Question 1

The Frasier Company has a long-term debt ratio of 0.5 and a current ratio of 1.3. Current liabilities are $900, sales are $6,000, profit margin is 10%, and ROE is 19&. What is the amount of the firm's net fixed assets?

Accepted Answer

A)  $7,546 
B)  $7,046 
C)  $6,556 
D)  $6,046 
E)  $5,556

Question 2

If a firm has a total debt ratio of 0.5, what is its equity multiplier?

Accepted Answer

A)  2.00 times 
B)  0.50 times 
C)  0.67 times 
D)  1.50 times 
E)  3.00 times

Question 3

Calculate the current ratio given the following information: current liabilities = $55,000; sales = $250,000; cost of goods sold = $120,000; cash ratio = 0.91; accounts receivable turnover = 6.25; inventory turnover = 2.

Accepted Answer

A)  2.63 
B)  2.73 
C)  2.83 
D)  2.93 
E)  3.03

Question 4

When comparing the financial statements of one firm with those of another firm, a problem that may be encountered is that either one, or both, of the firms may be conglomerates and thus have unrelated lines of business.

Accepted Answer

A) True 
 B)False

Question 5

Atlasta Limo Corp. has an average collection period of 36.5 days. Sales are $300,001. What is the average investment in receivables?

Accepted Answer

A)  $4,441 
B)  $8,219 
C)  $10,000 
D)  $30,000 
E)  $36,500

Question 6

If a firm uses part of the cash it received from payment of an account receivable to buy inventory and leaves the rest in its bank account, its current ratio will remain unchanged.

Accepted Answer

A) True 
 B)False

Question 7

Sales divided by the value computed as current assets minus current liabilities is referred to as the:

Accepted Answer

A)  Net working capital turnover. 
B)  Cash coverage ratio. 
C)  Equity multiplier. 
D)  Total asset turnover. 
E)  Capital intensity ratio.

Question 8

Sing Lee's has accounts payable of $300, inventory of $250, cash of $50, fixed assets of $500, accounts receivable of $200, and long-term debt of $400. What is the value of the net working capital to total assets ratio?

Accepted Answer

A)  .20 
B)  .33 
C)  .40 
D)  .50 
E)  .67

Question 9

Problems with financial statement analysis include all of the following EXCEPT:

Accepted Answer

A)  Many firms are conglomerates whose combined operations don't fit any neat industry classification. 
B)  The financial statements of firms outside US and Canada do not necessarily conform to GAAP, making it difficult to compare them to US and Canadian firms. 
C)  Firms may use different accounting procedures for inventory, making it difficult to compare those using standard financial ratios. 
D)  If two firms with seasonal operations end their fiscal years at different times, their financial statements may be difficult to compare. 
E)  Financial statements have little value since they cannot be used to calculate a firm's tax liability.

Question 10

Current assets are $94,700. Accounts payable is $36,200, net income is $12,400 and sales are $110,800. What is the net working capital turnover rate?

Accepted Answer

A)  0.21 
B)  0.85 
C)  1.17 
D)  1.68 
E)  1.89

Question 11

Use the following statement of financial position and statement of comprehensive income   Accounts payable for 2018 will have a value of _____ % on the firm's common-size financial statement.

Accepted Answer

A)  6.4 
B)  6.8 
C)  7.3 
D)  7.5 
E)  7.9

Question 12

The financial manager of Mystery, Inc. tells her banker that Mystery's accounts receivable declined by $275,000 that day. Based on this, the bank knows that Mystery's current ratio:

Accepted Answer

A)  Must have increased from the day before. 
B)  Must have decreased from the day before. 
C)  Did not change from the day before. 
D)  Declined but the quick ratio was unchanged from the day before. 
E)  Would possibly be affected, but more information is needed to know in which direction.

Question 13

Ratios that measure the firm's financial leverage are known as:

Accepted Answer

A)  Asset management ratios. 
B)  Long-term solvency ratios. 
C)  Short-term solvency ratios. 
D)  Profitability ratios. 
E)  Market value ratios.

Question 14

Herman's Bar and Grill paid $1,618 in interest and $265 in dividends last year. The times interest earned ratio is 1.9 and the depreciation expense is $50. What is the value of the cash coverage ratio?

Accepted Answer

A)  1.62 
B)  1.87 
C)  1.93 
D)  1.99 
E)  2.11

Question 15

Which of the following contains the components of the Du Pont identity for the company? Use year-end 2018 values where appropriate.

Accepted Answer

A)  0.159; 1.77; 4.26 
B)  0.169; 1.56; 4.54 
C)  0.159; 1.66; 4.54 
D)  0.132; 1.66; 5.46 
E)  0.427; 1.40; 2.00

Question 16

Given the following information, calculate sales value. Total asset turnover 0.80; total liabilities $5,000; total equity $5,000.

Accepted Answer

A)  $8,600 
B)  $8,000 
C)  $10,600 
D)  $11,600 
E)  $12,600

Question 17

If cash inflows for the company cease, the firm will be able to stay in business for about:

Accepted Answer

A)  111 days. 
B)  118 days. 
C)  146 days. 
D)  1,872 days. 
E)  2,139 days.

Question 18

The current ratio is measured as:

Accepted Answer

A)  Current assets minus current liabilities. 
B)  Current assets divided by current liabilities. 
C)  Current liabilities minus inventory, divided by current assets. 
D)  Cash on hand divided by current liabilities. 
E)  Current liabilities divided by current assets.

Question 19

Calculate depreciation expense given the following information. Interest expense $2,000; times interest earned 5; cash coverage ratio 5.5.

Accepted Answer

A)  $1,000 
B)  $1,200 
C)  $1,400 
D)  $1,600 
E)  $1,800

Question 20

Assume a firm's current ratio equals 3.1. Which of the following actions would increase it?

Accepted Answer

A)  Discarding and writing off spoiled inventory. 
B)  Receiving a full cash payment on an account receivable. 
C)  Paying off a short-term bank loan with the proceeds from new long-term debt. 
D)  Purchasing new fixed assets using the proceeds from a new stock issue. 
E)  Buying inventory on credit, thereby increasing accounts payable.

Exam 3: Working With Financial Statements