales revenue?

A) It is impossible to determine which company has the better relationship between selling and general expenses and net sales revenue using the information presented.
B) The companies have the same relationship between selling and general expenses and net sales revenue.
C) Johnston Company has the better relationship between selling and general expenses and net sales revenue.
D) Haley Company has the better relationship between selling and general expenses and net sales revenue.

Question 28

The following is a summary of information presented on the income statements of Haley Publications and Johnston Publications for December 31, 2007.
$$\begin{array} { | l | r | r | r | r | } \hline & \begin{array} { r } \text { Haley } \\\text { Publications }\end{array} & & \begin{array} { r } \text { Johnston } \\\text { Publications }\end{array} & \\\hline \text { Account } & 2007 & \% & 2007 & \% \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 & 100.00 \% \\\hline \text { Cost of goods sold } & 400,000 & 82.14 \% & \underline { 395,000 } & 79.00 \% \\\hline \text { Gross profit } & 87,000 & 17.86 \% & 105,000 & 21.00 \% \\\hline \text { Selling and general expenses } & 30,000 & 6.16 \% & \underline { 50,000 } & 10.00 \% \\\hline \text { Income from operations } & 57,000 & 11.70 \% & 55,000 & 11.00 \% \\\hline \text { Income tax expense } & 17,100 & 3.51 \% & \underline { 16,500 } & 3.30 \% \\\hline \text { Net income } & \$ 39,900 & 8.19 \% & \underline { \$ 38,500 } & 7.70 \% \\\hline\end{array}$$ Which company has the better relationship between net income and net sales revenue?

A) Johnston Company has the better relationship between net income and net sales revenue.
B) Haley Company has the better relationship net income and net sales revenue.
C) The companies have the same relationship between net income and net sales revenue.
D) It is impossible to determine which company has the better relationship between net income and net sales revenue using the information presented.

Question 29

The following is a summary of information presented on the income statements of Haley Publications and Johnston Publications for December 31, 2007.
$$\begin{array} { | l | r | r | r | r | } \hline & \begin{array} { r } \text { Haley } \\\text { Publications }\end{array} & & \begin{array} { r } \text { Johnston } \\\text { Publications }\end{array} & \\\hline \text { Account } & 2007 & \% & 2007 & \% \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 & 100.00 \% \\\hline \text { Cost of goods sold } & 400,000 & 82.14 \% & \underline { 395,000 } & 79.00 \% \\\hline \text { Gross profit } & 87,000 & 17.86 \% & 105,000 & 21.00 \% \\\hline \text { Selling and general expenses } & 30,000 & 6.16 \% & \underline { 50,000 } & 10.00 \% \\\hline \text { Income from operations } & 57,000 & 11.70 \% & 55,000 & 11.00 \% \\\hline \text { Income tax expense } & 17,100 & 3.51 \% & \underline { 16,500 } & 3.30 \% \\\hline \text { Net income } & \$ 39,900 & 8.19 \% & \underline { \$ 38,500 } & 7.70 \% \\\hline\end{array}$$ Which company has the best inventory turnover rate?

A) Johnston Company has the best inventory turnover rate.
B) The companies have the same inventory turnover rate.
C) Haley Company has the best inventory turnover rate.
D) It is impossible to determine which company has the best inventory rate with the information presented.

Question 30

The following is a summary of information presented on the income statements of Haley Publications and Johnston Publications for December 31, 2007.
$$\begin{array} { | l | r | r | r | r | } \hline & \begin{array} { r } \text { Haley } \\\text { Publications }\end{array} & & \begin{array} { r } \text { Johnston } \\\text { Publications }\end{array} & \\\hline \text { Account } & 2007 & \% & 2007 & \% \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 & 100.00 \% \\\hline \text { Cost of goods sold } & 400,000 & 82.14 \% & \underline { 395,000 } & 79.00 \% \\\hline \text { Gross profit } & 87,000 & 17.86 \% & 105,000 & 21.00 \% \\\hline \text { Selling and general expenses } & 30,000 & 6.16 \% & \underline { 50,000 } & 10.00 \% \\\hline \text { Income from operations } & 57,000 & 11.70 \% & 55,000 & 11.00 \% \\\hline \text { Income tax expense } & 17,100 & 3.51 \% & \underline { 16,500 } & 3.30 \% \\\hline \text { Net income } & \$ 39,900 & 8.19 \% & \underline { \$ 38,500 } & 7.70 \% \\\hline\end{array}$$ Based on the information presented, what steps should Johnston take to improve its performance to match or exceed Haley's performance?

A) Johnston should reduce its cost of goods sold as a percentage of net sales revenue.
B) Johnston should reduce its income tax expense as a percentage of net sales revenue.
C) Johnston should reduce its selling and general expenses as a percentage of net sales revenue.
D) All of these actions would improve Johnston's performance.

Question 31

Which of the following balance sheets displays only percentages?

A) A report form balance sheet
B) A common-size balance sheet
C) An account form balance sheet
D) A comparative balance sheet

Question 32

Which of the following is most helpful in comparing companies of different sizes?

A) Ratio analysis is helpful in comparing companies of different sizes.
B) Common-size statements are helpful in comparing companies of different sizes.
C) Both ratio analysis and common size statements are helpful in comparing companies of different sizes.
D) Neither ratio analysis nor common size statements are helpful in comparing companies of different sizes

Question 33

Which of the following types of analysis would be most useful to compare different-sized companies?

A) Horizontal analysis
B) A comparison of working capital
C) Common-size financial statements
D) Vertical analysis

Question 34

Which of the following is a common way to evaluate a company's performance?

A) Compare this year's performance of the company to a prior year's performance of the company.
B) Compare the company's performance to the performance of a competing company.
C) Compare the company's performance to the industry's performance.
D) All of the above are common ways.

Question 35

What are the two main ways to analyze financial statements?

A) Benchmarking and horizontal analysis
B) Benchmarking and common-size analysis
C) Common-size analysis and vertical analysis
D) Horizontal analysis and vertical analysis

Question 36

The accounts receivable turnover ratio is the ratio of average net accounts receivable to one day's sales.

Question 37

The times-interest-earned ratio is a key indicator of a company's ability to pay its interest on debt.

Question 38

A company that has $510,000 in average common stockholders' equity, net income of $312,000 and preferred dividends paid of $15,000 has a rate of return on stockholders' equity of 61.2%

Question 39

In order to determine the book value per share of common stock, the preferred equity must be taken into consideration.

Question 40

Which of the following ratios is a measure of debt leverage?

A) Price/earnings ratio
B) The current ratio
C) Rate of return on net sales
D) None of the above

Question 41

Which of the following ratios is used to analyze stock as an investment?

A) Price/earnings ratio
B) The current ratio
C) Rate of return on net sales
D) Inventory turnover

Question 42

Which of the following is NOT an argument that book value is not useful for investment analysis?

A) It bears no relationship to market value.
B) It provides little information beyond stockholders' equity reported on the balance sheet.
C) The ratio of market price to book value can be used to rank stocks.
D) Both a and b

Question 43

Which of the following signifies that a company is unable to pay its current liabilities if they suddenly come due?

A) Current ratio is less than 1.
B) Current ratio is greater than 1.
C) Cash flow from operations is consistently higher than net income.
D) Sales, receivables, and inventory are not moving together.

Question 44

Which of the following "red flags" indicates that a company may soon face a cash shortage?

A) Inventory turnover is too slow.
B) Debt ratio is high.
C) Cash flow from operations is consistently lower than net income.
D) Sales, receivables, and inventory are not moving together.

Question 45

Which of the following ratios is a measure of a company's ability to pay all current liabilities if they come due immediately?

A) The inventory turnover ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.
B) The current ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.
C) The acid-test ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.
D) Both B and C are measures of a company's ability to pay all current liabilities if they come due immediately.

Question 46

Which of the following ratios is a measure of a company's ability to collect receivables?

A) The inventory turnover ratio is a measure of a company's ability to collect receivables.
B) The current ratio is a measure of a company's ability to collect receivables.
C) The day's sales in receivables is a measure of a company's ability to collect receivables.
D) The acid-test ratio is a measure of a company's ability to collect receivables.

Question 47

Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?

A) The inventory turnover ratio is a measure of a company's ability to pay liabilities with current assets.
B) The day's sales in receivables is a measure of a company's ability to pay liabilities with current assets.
C) The current ratio is a measure of a company's ability to pay liabilities with current assets.
D) The acid-test ratio is a measure of a company's ability to pay liabilities with current assets.

Question 48

Which of the following ratios is a measure of a company's ability to sell inventory?

A) The inventory turnover ratio is a measure of a company's ability to sell inventory.
B) The acid-test ratio is a measure of a company's ability to sell inventory.
C) The current ratio is a measure of a company's ability to sell inventory.
D) The day's sales in receivables is a measure of a company's ability to sell inventory.

Question 49

Which of the following is the formula to compute inventory turnover?

A) The formula is Net credit sales/Average inventory.
B) The formula is Net credit sales/Average net accounts receivable.
C) The formula is Cost of goods sold/Average inventory.
D) The formula is Average net accounts receivable/One day's sales.

Question 50

Which of the following is the formula to compute the times-interest-earned ratio?

A) The formula is Total assets/Total liabilities.
B) The formula is Total liabilities/Total assets.
C) The formula is Interest expense/Income from operations.
D) The formula is Income from operations/Interest expense.

Question 51

Which of the following is the formula to compute the rate of return on net sales?

A) The formula is (Net income - preferred dividends)/Average common stockholders' equity.
B) The formula is Net income/Net sales.
C) The formula is (Net income + interest expense)/Average total assets.
D) The formula is (Net income - preferred dividends)/Number of shares of common stock outstanding.

Question 52

Which of the following is the formula to compute the rate of return on total assets?

A) The formula is (Net income + interest expense)/Total assets.
B) The formula is Net income/Net sales.
C) The formula is (Net income - preferred dividends)/Number of shares of common stock outstanding.
D) The formula is (Net income - preferred dividends)/Average common stockholders' equity.

Question 53

Which of the following is the formula to compute earnings per share of common stock?

A) The formula is (Net income + interest expense)/Average total assets.
B) The formula is Net income/Net sales.
C) The formula is (Net income - preferred dividends)/Number of shares of common stock outstanding.
D) The formula is (Net income - preferred dividends)/Average common stockholders' equity.

Question 54

Which of the following is the formula to compute the price/earnings ratio?

A) The formula is Annual dividend per share of common stock/Market price per share of common stock.
B) The formula is Market price per share of common stock/Earnings per share.
C) The formula is (Net income - preferred dividends)/Number of shares of common stock outstanding.
D) The formula is (Total stockholders' equity - preferred equity)/Number of shares of common stock outstanding.

Question 55

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the debt ratio for 2007?

A) 0.25
B) 0.71
C) 0.29
D) 0.55

Question 56

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's current ratio for 2007?

A) 0.42
B) 2.75
C) 2.40
D) 0.36

Question 57

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's acid-test ratio?

A) 1.60
B) 0.42
C) 2.40
D) 0.63

Question 58

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's inventory turnover?

A) 21.33 times
B) 31.50 times
C) 16.00 times
D) 42.00 times

Question 59

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's accounts receivable turnover?

A) 31.67 times
B) 200.00 times
C) 47.50 times
D) 301.59 times

Question 60

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's days' sale in receivables?

A) 4.67 days
B) 301.59 days
C) 9.52 days
D) 19.05 days

Question 61

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's times-interest-earned ratio?

A) 4.5 times
B) 31.5 times
C) 47.5 times
D) 16.0 times

Question 62

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's rate of return on net sales?

A) 0.074
B) 0.111
C) 0.219
D) 0.063

Question 63

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's rate of return on total assets?

A) 0.133
B) 0.137
C) 0.176
D) 0.171

Question 64

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's rate of return on common stockholders' equity?

A) .133
B) .269
C) .209
D) .171

Question 65

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's earnings per share?

A) $42.86
B) $10.00
C) $45.71
D) $12.88

Question 66

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's price/earnings ratio?

A) 1.63
B) 0.46
C) 2.10
D) 0.49

Question 67

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's dividend yield?

A) 0.95
B) $20.00
C) 1.05
D) $ 2.00

Question 68

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.
$\begin{array}{|l|r|r|}\hline & 2007 & 2006 \\\hline \text { Net sales revenue (all credit) } & \$ 950,000 & \\\hline \text { Cost of goods sold } & 630,000 & \\\hline \text { Gross profit } & 320,000 & \\\hline \text { Selling and general expenses } & 230,000 & \\\hline \text { Interest expense } & 20,000 & \\\hline \text { Net income } & \$ 70,000 & \\\hline\\\hline \text { Current assets } & \$ 60,000 & \$ 55,000 \\\hline \text { Long-term assets } & {465,000}&{445,000} \\\hline \text { Total assets }-12 / 31 & \underline{\$ 525,000} & \$ \$ 500,000 \\\hline \text { Current liabilities } & \$ 25,000 & \$ 20,000 \\\hline \text { Long-term liabilities } & 105,000 & 205,000 \\\hline \text { Common stockholders' equity - 12/31 } & 395,000 & 275,000 \\\hline \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & \underline{\$ 525,000} & \underline{\$ 500,000} \\\hline\end{array}$ Inventory and prepaid expenses account for $20,000 of the 2007 current assets.
Average inventory for 2007 is $15,000.
Average net accounts receivable for 2007 is $30,000.
Average one-day sales are $3,150.
There are 7,000 shares of common stock outstanding.
Total dividends paid during 2007 were $140,000.
The market price per share of common stock is $21.
What is the company's book value per share of common stock on December 31, 2007?

A) $75.00
B) $15.00
C) $56.43
D) $10.00

Question 69

The net sales for a company were $3,600,000; gross profit was $600,000; and net income was $260,000. The rate of return on net sales would be:

A) 0.0722.
B) 0.1667.
C) 0.2389.
D) 0.4333.

Question 70

A company has cash, $85,000; temporary investments, $30,000; net receivables, $60,000; and inventory, $350,000. Current liabilities are $300,000. The current ratio is:

A) 0.58.
B) 0.74.
C) 1.75.
D) 1.86.

Question 71

A company has cash, $85,000; temporary investments, $30,000; net receivables, $60,000; and inventory, $350,000. Current liabilities are $300,000. The acid-test ratio is:

A) 0.58.
B) 0.74.
C) 1.75.
D) 1.86.

Question 72

A company has net sales on account of $1,750,000. Net accounts receivable at the beginning of the year are $147,000 and at the end of the year are $153,000. The accounts receivable turnover is:

A) 11.9.
B) 11.7.
C) 11.4.
D) 1.0.

Question 73

A company has net sales on account of $1,750,000. Net accounts receivable at the beginning of the year are $147,000 and at the end of the year are $153,000. The days' sales in average receivables is:

A) 30.67.
B) 31.28.
C) 32.02.
D) 365.0.

Question 74

A company has cash $80,000; temporary investments, $20,000; net receivables, $60,000; and inventory of $450,000. Current liabilities are $200,000. The quick or acid-test ratio is:

A) 0.54.
B) 0.80.
C) 2.25.
D) 3.05.

Question 75

A company has cash $80,000; temporary investments, $20,000; net receivables, $60,000; and inventory of $450,000. Current liabilities are $200,000. The current ratio is:

A) 0.54.
B) 0.80.
C) 2.25.
D) 3.05.

Question 76

The net income for the year was $720,000; total assets at the beginning of the year was $2,100,000; and total year-end assets were $2,300,000. The return on assets would be:

A) 0.011.
B) 0.031.
C) 0.112.
D) 0.327.

Question 77

The net income of a company is $175,000. The average book value of the company's assets is $1,300,000. The return on total assets would be:

A) 0.2000.
B) 0.0743.
C) 6.0000.
D) 0.1346.

Question 78

The liabilities of a company at the end of the year are $500,000 and the total stockholders' equity at the end of the year is $1,500,000. The ratio of liabilities to stockholder's equity is:

A) 0.50.
B) 0.33.
C) 0.67.
D) 3 to 1.

Question 79

The net income of a company for the year just ended in $230,000. Income tax is $80,500 and interest expense if $20,000. The number of times interest was earned would be:

A) 0.05.
B) 10.5.
C) 11.5.
D) 16.53.

Question 80

The net income for the year ended was $300,000. Common stockholders' equity at the beginning of the year was $1,400,000 and $1,600,000 at the end of the year. The return on common stockholders' equity would be:

A) 18.75%.
B) 20.00%.
C) 21.43%.
D) 87.50%.