Deck 9: Metric Analysis of Financial Statements

Question 1

If a company has current assets totaling $56,000 and current liabilities totaling $40,500, then the company's working capital totals $15,500.

Answer 1

True

Question 2

The excess of current liabilities over quick assets is referred to as working capital.

Answer 2

False

Question 3

The percentage analysis of the relationship of each component in a financial statement to a total within the statement is referred as vertical analysis.

Answer 3

True

Question 4

If the current credit terms are 2/10, n/30 for Jones Inc., an accounts receivable turnover of 3 for the current year would be considered normal.

Question 5

Solvency analysis focuses on the ability of a business to make a profit.

Question 6

The ratio of current assets to current liabilities is referred to as the acid-test ratio.

Question 7

The relationship of each asset item as a percent of total assets is an example of horizontal analysis.

Question 8

Using vertical analysis of the income statement, a company's net income as a percentage of net sales is 10%; therefore, the income tax expenses as a percentage of net sales must be 90%.

Question 9

The terms acid-test ratio and quick ratio refer to the same ratio which measures the instant debt-paying ability of a company.

Question 10

The days' sales in inventory is one means of expressing the relationship between net sales and accounts receivable.

Question 11

If a firm has a quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase.

Question 12

Current position analysis indicates a company's ability to liquidate current liabilities.

Question 13

Statements in which all items are expressed as percentages with no dollar amounts are called common-sized statements.

Question 14

A balance sheet shows cash, $75,000; marketable securities, $110,000; receivables, $90,000; and $225,000 of inventories.Current liabilities are $200,000.The current ratio is 1.375 to 1.

Question 15

If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been an acceleration in the collection of receivables.

Question 16

The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as horizontal analysis.

Question 17

The relationship of 120 to 100 can be expressed as 1.2, 1.2:1, or 120%.

Question 18

A company's assets are comprised of the following: Cash, $25,000; Receivables, $5,600; Marketable Securities, $7,200; and Equipment, $65,000.The total of quick assets is $37,800.

Question 19

The comparison of the financial data of a single company for two or more years is called horizontal analysis.

Question 20

"Working capital" is another term for the current ratio.

Question 21

The Sarbanes-Oxley Act requires management to prepare a report on internal control.

Question 22

If a company has issued only one class of stock, the earnings per share is determined by dividing net income by the number of shares outstanding.

Question 23

The ratio of the market price per share of common stock on a specific date to the annual earnings per share is referred to as the price-earnings ratio.

Question 24

The relationship of $320,000 to $200,000, expressed as a ratio, is:

A) 3.8 to 2.
B) 3.2 to 2.
C) 3.5 to 2.
D) 3.0 to 2.

Question 25

The percentage analysis of increases and decreases in related items in comparative financial statements is called:

A) profitability analysis.
B) vertical analysis.
C) horizontal analysis.
D) solvency analysis.

Question 26

Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in the management of inventory.

Question 27

In computing the return on total assets, interest expense is added to net income before dividing by average total assets.

Question 28

A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for creditors.

Question 29

The ability of a business to earn a reasonable amount of income is referred to as the factor of:

A) profitability.
B) wealth.
C) leverage.
D) solvency.

Question 30

The percentage analysis of accounts payable to total liabilities is an example of:

A) liquidity analysis.
B) current position analysis.
C) vertical analysis.
D) component analysis.

Question 31

Which of the following is true of liquidity?

A) Liquidity metrics include assets turnover, price-earnings ratio, and dividend yield.
B) Liquidity is the ability to convert assets to cash.
C) Liquidity is the ability of a company to generate net income related to its invested assets.
D) Liquidity metrics include debt ratio, times interest earned, and ratio of liabilities to stockholders' equity.

Question 32

Which one of the following is not a characteristic generally evaluated in ratio analysis?

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

Question 33

An analysis in which all the components of an income statement are expressed as a percentage of net sales is called:

A) liquidity analysis.
B) horizontal analysis.
C) vertical analysis.
D) solvency analysis.

Question 34

Ratios and various other analytical measures are not a substitute for sound judgment, nor do they provide definitive guides for action.

Question 35

The return on total assets is one of the measures of profitability.

Question 36

The percentage change in long-term liabilities between two balance sheet dates is an example of:

A) profitability analysis.
B) solvency analysis.
C) horizontal analysis.
D) vertical analysis.

Question 37

The rate earned on total common stockholders' equity for most thriving businesses will be less than the return on total assets.

Question 38

Interpreting financial analysis should be considered in light of conditions peculiar to the industry and the general economic conditions.

Question 39

Profitability refers to the ability of the business to:

A) pay its current and noncurrent liabilities.
B) earn a reasonable amount of income.
C) manage its accounts receivable and inventory.
D) provide owners with dividends.

Question 40

The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as:

A) solvency and profitability.
B) solvency and liquidity.
C) solvency and equity.
D) solvency and leverage.

Question 41

Working capital is calculated as:

A) cost of goods sold minus total assets.
B) average daily sales plus quick assets.
C) net sales minus current assets.
D) current assets minus current liabilities.

Question 42

From the given data for the current year, determine the inventory turnover. ? $$\begin{array} { l r } \text { Net sales on account during the year } & \$ 316,780 \\\text { Cost of merchandise sold during the year } & 688,500 \\\text { Accounts receivable, beginning of year } & 47,000 \\\text { Accounts receivable, end of year } & 62,000 \\\text { Inventory, beginning of year } & 157,000 \\\text { Inventory, end of year } & 149,000\end{array}$$

A) 3.8
B) 5.1
C) 4.5
D) 2.7

Question 43

A company's ability to pay its current liabilities is called:

A) trend analysis.
B) global analysis.
C) current position analysis.
D) inventory analysis.

Question 44

Based on the following data for the current year, compute the inventory turnover. ? $$\begin{array} { l r } \text { Net sales on account during the year } & \$ 585,000 \\\text { Cost of merchandise sold during the year } & 380,000 \\\text { Accounts receivable, beginning of year } & 47,000 \\\text { Accounts receivable, end of year } & 36,000 \\\text { Inventory, beginning of year } & 92,000 \\\text { Inventory, end of year } & 113,000\end{array}$$

A) 1.1
B) 1.9
C) 3.7
D) 2.9

Question 45

From the following data for the current year, compute the average accounts receivable. ? $\begin{array}{lr}\text { Net sales on account during the year } & \$ 420,500 \\\text { Cost of merchandise sold during the year } & 362,000 \\\text { Accounts receivable at the beginning of the year } & 36,120 \\\text { Accounts receivable at the end of the year } & 33,200 \\\text { Inventory at the beginning of the year } & 63,000 \\\text { Inventory at the end of the year } & 92,000\end{array}$

A) 31,140
B) 28,250
C) 34,660
D) 25,200

Question 46

Based on the following data for the current year, determine the accounts receivable turnover. ? Net sales on account during the year Cost of merchandise sold during the year Accounts receivable, beginning of year Accounts receivable, end of year Inventory, beginning of year Inventory, end of year
$\$ 550,000$
350,000
35,000
25,000
80,000
125,000

A) 9.2
B) 11.7
C) 18.3
D) 7.5

Question 47

Basic analytical method in which all items are expressed only in relative terms (percentages of a common base) and are often useful for comparing one company with another or for comparing a company with industry averages are:

A) profitability analysis.
B) percentage statements.
C) horizontal analysis.
D) common-sized statements.

Question 48

Transic Corporation has the following financial data for 2016 and 2017. ? $\begin{array}{lrr}&2017&2016\\\text { ASSETS }\\\text { Current Assets: }\\\text { Cash } & \$ 48,000 & \$ 14,000 \\\text { Marketable Securities } & 9,000 & 13,000 \\\text { Accounts Receivable } & 35,000 & 24,000 \\\text { Other Current Assets } & 15,000 & 18,000 \\\text { Total Current Assets } & 107,000 & 69,000\\\text { Fixed Assets (net) } & 140,000 & 130,000 \\\text { Total Assets } & \$ 247,000 & \$ 199,000\\\\\text { LIABILITIES }\\\text { Current Liabilities } & \$ 72,000 & \$ 52,000 \\\text { Long-term Liabilities } & 50,000 & 37,000 \\\text { Total Liabilities } & \$ 122,000 & \$ 89,000\\\text { Total Stockholders' Equity } & \$ 125,000 & \$ 110,000 \\\text { Total Liabilities And Stockholders' Equity }& \$ 247,000 & \$ 199,000\end{array}$ ?
Based on Transic's current ratio, which of the following statements is true regarding the company?

A) Transic's current ratio has decreased, indicating that the company is in a more favorable position to obtain short-term credit than in 2016.
B) Transic's current ratio has increased, indicating that the company is in a more favorable position to obtain short-term credit than in 2016.
C) Transic's current ratio has increased, indicating that the company is in a less favorable position to obtain short-term credit than in 2016.
D) Transic's current ratio has decreased, indicating that the company is in a less favorable position to obtain short-term credit than in 2016.

Question 49

Transic Corporation has the following financial data for 2016 and 2017. $\begin{array}{lrr}&2017&2016\\\text { ASSETS }\\\text { Current Assets: }\\\text { Cash } & \$ 48,000 & \$ 14,000 \\\text { Marketable Securities } & 9,000 & 13,000 \\\text { Accounts Receivable } & 35,000 & 24,000 \\\text { Other Current Assets } & 15,000 & 18,000 \\\text { Total Current Assets } & 107,000 & 69,000\\\text { Fixed Assets (net) } & 140,000 & 130,000 \\\text { Total Assets } & \$ 247,000 & \$ 199,000\\\\\text { LIABILITIES }\\\text { Current Liabilities } & \$ 72,000 & \$ 52,000 \\\text { Long-term Liabilities } & 50,000 & 37,000 \\\text { Total Liabilities } & \$ 122,000 & \$ 89,000\\\text { Total Stockholders' Equity } & \$ 125,000 & \$ 110,000 \\\text { Total Liabilities And Stockholders' Equity }& \$ 247,000 & \$ 199,000\end{array}$ ? What is Transic's working capital for 2017?

A) $35,000
B) $125,000
C) $90,000
D) $18,000

Question 50

A company with $60,000 in current assets and $40,000 in current liabilities pays a $1,000 current liability.As a result of this transaction, the current ratio and working capital will:

A) remain the same and decrease, respectively.
B) increase and remain the same, respectively.
C) both increase.
D) both decrease.

Question 51

Based on the following data for the current year, determine the days' sales in accounts receivable. ? $\begin{array}{lr}\text { Net sales on account during the year } & \$ 1,080,000 \\\text { Cost of merchandise sold during the year } & 750,000 \\\text { Accounts receivable, beginning of year } & 46,500 \\\text { Accounts receivable, end of year } & 36,500 \\\text { Inventory, beginning of year } & 170,000 \\\text { Inventory, end of year } & 232,000\end{array}$

A) 14.03
B) 11.3
C) 13.79
D) 12.5

Question 52

Based on the following data for the current year, what is the days' sales in inventory (rounded to the next whole day)? ? $$\begin{array} { l r } \text { Net sales on account during the year } & \$ 1,204,000 \\\text { Cost of merchandise sold during the year } & 630,000 \\\text { Accounts receivable, beginning of year } & 75,000 \\\text { Accounts receivable, end of year } & 85,000 \\\text { Inventory, beginning of year } & 81,600 \\\text { Inventory, end of year } & 98,600\end{array}$$

A) 58
B) 30
C) 48
D) 53

Question 53

Which of the following focuses on the ability of a company to earn profits?

A) The return on total assets
B) The inventory turnover
C) The quick ratio
D) The fixed charge coverage ratio

Question 54

A company with working capital of $600,000 and a current ratio of 3.25 pays a $200,000 short-term liability.The amount of working capital immediately after payment is:

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

Question 55

Transic Corporation has the following financial data for 2016 and 2017. ? $\begin{array}{lrr}&2017&2016\\\text { ASSETS }\\\text { Current Assets: }\\\text { Cash } & \$ 48,000 & \$ 14,000 \\\text { Marketable Securities } & 9,000 & 13,000 \\\text { Accounts Receivable } & 35,000 & 24,000 \\\text { Other Current Assets } & 15,000 & 18,000 \\\text { Total Current Assets } & 107,000 & 69,000\\\text { Fixed Assets (net) } & 140,000 & 130,000 \\\text { Total Assets } & \$ 247,000 & \$ 199,000\\\\\text { LIABILITIES }\\\text { Current Liabilities } & \$ 72,000 & \$ 52,000 \\\text { Long-term Liabilities } & 50,000 & 37,000 \\\text { Total Liabilities } & \$ 122,000 & \$ 89,000\\\text { Total Stockholders' Equity } & \$ 125,000 & \$ 110,000 \\\text { Total Liabilities And Stockholders' Equity }& \$ 247,000 & \$ 199,000\end{array}$ ?
What is Transic's current ratio for 2017?

A) 1.49
B) 2.14
C) 0.21
D) 0.88

Question 56

Which of the following is the formula to calculate current ratio?

A) Cost of goods sold / Average inventory
B) Quick assets / Current liabilities
C) Sales / Average accounts receivable
D) Current assets / Current liabilities

Question 57

Using the following data for the current year, determine the accounts receivable turnover. ? $\begin{array}{lr}\text { Net sales on account during the year } & \$ 457,065 \\\text { Cost of merchandise sold during the year } & 461,280 \\\text { Accounts receivable, beginning of year } & 75,290 \\\text { Accounts receivable, end of year } & 26,280 \\\text { Inventory, beginning of year } & 185,000 \\\text { Inventory, end of year } & 169,570\end{array}$

A) 7
B) 8
C) 10
D) 9

Question 58

Which of the following is included in the computation of the quick ratio?

A) Accounts receivable
B) Supplies
C) Prepaid rent
D) Inventory

Question 59

An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to:

A) decrease.
B) neither increase nor decrease.
C) increase.
D) remain the same.

Question 60

Based on the following data, calculate the amount of quick assets. ? $$\begin{array} { l r } \text { Accounts payable } & 68,000 \\\text { Accounts receivable } & 89,000 \\\text { Accrued liabilities } & 12,000 \\\text { Cash } & 58,500 \\\text { Intangible assets } & 38,000 \\\text { Inventory } & 61,000 \\\text { Long-term investments } & 250,000 \\\text { Long-term liabilities } & 66,000 \\\text { Marketable securities } & 59,000 \\\text { Notes payable (short-term) } & 47,000 \\\text { Property, plant, and equipment } & 637,000 \\\text { Supplies } & 17,000\end{array}$$

A) $205,600
B) $208,400
C) $206,500
D) $204,200

Question 61

The independent auditor's report does which of the following?

A) Summarizes what the auditor did.
B) States that the financial statements are effective.
C) Gives the auditor's opinion regarding the fairness of the financial statements.
D) Describes that the common-sized statements are covered by the audit.

Question 62

The balance sheets at the end of each of the first two years of operations indicate the following: ? $\begin{array}{lrr}&2017&2018\\\text { Total current assets } & \$ 600,000 & \$ 560,000 \\\text { Total investments } & 60,000 & 40,000 \\\text { Total property, plant, and equipment } & 900,000 & 700,000 \\\text { Total current liabilities } & 125,000 & 80,000\\\text { Total long-term liabilities } & 350,000 & 250,000 \\\text { Preferred } 9 \% \text { stock, } \$ 100 \text { par } & 100,000 & 100,000 \\\text { Common stock, } \$ 10 \text { par } & 600,000 & 600,000 \\\text { Paid-in capital in excess of par-common stock } & 60,000 & 60,000 \\\text { Retained earnings } & 325,000 & 210,000\end{array}$ ?
Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2017, what is the return on stockholders' equity for 2017 (round to one decimal place)?

A) 16.5%
B) 12.7%
C) 12.0%
D) 13.2%

Question 63

The following information is available for Morgan Corporation: $\begin{array}{lr}&2016\\\text { Market price per share of common stock } & \$ 25.00 \\\text { Earnings per share on common stock } & 1.25\end{array}$ ? Which of the following statements is correct?

A) The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of 2016.
B) The price-earnings ratio is 5.0% and a share of common stock was selling for 5.0% more than the amount of earnings per share at the end of 2016.
C) The market price per share and the earnings per share are not statistically related to each other.
D) The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of 2016.

Question 64

The balance sheet and income statement for the year ended 2016 indicate the following: ? $\begin{array}{lr}\text { Bonds payable, } 10 \% \text { (issued } 1998 \text {, due } 2022 \text { ) } & \$ 1,200,000 \\\text { Preferred } 5 \% \text { stock, } \$ 100 \text { par (no change during year) } & 350,000 \\\text { Common stock, } \$ 50 \text { par (no change during year) } & 2,100,000 \\\text { Income before income tax for year } & 3100,000\\\text { Income tax for year } & 72,000 \\\text { Common dividends paid } & 58,000 \\\text { Preferred dividends paid } & 16,300\end{array}$ ?
Based on the data presented above, what is the times interest earned?

A) 2.6
B) 0.7
C) 3.6
D) 2.9

Question 65

Which of the following ratios provides a solvency measure that shows the margin of safety of noteholders or bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?

A) Ratio of net sales to assets
B) Rate earned on stockholders' equity
C) Number of days' sales in receivables
D) Ratio of fixed assets to long-term liabilities

Question 66

The return on stockholders' equity is computed as:

A) income from operations divided by average operating assets.
B) net income divided by preferred dividends.
C) net income divided by average total stockholders' equity.
D) gross income divided by total retained earnings.

Question 67

Condensed data taken from the ledger of Crawford Company at December 31, 2017 and 2016, are as follows: $\begin{array}{lrr}&2017&2016\\\text { Current assets } & \$ 200,000 & \$ 180,000 \\\text { Property, plant, and equipment } & 450,000 & 400,000 \\\text { Intangible assets } & 20,700 & 30,000\\\text { Current liabilities } & 70,000 & 80,000 \\\text { Long-term liabilities } & 200,000 & 250,000 \\\text { Common stock } & 275,000 & 200,000 \\\text { Retained earnings } & 125,700 & 80,000\end{array}$ ?
Prepare a comparative balance sheet, with horizontal analysis, for December 31, 2017 and 2016.(Round percents to one decimal place.)

Question 68

Based on the following data, what is the quick ratio, rounded to one decimal place? ? $$\begin{array} { l r } \text { Accounts payable } & 32,000 \\\text { Accounts receivable } & 64,000 \\\text { Accrued liabilities } & 7,000 \\\text { Cash } & 20,000 \\\text { Intangible assets } & 40,000 \\\text { Inventory } & 72,000 \\\text { Long-term investments } & 100,000 \\\text { Long-term liabilities } & 75,000 \\\text { Marketable securities } & 35,000 \\\text { Notes payable (short-term) } & 25,000 \\\text { Property, plant, and equipment } & 625,000 \\\text { Prepaid expenses } & 2,000\end{array}$$

A) 2.1
B) 1.9
C) 1.4
D) 3.2

Question 69

Sarbanes-Oxley Act of 2002 requires which of the following report to be prepared by the management of the company?

A) A report identifying the competency of the company's board of directors.
B) A report assessing the market value of the company's current stock price.
C) A report showing management's assessment of internal control.
D) A report evaluating the probability that the company will remain in business.

Question 70

Garnet Company reported the following on its income statement: ? $\begin{array}{lr}\text { Income before income taxes } & \$ 450,000 \\\text { Income tax expense } & 52,000 \\\text { Net income }&\$398,000\end{array}$ ?
An analysis of the income statement revealed that interest expense was $50,000.Garnet Company's times interest earned are earned was:

A) 7.8 times.
B) 11 times.
C) 10 times.
D) 8.1 times.

Question 71

Revenue and expense data for Reuters Company are as follows: $\begin{array}{lrr}&2017&2016\\\text { Administrative expenses } & \$ 24,750 & \$ 18,000 \\\text { Cost of goods sold } & 500,000 & 375,000 \\\text { Income tax } & 11,600 & 12,000 \\\text { Net sales } & 750,000 & 600,000 \\\text { Selling expenses } & 182,250 & 154,800\end{array}$ ?
(a)Prepare a comparative income statement, with vertical analysis, stating each item for both 2017 and 2016 as a percent of sales.
(b)Comment upon significant changes disclosed by the comparative income statement.

Question 72

From the following data, calculate the amount of working capital. $$\begin{array} { l r } \text { Accounts payable } & 58,000 \\\text { Accounts receivable } & 47,000 \\\text { Accrued liabilities } & 3,000 \\\text { Cash } & 29,560 \\\text { Intangible assets } & 57,000 \\\text { Inventory } & 48,000 \\\text { Long-term investments } & 127,000 \\\text { Long-term liabilities } & 41,000 \\\text { Marketable securities } & 32,000 \\\text { Notes payable (short-term) } & 28,000 \\\text { Property, plant, and equipment } & 784,000 \\\text { Prepaid expenses } & 7,500\end{array}$$

A) $98,060
B) $72,000
C) $75,060
D) $77,060

Question 73

For most profitable companies, the return on total assets will be less than:

A) the rate earned on sales.
B) cannot be determined without more information.
C) the rate earned on total liabilities and stockholders' equity.
D) the return on stockholders' equity.

Question 74

The purpose of an audit is to:

A) render an opinion on the fairness of the statements.
B) determine whether or not a company has a good credit risk.
C) determine whether or not a company complies with income tax regulations.
D) determine whether or not a company is a good investment.

Question 75

The following data are taken from the financial statements: $$\begin{array} { l r r } & \text { Current } &{ \text { Preceding } } \\& \text { Year } & \text { Year } \\\text { Net sales } & \$ 3,592,000 & \$ 4,056,000 \\\text { Cost of goods sold } & 2,092,000 & 2,656,000 \\\text { Average monthly inventory } & 332,000 & 328,000 \\\text { Inventory, end of year } & 372,000 & 347,000\end{array}$$ ?
(a)Determine for each year (1) the inventory turnover and (2) the days' sales in inventory.
(b)Comment on the favorable and unfavorable trends revealed by the data.

Question 76

The debt ratio is computed as:

A) net income divided by interest expense.
B) total liabilities divided by total assets.
C) total bonds payable divided by total stockholders' equity.
D) fixed assets divided by long-term liabilities.

Question 77

The balance sheets at the end of each of the first two years of operations indicate the following: $\begin{array}{lrr}&2017&2018\\\text { Total current assets } & \$ 600,000 & \$ 560,000 \\\text { Total investments } & 60,000 & 40,000 \\\text { Total property, plant, and equipment } & 900,000 & 700,000 \\\text { Total current liabilities } & 125,000 & 80,000\\\text { Total long-term liabilities } & 350,000 & 250,000 \\\text { Preferred } 9 \% \text { stock, } \$ 100 \text { par } & 100,000 & 100,000 \\\text { Common stock, } \$ 10 \text { par } & 600,000 & 600,000 \\\text { Paid-in capital in excess of par-common stock } & 60,000 & 60,000 \\\text { Retained earnings } & 325,000 & 210,000\end{array}$ ? Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2017, what are the earnings per share on common stock for 2017 (round to two decimal places)?

A) $2.17
B) $2.32
C) $2.68
D) $2.02

Question 78

The balance sheets at the end of each of the first two years of operations indicate the following: $\begin{array}{lrr}&2017&2018\\\text { Total current assets } & \$ 600,000 & \$ 560,000 \\\text { Total investments } & 60,000 & 40,000 \\\text { Total property, plant, and equipment } & 900,000 & 700,000 \\\text { Total current liabilities } & 125,000 & 80,000\\\text { Total long-term liabilities } & 350,000 & 250,000 \\\text { Preferred } 9 \% \text { stock, } \$ 100 \text { par } & 100,000 & 100,000 \\\text { Common stock, } \$ 10 \text { par } & 600,000 & 600,000 \\\text { Paid-in capital in excess of par-common stock } & 60,000 & 60,000 \\\text { Retained earnings } & 325,000 & 210,000\end{array}$ ? Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2017, what is the return on common stockholders' equity for 2017 (round to one decimal place)?

A) 12.3%
B) 17.4%
C) 13.0%
D) 14.0%

Question 79

The balance sheets at the end of each of the first two years of operations indicate the following: $\begin{array}{lrr}&2017&2018\\\text { Total current assets } & \$ 600,000 & \$ 560,000 \\\text { Total investments } & 60,000 & 40,000 \\\text { Total property, plant, and equipment } & 900,000 & 700,000 \\\text { Total current liabilities } & 125,000 & 80,000\\\text { Total long-term liabilities } & 350,000 & 250,000 \\\text { Preferred } 9 \% \text { stock, } \$ 100 \text { par } & 100,000 & 100,000 \\\text { Common stock, } \$ 10 \text { par } & 600,000 & 600,000 \\\text { Paid-in capital in excess of par-common stock } & 60,000 & 60,000 \\\text { Retained earnings } & 325,000 & 210,000\end{array}$ ? Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2017, and the market price is $40, what is the price-earnings ratio on common stock (round to one decimal place)?

A) 14.9
B) 19.8
C) 17.3
D) 18.4

Question 80

_____ is a solvency metric and is computed as total assets minus total liabilities.

A) Ratio of fixed assets to long-term liabilities
B) Debt ratio
C) Asset turnover
D) Net asset