Deck 13: How Well Am I Doing Statement of Cash Flows

Question 1

A comparative common-size balance sheet will help to highlight significant changes in the components of the balance sheet from year to year.

Answer 1

True

Question 2

The gross margin percentage is computed taking the difference between sales and cost of goods sold and then dividing the result by sales.

Answer 2

True

Question 3

The inventory turnover ratio is equal to the average inventory balance divided by the cost of goods sold.

Answer 3

False

Question 4

When computing the return on total assets,the after-tax effect of interest expense must be subtracted from net income.

Question 5

In determining whether a company's financial condition is improving or deteriorating over time,vertical analysis of financial statement data would be more useful than horizontal analysis.

Question 6

A low debt-to-equity ratio is usually viewed as providing more protection to creditors.

Question 7

The time interest earned ratio is calculated by dividing net income by interest expense.

Question 8

The dividend yield ratio is calculated by dividing dividends paid by average total assets and the dividend payout ratio is calculated by dividends per share by earnings per share.

Question 9

Assuming that a company has a current ratio greater than 1.0 to 1,repaying a short-term note payable will increase the current ratio.

Question 10

The gross margin percentage is computed by dividing net income before interest and taxes by sales.

Question 11

The price-earnings ratio is determined by dividing the price of a product by its profit margin.

Question 12

The acid-test ratio is a test of the quality of accounts receivable-in other words,whether they are likely to be collected.

Question 13

Trend percentages state several years' financial data in terms of a base year.For example,sales for every year would be stated as a percentage of the sales in the base year.

Question 14

A high debt-to-equity ratio will always be a concern to common shareholders.

Question 15

Only credit sales (i.e.sales on account)are included in the computation of the accounts receivable turnover.

Question 16

If the market value of a share of stock is greater than its book value,the stock is probably necessarily overpriced.

Question 17

The price-earnings ratio is computed by dividing the current market price per share by the current earnings per share.

Question 18

When computing the acid-test ratio,prepaid expenses are ignored.

Question 19

If the assets in which funds are invested have a rate of return lower than the fixed rate of return paid to the supplier of the funds,then financial leverage is positive.

Question 20

Working capital equals current assets less current liabilities.

Question 21

Earnings per share of common stock will immediately increase as a result of:

A) the sale of additional shares of common stock by the company.
B) an increase in the dividends paid to common shareholders by the company.
C) an increase in the company's net income.
D) the issuance of bonds by the company to finance construction of new buildings.

Question 22

Allen Company's average collection period for accounts receivable was 40 days last year,but increased to 60 days this year.Which of the following would most likely account for this change?

A) A decrease in accounts receivable relative to sales.
B) A decrease in sales.
C) A relaxation of credit policies.
D) An increase in sales.

Question 23

Horizontal analysis of financial statements may be accomplished through:

A) placing statement items on an after-tax basis.
B) computing net income as a percentage of sales.
C) computing both earnings per share and the price-earnings ratio.
D) trend percentages.

Question 24

Desktop Co.presently has a current ratio of 1.2 to 1 and an acid-test ratio of 0.8 to 1.Prepaying next year's office rent of $50,000 will:

A) have no effect on either the company's current ratio or its acid-test ratio.
B) have no effect on the company's current ratio but will decrease its acid-test ratio.
C) decrease the company's current ratio and decrease its acid-test ratio.
D) increase the company's current ratio and increase its acid-test ratio.

Question 25

Selected data from Sheridan Corporation's year-end financial statements are presented below.The difference between average and ending inventory is immaterial.There were no prepaid expenses. Sheridan's sales for the year were:

A) $240,000.
B) $480,000.
C) $800,000.
D) $1,200,000.

Question 26

If a company converts a short-term note payable into a long-term note payable,this transaction would:

A) decrease working capital and increase the current ratio.
B) decrease working capital and decrease the current ratio.
C) decrease the current ratio and decrease the acid-test ratio.
D) increase working capital and increase the current ratio.

Question 27

If a firm has a high current ratio but a low acid-test ratio,one can conclude that:

A) the firm has a large outstanding accounts receivable balance.
B) the firm has a large investment in inventory.
C) the firm has a large amount of current liabilities.
D) the firm's financial leverage is very high.

Question 28

An increase in the market price of a company's common shares will immediately affect its:

A) dividend yield ratio.
B) debt-to-equity ratio.
C) earnings per share of common stock.
D) dividend payout ratio.

Question 29

Rahner Company has a current ratio of 1.75 to 1.Which of the following will cause this ratio to decrease?

A) The company borrows cash using a six-month note.
B) The company pays the taxes payable which have been a current liability.
C) The company pays the following month's rent on the last day of the year.
D) The company sells inventory for more than their cost.

Question 30

Which one of the following would increase the working capital of a company?

A) Cash payment of payroll taxes payable.
B) Refinancing a short-term note payable with a two-year note payable.
C) Cash collection of accounts receivable.
D) Payment of a 20-year mortgage payable with cash.

Question 31

The gross margin percentage is most likely to be used to assess:

A) how quickly accounts receivables can be collected.
B) how quickly inventories are sold.
C) the efficiency of administrative departments.
D) the overall profitability of the company's products.

Question 32

Sale of a piece of equipment at book value for cash will:

A) increase working capital.
B) decrease working capital.
C) decrease the debt-to-equity ratio.
D) increase net income.

Question 33

Which of the following is true regarding the calculation of return on total assets?

A) the numerator of the ratio consists only of net income.
B) the denominator of the ratio consists of the balance of total assets at the end of the period under consideration.
C) the numerator of the ratio consists of net income plus interest expense times the tax rate.
D) the numerator of the ratio consists of net income plus interest expense times one minus the tax rate.

Question 34

A low price-earnings ratio suggests that investors anticipate that the business's earnings will increase in future periods.

Question 35

The Miller Company paid off some of its accounts payable using cash.The company's current ratio is greater than 1.0 to 1.The company's current ratio would:

A) increase.
B) decrease.
C) remain unchanged.
D) impossible to determine from the information given.

Question 36

A company's current ratio and acid-test ratios are both greater than 1.0 to 1.If obsolete inventory is written off,this would:

A) decrease the acid-test ratio.
B) increase the acid-test ratio.
C) increase net working capital.
D) decrease the current ratio.

Question 37

In calculating earnings per share,net income is reduced by the amount paid out as dividends to the owners of the preferred shares.

Question 38

The net accounts receivable for Andante Company were $150,000 at the beginning of the most recent year and $190,000 at the end of the year.If the accounts receivable turnover for the year was 8.5,and 15% of total sales were cash sales,then the total sales for the year were:

A) $1,445,000.
B) $1,500,000.
C) $1,700,000.
D) $1,900,000.

Question 39

The market price of XYZ Company's common shares dropped from $25 to $21 per share.The dividend paid per share remained unchanged.The company's dividend payout ratio would:

A) increase.
B) decrease.
C) be unchanged.
D) impossible to determine without more information.

Question 40

If a company's bonds bear an interest rate of 8%,the tax rate is 30%,and the company's assets are generating an after-tax return of 7%,then the leverage would be:

A) positive.
B) negative.
C) neither positive nor negative.
D) impossible to determine without knowing the return on common shareholders' equity.

Question 41

Selected financial data for Irvington Company appear below: During the year,the company paid dividends of $10,000 on its preferred shares.The company's net income for the year was $120,000.The company's return on common shareholders' equity for the year is closest to:

A) 17%.
B) 19%.
C) 23%.
D) 25%.

Question 42

Crasler Company's net income last year was $100,000.The company paid preferred dividends of $20,000 and its average common shareholders' equity was $580,000.The company's return on common shareholders' equity for the year was closest to:

A) 3.4%.
B) 13.8%.
C) 17.2%.
D) 20.7%.

Question 43

The following account balances have been provided for the end of the most recent year: The book value per share of common stock is:

A) $20.
B) $22.
C) $25.
D) $28.

Question 44

Dragin Company's working capital is $36,000 and its current liabilities are $61,000.The company's current ratio is closest to:

A) 0.41 to 1.
B) 0.59 to 1.
C) 1.59 to 1.
D) 2.69 to 1.

Question 45

Brawer Company's net income last year was $55,000 and its interest expense was $20,000.Total assets at the beginning of the year were $660,000 and total assets at the end of the year were $620,000.The company's income tax rate was 30%.The company's return on total assets for the year was closest to:

A) 8.6%.
B) 9.5%.
C) 10.8%.
D) 11.7%.

Question 46

Perlman Company had 100,000 shares of common stock and 20,000 shares of preferred stock at the end of the year just completed.Preferred shareholders received dividends totalling $140,000.Common shareholders received dividends totalling $210,000.If the dividend payout ratio for the year was 70%,then the net income for the year was:

A) $147,000.
B) $287,000.
C) $300,000.
D) $440,000.

Question 47

Fulton Company's price-earnings ratio is 8.0 and the market price of a share of common stock is $32.The company has 3,000 shares of preferred stock outstanding with each share receiving a dividend of $3 per share.The earnings per share of common stock are:

A) $3.
B) $4.
C) $7.
D) $10.

Question 48

The following data have been taken from your company's financial records for the current year: The price-earnings ratio is:

A) 1.67 to 1.
B) 7.0 to 1.
C) 9.0 to 1.
D) 15.0 to 1.

Question 49

Arlberg Company's net income last year was $250,000.The company has 150,000 shares of common stock and 80,000 shares of preferred stock outstanding.There was no change in the number of common or preferred shares outstanding during the year.The company declared and paid dividends last year of $1.30 per share on the common stock and $1.40 per share on the preferred stock.The earnings per share of common stock are closest to:

A) $.37.
B) $.92.
C) $1.67.
D) $2.41.

Question 50

Braverman Company's net income last year was $75,000 and its interest expense was $10,000.Total assets at the beginning of the year were $650,000 and total assets at the end of the year were $610,000.The company's income tax rate was 30%.The company's return on total assets for the year was closest to:

A) 11.9%.
B) 12.4%.
C) 13.0%.
D) 13.5%.

Question 51

Arget Company's net income last year was $600,000.The company has 150,000 shares of common stock and 60,000 shares of preferred stock outstanding.There was no change in the number of common or preferred shares outstanding during the year.The company declared and paid dividends last year of $1.10 per share on the common stock and $0.60 per share on the preferred stock.The earnings per share of common stock are closest to:

A) $2.90.
B) $3.76.
C) $4.00.
D) $4.24.

Question 52

Crawler Company's net income last year was $80,000.The company paid preferred dividends of $10,000 and its average common shareholders' equity was $400,000.The company's return on common shareholders' equity for the year was closest to:

A) 2.5%.
B) 17.5%.
C) 20.0%.
D) 22.5%.

Question 53

Cameron Company had 50,000 shares of common stock issued and outstanding during the year just ended.The following information pertains to these shares: The total dividend on common stock for the year was $400,000.Cameron Company's dividend yield ratio for the year was:

A) 8.89%.
B) 9.41%.
C) 11.43%.
D) 20.00%.

Question 54

The total assets of the Philbin Company on January 1,20 × 9 were $2.3 million and on December 31,20 × 9 were $2.5 million.Net income for 20 × 9 was $188,000.Dividends for 19 × 9 totalled $75,000,interest expenses totalled $70,000,and the tax rate was 30%.The return on total assets for 20 × 9 was closest to:

A) 6.8%.
B) 9.5%.
C) 9.9%.
D) 10.8%.

Question 55

Arquandt Company's net income last year was $550,000.The company has 150,000 shares of common stock and 50,000 shares of preferred stock outstanding.There was no change in the number of common or preferred shares outstanding during the year.The company declared and paid dividends last year of $1.20 per share on the common stock and $1.70 per share on the preferred stock.The earnings per share of common stock are closest to:

A) $2.47.
B) $3.10.
C) $6.67.
D) $4.23.

Question 56

Brachlan Company's net income last year was $80,000 and its interest expense was $20,000.Total assets at the beginning of the year were $660,000 and total assets at the end of the year were $620,000.The company's income tax rate was 30%.The company's return on total assets for the year was closest to:

A) 12.5%.
B) 13.4%.
C) 14.7%.
D) 15.6%.

Question 57

The following data have been taken from your company's financial records for the current year: The price-earnings ratio is:

A) 6.0 to 1.
B) 7.5 to 1.
C) 8.0 to 1.
D) 12.5 to 1.

Question 58

Information concerning the common stock of Morris Company as of the end of the company's fiscal year is presented below. The dividend yield ratio is closest to:

A) 11.1%.
B) 33.3%.
C) 50.0%.
D) 120.0%.

Question 59

Dratif Company's working capital is $33,000 and its current liabilities are $80,000.The company's current ratio is closest to:

A) 0.41 to 1.
B) 0.59 to 1.
C) 1.41 to 1.
D) 3.42 to 1.

Question 60

Crabtree Company's net income last year was $50,000.The company paid preferred dividends of $20,000 and its average common shareholders' equity was $440,000.The company's return on common shareholders' equity for the year was closest to:

A) 4.5%.
B) 6.8%.
C) 11.4%.
D) 15.9%.

Question 61

Selected year-end data for the Brayer Company are presented below: The company has no prepaid expenses and inventories remained unchanged during the year.Based on these data,the company's inventory turnover ratio for the year was closest to:

A) 1.20 times.
B) 1.67 times.
C) 2.33 times.
D) 2.40 times.

Question 62

Frabine Company had $150,000 in sales on account last year.The beginning accounts receivable balance was $14,000 and the ending accounts receivable balance was $18,000.The company's accounts receivable turnover was closest to:

A) 4.69 times.
B) 8.33 times.
C) 9.38 times.
D) 10.71 times.

Question 63

Eastham Company's accounts receivable were $600,000 at the beginning of the year and $800,000 at the end of the year.Cash sales for the year were $300,000.The accounts receivable turnover for the year was 5 times.Eastham Company's total sales for the year were:

A) $800,000.
B) $1,300,000.
C) $3,300,000.
D) $3,800,000.

Question 64

Andy Inc.has $15,000 in cash,$38,000 in current receivables,$18,000 in inventories,$4,000 in prepaid expenses and $40,000 in current liabilities.The company's current ratio is closest to:

A) 0.95 to 1.
B) 1.33 to 1.
C) 1.43 to 1.
D) 1.88 to 1.

Question 65

Harwichport Company has a current ratio of 3.5 to 1 and an acid-test ratio of 2.8 to 1.Current assets equal $175,000 of which $5,000 consists of prepaid expenses.Harwichport Company's inventory must be:

A) $30,000.
B) $35,000.
C) $40,000.
D) $50,000.

Question 66

Grapp Company had $130,000 in sales on account last year.The beginning accounts receivable balance was $18,000 and the ending accounts receivable balance was $16,000.The company's average collection period (age of receivables)was closest to:

A) 44.92 days.
B) 47.73 days.
C) 50.54 days.
D) 95.46 days.

Question 67

Erack Company has $15,000 in cash,$4,000 in marketable securities,$38,000 in current receivables,$18,000 in inventories,and $40,000 in current liabilities.The company's acid-test (quick)ratio is closest to:

A) 0.95 to 1.
B) 1.33 to 1.
C) 1.43 to 1.
D) 1.88 to 1.

Question 68

Paul Company has $17,000 in cash,$3,000 in marketable securities,$36,000 in current receivables,$24,000 in inventories,and $45,000 in current liabilities.The company's current ratio is closest to:

A) 0.44 to 1.
B) 0.80 to 1.
C) 1.24 to 1.
D) 1.78 to 1.

Question 69

Grave Company had $150,000 in sales on account last year.The beginning accounts receivable balance was $14,000 and the ending accounts receivable balance was $10,000.The company's average collection period (age of receivables)was closest to:

A) 24.33 days.
B) 29.20 days.
C) 34.07 days.
D) 58.40 days.

Question 70

Eral Company has $17,000 in cash,$3,000 in marketable securities,$36,000 in current receivables,$24,000 in inventories,and $45,000 in current liabilities.The company's acid-test (quick)ratio is closest to:

A) 0.44 to 1.
B) 0.80 to 1.
C) 1.24 to 1.
D) 1.78 to 1.

Question 71

Ben Company has the following data for the year just ended: Ben Company's current liabilities were:

A) $35,000.
B) $43,750.
C) $50,400.
D) $63,000.

Question 72

Erambo Company has $11,000 in cash,$6,000 in marketable securities,$27,000 in current receivables,$8,000 in inventories,and $51,000 in current liabilities.The company's acid-test (quick)ratio is closest to:

A) 0.53 to 1.
B) 0.75 to 1.
C) 0.86 to 1.
D) 1.02 to 1.

Question 73

Frantic Company had $130,000 in sales on account last year.The beginning accounts receivable balance was $10,000 and the ending accounts receivable balance was $16,000.The company's accounts receivable turnover was closest to:

A) 5.00 times.
B) 8.13 times.
C) 10.00 times.
D) 13.00 times.

Question 74

Starrs Company has current assets of $300,000 and current liabilities of $200,000.Which of the following transactions would increase its working capital?

A) Prepayment of $50,000 of next year's rent.
B) Refinancing $50,000 of short-term debt with long-term debt.
C) Acquisition of land valued at $50,000 by issuing new common shares.
D) Purchase of $50,000 of marketable securities for cash.

Question 75

Fracus Company had $100,000 in sales on account last year.The beginning accounts receivable balance was $14,000 and the ending accounts receivable balance was $16,000.The company's accounts receivable turnover was closest to:

A) 3.33 times.
B) 6.25 times.
C) 6.67 times.
D) 7.14 times.

Question 76

Granger Company had $180,000 in sales on account last year.The beginning accounts receivable balance was $10,000 and the ending accounts receivable balance was $18,000.The company's average collection period (age of receivables)was closest to:

A) 20.28 days.
B) 28.39 days.
C) 36.50 days.
D) 56.78 days.

Question 77

Marcy Corporation's current ratio is currently 1.75 to 1.The firm's current ratio cannot fall below 1.5 to 1 without violating agreements with its bondholders.If current liabilities are presently $250 million,the maximum new short-term debt that can be issued to finance an equivalent amount of inventory expansion is:

A) $41.67 million.
B) $62.50 million.
C) $125.00 million.
D) $375.00 million.

Question 78

At the end of the year just completed,Orem Company's current liabilities totalled $75,000,and its long-term liabilities totalled $225,000.Working capital at year-end was $100,000.If the company's debt-to-equity ratio is 0.30 to 1,total long-term assets must equal:

A) $1,000,000.
B) $1,125,000.
C) $1,225,000.
D) $1,300,000.

Question 79

Harris Company,a retailer,had cost of goods sold of $290,000 last year.The beginning inventory balance was $26,000 and the ending inventory balance was $24,000.The company's inventory turnover was closest to:

A) 5.80 times.
B) 11.15 times.
C) 11.60 times.
D) 12.08 times.

Question 80

Draban Company's working capital is $38,000 and its current liabilities are $59,000.The company's current ratio is closest to:

A) 0.36 to 1.
B) 0.64 to 1.
C) 1.64 to 1.
D) 2.55 to 1.