Deck 9: Financial Statement Analysis

Question 1

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

Answer 1

False

Question 2

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 2

True

Question 3

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

Answer 3

True

Question 4

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 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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 10

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

Question 11

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 12

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

Question 13

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

Question 14

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

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

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 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

The rate earned on total assets is one of the measures of profitability.

Question 25

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

Question 26

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

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

Question 27

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 28

The percent of fixed assets to total assets is an example of:

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

Question 29

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

Question 30

What type of analysis is indicated by the following? $\begin{array}{|l|c|c|c|c|}\hline\text { Increase (Decrease) }\\\hline \text { Percent } & \text { Amount } & 2012 & 2013 & \\ \hline( 24 \%) & \$(120,000) & \$ 500,000 & \$ 380,000 & \text { Current assets } \\\hline 12 \% & 180,000 & 1.500 .000 & 11.680,000 & \text { Fixed assets }\\\hline\end{array}$

A) Vertical analysis
B) Horizontal analysis
C) Liquidity analysis
D) Common-size analysis

Question 31

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

Question 32

The relationship of $225,000 to $100,000, expressed as a ratio, is:

A) 2.0 to 1.
B) 1.8 to 1.
C) 1.5 to 1.
D) 2.25 to 1.

Question 33

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

Question 34

Profitability refers to the ability of the business to:

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

Question 35

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

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

Question 36

The effects of differences in accounting methods are of little importance when analyzing comparable data from competing businesses.

Question 37

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 38

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 39

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

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

Question 40

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

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

Question 41

Which of the following cannot be used to assess solvency of a company?

A) Liabilities to stockholders' equity
B) Current position analysis
C) Ratio of net sales to assets
D) Inventory analysis

Question 42

The ratio computed by dividing current assets by current liabilities is called:

A) current ratio.
B) earnings ratio.
C) acid-test ratio.
D) quick ratio.

Question 43

Based on the following data for the current year, determine the number of days' sales in accounts receivable? $\begin{array}{cl}\$ 1,095,000 & \text { Net sales on account during the year } \\700,000 & \text { Cost of merchandise sold during the yeat } \\47,500 & \text { Accounts receivable, be ginning of year } \\37,500 & \text { Accounts receivable, end of year } \\190,000 & \text { Inventory, be ginning of year } \\220,000 & \text { Inventory, end of year }\end{array}$

A) 12.5
B) 14.17
C) 25.76
D) 15.8

Question 44

The balance sheet and income statement for the year ended 2013 indicate the following: $\begin{array}{ll}\$ 1,000,000 & \text { Bonds payable, } 12 \% \text { (issued 1998, due 2022) } \\300,000 & \text { Preferred 5\% stock, } \$ 100 \text { par (no change during year) } \\2,000,000 & \text { Common stock, } \$ 50 \text { par (no change during year) } \\300,000 & \text { Income before income tax for year } \\80,000 & \text { Income tax for year } \\50,000 & \text { Common dividendspaid } \\15,000 & \text { Preferred dividendspaid }\end{array}$
Based on the data presented above, what is the number of times interest charges were earned?

A) 3.5
B) 2.2
C) 4.0
D) The answer cannot be determined.

Question 45

Based on the following data for the current year, compute the inventory turnover? $\begin{array}{ll}\$ 500,000 & \text { Net sales on account during the year } \\300,000 & \text { Cost of merchandise sold during the yeat } \\45,000 & \text { Accounts receivable, be ginning of year } \\35,000 & \text { Accounts receivable, end of year } \\90,000 & \text { Inventory, be ginning of year } \\110,000 & \text { Inventory, end of year }\end{array}$

A) 3.0
B) 2.7
C) 4.0
D) 3.3

Question 46

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

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

Question 47

Based on the following data for the current year, compute the number of days' sales in accounts receivable? $\begin{array}{ll}\$ 800,000 & \text { Net sales on account during the year } \\300,000 & \text { Cost of merchandise sold during the yeat } \\45,000 & \text { Accounts receivable, be ginning of year } \\35,000 & \text { Accounts receivable, end of year } \\90,000 & \text { Inventory, be ginning of year } \\110,000 & \text { Inventory, end of year }\end{array}$

A) 7.5
B) 18.25
C) 16.0
D) 20.5

Question 48

Based on the following data for the current year, determine the inventory turnover? $\begin{array}{ll}\$ 517,500 & \text { Net sales on account during the year } \\450,000 & \text { Cost of merchandise sold during the yeat } \\50,000 & \text { Accounts receivable, be ginning of year } \\40,000 & \text { Accounts receivable, end of year } \\110,000 & \text { Inventory, be ginning of year } \\140,000 & \text { Inventory, end of year }\end{array}$

A) 7.2
B) 3.6
C) 3.2
D) 4.2

Question 49

Thomson Company reported the following on its income statement: $\begin{aligned}\$ 420,000 & \text { Income before income taxes } \\120,000 & \text { Income tax expense } \\\$ 300,000 & \text { Net income }\end{aligned}$
An analysis of the income statement revealed that interest expense was $40,000. Thomson Company's number of times interest charges are earned was:

A) 8 times.
B) 7.5 times.
C) 9.5 times.
D) 11.5 times.

Question 50

Washington Corporation has the following financial data for 2013 and 2012. $\begin{array}{|l|c|l|}\hline2012&2013\\\hline&&\text { ASSSETS }\\\hline & & \text { Curent Assets: } \\\hline 9,000 & \$ 37,000 & \text { Cash } \\\hline 11,000 & 8,000 & \text { Marketable Securities } \\\hline 25,000 & 32,000 & \text { Accounts Receivable } \\\hline 10,000 & 13,000 & \text { Other Current Assets } \\\hline 55,000 & 90,000 & \text { Total Current Assets } \\\hline 120,000 & 135,000 & \text { Fixed Assets(net) } \\\hline \$ 175,000 & \$ 225,000 & \text { Total Assets } \\\hline & & \text { Liabilities } \\\hline \$ 40,000 & \$ 71,000 & \text { Curent Liabilities } \\\hline 35,000 & 34,000 & \text { Long-term Liabilities } \\\hline \$ 75,000 & \$ 105,000 & \text { Total Libilities } \\\hline \$ 100,000 & \$ 120,000 & \text { Total Stocklohlers'Equity } \\\hline \$ 175,000 & \$ 225,000 & \text { Total Linbilities And StockJolders' Equity } \\\hline\end{array}$
What is Washington's current ratio for 2013?

A) 1.08
B) 0.79
C) 1.27
D) 1.50

Question 51

Based on the following data for the current year, determine the accounts receivable turnover? $\begin{array}{ll}\$ 525,500 & \text { Net sales on account during the year } \\375,000 & \text { Cost of merchandise sold during the yeat } \\50,000 & \text { Accounts receivable, be ginning of year } \\40,000 & \text { Accounts receivable, end of year } \\110,000 & \text { Inventory, be ginning of year } \\140,000 & \text { Inventory, end of year }\end{array}$

A) 13.14
B) 11.7
C) 10.35
D) 8.3

Question 52

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

Question 53

The ratio of the sum of cash and other current assets that can be easily converted to cash to current liabilities is called as:

A) price-earnings ratio.
B) earnings ratio.
C) quick ratio.
D) current ratio.

Question 54

Which of the following measures the liquidity position of a corporation?

A) Earnings per share
B) Inventory turnover
C) Current ratio
D) Number of times interest charges earned

Question 55

Which of the following is not included in the computation of the quick ratio?

A) Inventory
B) Marketable securities
C) Accounts receivable
D) Cash

Question 56

A company with working capital of $500,000 and a current ratio of 2.25 pays a $100,000 short-term liability. The amount of working capital immediately after payment is:

A) $600,000.
B) $400,000.
C) $500,000.
D) $100,000.

Question 57

Washington Corporation has the following financial data for 2013 and 2012. $\begin{array}{|l|c|l|}\hline2012&2013\\\hline&&\text { ASSSETS }\\\hline & & \text { Curent Assets: } \\\hline 9,000 & \$ 37,000 & \text { Cash } \\\hline 11,000 & 8,000 & \text { Marketable Securities } \\\hline 25,000 & 32,000 & \text { Accounts Receivable } \\\hline 10,000 & 13,000 & \text { Other Current Assets } \\\hline 55,000 & 90,000 & \text { Total Current Assets } \\\hline 120,000 & 135,000 & \text { Fixed Assets(net) } \\\hline \$ 175,000 & \$ 225,000 & \text { Total Assets } \\\hline & & \text { Liabilities } \\\hline \$ 40,000 & \$ 71,000 & \text { Curent Liabilities } \\\hline 35,000 & 34,000 & \text { Long-term Liabilities } \\\hline \$ 75,000 & \$ 105,000 & \text { Total Libilities } \\\hline \$ 100,000 & \$ 120,000 & \text { Total Stocklohlers'Equity } \\\hline \$ 175,000 & \$ 225,000 & \text { Total Linbilities And StockJolders' Equity } \\\hline\end{array}$
Based on Washington's current ratio, which of the following statements is true regarding the company?

A) Washington's current ratio has increased, indicating that the company is in a more favorable position to obtain short-term credit than in 2012.
B) Washington's current ratio has decreased, indicating that the company is in a less favorable position to obtain short-term credit than in 2012.
C) Washington's current ratio has increased, indicating that the company is in a less favorable position to obtain short-term credit than in 2012.
D) Washington's current ratio has decreased, indicating that the company is in a more favorable position to obtain short-term credit than in 2012.

Question 58

Which of the following is not an analysis used in assessing solvency?

A) Inventory analysis
B) Number of times interest charges are earned
C) Asset turnover
D) Accounts receivable analysis

Question 59

Washington Corporation has the following financial data for 2013 and 2012. $\begin{array}{|l|c|l|}\hline2012&2013\\\hline&&\text { ASSSETS }\\\hline & & \text { Curent Assets: } \\\hline 9,000 & \$ 37,000 & \text { Cash } \\\hline 11,000 & 8,000 & \text { Marketable Securities } \\\hline 25,000 & 32,000 & \text { Accounts Receivable } \\\hline 10,000 & 13,000 & \text { Other Current Assets } \\\hline 55,000 & 90,000 & \text { Total Current Assets } \\\hline 120,000 & 135,000 & \text { Fixed Assets(net) } \\\hline \$ 175,000 & \$ 225,000 & \text { Total Assets } \\\hline & & \text { Liabilities } \\\hline \$ 40,000 & \$ 71,000 & \text { Curent Liabilities } \\\hline 35,000 & 34,000 & \text { Long-term Liabilities } \\\hline \$ 75,000 & \$ 105,000 & \text { Total Libilities } \\\hline \$ 100,000 & \$ 120,000 & \text { Total Stocklohlers'Equity } \\\hline \$ 175,000 & \$ 225,000 & \text { Total Linbilities And StockJolders' Equity } \\\hline\end{array}$ What is Washington's working capital for 2013?

A) $6,000
B) $19,000
C) $0
D) $120,000

Question 60

Based on the following data for the current year, determine the accounts receivable turnover? $\begin{array}{ll}\$ 500,000 & \text { Net sales on account during the year } \\300,000 & \text { Cost of merchandise sold during the yeat } \\45,000 & \text { Accounts receivable, be ginning of year } \\35,000 & \text { Accounts receivable, end of year } \\90,000 & \text { Inventory, be ginning of year } \\110,000 & \text { Inventory, end of year }\end{array}$

A) 12.5
B) 14.3
C) 11.1
D) 7.5

Question 61

The tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is sometimes referred as:

A) leverage.
B) solvency.
C) yield.
D) quick assets.

Question 62

Based on the following data, what is the amount of working capital? $\begin{array}{ll}\$ 32,000 & \text { Accounts payable } \\64,000 & \text { Accounts receivable } \\7,000 & \text { Accrued liabilities } \\20,000 & \text { Cash } \\40,000 & \text { Intangible assets } \\72,000 & \text { Inventory } \\100,000 & \text { Long-term investments } \\75,000 & \text { Long-term liabilities } \\35,000 & \text { Marketable securities } \\20,000 & \text { Notes payable (short-term) } \\625,000 & \text { Property, plant, and equipment } \\2,000 & \text { Prepaid expenses }\end{array}$

A) $190,000
B) $134,000
C) $118,000
D) $62,000

Question 63

Condensed data taken from the ledger of Crawford Company at December 31, 2013 and 2012, are as follows:
$\begin{array}{|c|c|l|}\hline2012&2013\\\hline \$ 180,000 & \$ 200,000 & \text { Current assets } \\\hline 400,000 & 450,000 & \text { Property, plant, and equipment } \\\hline 30,000 & 20,700 & \text { Intangible assets } \\\hline 80,000 & 70,000 & \text { Current liabilities } \\\hline 250,000 & 200,000 & \text { Long term liabilities } \\\hline 200,000 & 275,000 & \text { Common stock } \\\hline 80.000 & 25,700 &\text { Retained earnings } \\\hline \end{array}$ Prepare a comparative balance sheet, with horizontal analysis, for December 31, 2013 and 2012. (Round percents to one decimal place.)

Question 64

The number of times interest charges are earned is computed as:

A) net income plus interest expense, divided by interest expense.
B) income before income tax plus interest expense, divided by interest expense.
C) net income divided by interest expense.
D) income before income tax divided by interest expense.

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

Question 66

The balance sheets at the end of each of the first two years of operations indicate the following: $\begin{array}{|l|l|l|}\hline2012&2013\\\hline\$ 560,000 & \$ 600,000 & \text { Total current assets } \\\hline 40,000 & 60,000 & \text { Total investments } \\\hline 700,000 & 900,000 & \text { Total property, plant, and ecuipment } \\\hline 80,000 & 125,000 & \text { Total current liabilities } \\\hline 250,000 & 350,000 & \text { Total long-term liabilities } \\\hline 100,000 & 100,000 & \text { Preferred } 9 \% \text { stock } \$ 100 \mathrm{prr} \\\hline 600,000 & 600,000 & \text { Common stock, } \$ 10 \text { prr } \\\hline 60,000 & 60,000 & \text { Paid-in capital in excess of par--common stock } \\\hline 210,000 & 325,000 & \text { Retained earnings }\\\hline\end{array}$

Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2013, what are the earnings per share on common stock for 2013 (round to two decimal places)?

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

Question 67

Based on the following data, what is the amount of quick assets? $\begin{array}{ll}\$ 32,000 & \text { Accounts payable } \\56,000 & \text { Accounts receivable } \\7,000 & \text { Accrued liabilities } \\20,000 & \text { Cash } \\40,000 & \text { Intangible assets } \\72,000 & \text { Inventory } \\100,000 & \text { Long-term investments } \\75,000 & \text { Long-term liabilities } \\40,000 & \text { Marketable securities } \\20,000 & \text { Notes payable (short-term) } \\625,000 & \text { Property, plant, and equipment } \\2,000 & \text { Supplies }\end{array}$

A) $228,000
B) $188,000
C) $116,000
D) $114,000

Question 68

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

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

Question 69

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

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

Question 70

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

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

Question 71

The balance sheets at the end of each of the first two years of operations indicate the following: $\begin{array}{|l|l|l|}\hline2012&2013\\\hline\$ 560,000 & \$ 600,000 & \text { Total current assets } \\\hline 40,000 & 60,000 & \text { Total investments } \\\hline 700,000 & 900,000 & \text { Total property, plant, and ecuipment } \\\hline 80,000 & 125,000 & \text { Total current liabilities } \\\hline 250,000 & 350,000 & \text { Total long-term liabilities } \\\hline 100,000 & 100,000 & \text { Preferred } 9 \% \text { stock } \$ 100 \mathrm{prr} \\\hline 600,000 & 600,000 & \text { Common stock, } \$ 10 \text { prr } \\\hline 60,000 & 60,000 & \text { Paid-in capital in excess of par--common stock } \\\hline 210,000 & 325,000 & \text { Retained earnings }\\\hline\end{array}$

Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2013, what is the rate earned on common stockholders' equity for 2013 (round to one decimal place)?

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

Question 72

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

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

Question 73

The purpose of an audit is to:

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

Question 74

The balance sheets at the end of each of the first two years of operations indicate the following: $\begin{array}{|l|l|l|}\hline2012&2013\\\hline\$ 560,000 & \$ 600,000 & \text { Total current assets } \\\hline 40,000 & 60,000 & \text { Total investments } \\\hline 700,000 & 900,000 & \text { Total property, plant, and ecuipment } \\\hline 80,000 & 125,000 & \text { Total current liabilities } \\\hline 250,000 & 350,000 & \text { Total long-term liabilities } \\\hline 100,000 & 100,000 & \text { Preferred } 9 \% \text { stock } \$ 100 \mathrm{prr} \\\hline 600,000 & 600,000 & \text { Common stock, } \$ 10 \text { prr } \\\hline 60,000 & 60,000 & \text { Paid-in capital in excess of par--common stock } \\\hline 210,000 & 325,000 & \text { Retained earnings }\\\hline\end{array}$

Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2013, and the market price is $40, what is the price-earnings ratio on common stock (round to one decimal place)?

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

Question 75

Revenue and expense data for Reuters Company are as follows:
$\begin{array}{lrl}2012&2013\\\$ 18,000 & \$ 24,750 & \text { Administrative expense } \\375,000 & 500,000 & \text { Cost of goods sold } \\12,000 & 11,600 & \text { Income tax } \\600,000 & 750,000 & \text { Net sales } \\154,800 & 182,250 & \text { Selling expenses }\end{array}$

Question 76

The following information is available for Morgan Corporation: $\begin{array}{|l|l|}\hline2012\\\hline\$ 25.00 & \text { Market price per share of common stock } \\\hline 1.25 & \text { Earnings per share on common stock } \\\hline\end{array}$ 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 2012.
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 2012.
C) 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 2012.
D) The market price per share and the earnings per share are not statistically related to each other.

Question 77

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

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

Question 78

The balance sheets at the end of each of the first two years of operations indicate the following: $\begin{array}{|l|l|l|}\hline2012&2013\\\hline\$ 560,000 & \$ 600,000 & \text { Total current assets } \\\hline 40,000 & 60,000 & \text { Total investments } \\\hline 700,000 & 900,000 & \text { Total property, plant, and ecuipment } \\\hline 80,000 & 125,000 & \text { Total current liabilities } \\\hline 250,000 & 350,000 & \text { Total long-term liabilities } \\\hline 100,000 & 100,000 & \text { Preferred } 9 \% \text { stock } \$ 100 \mathrm{prr} \\\hline 600,000 & 600,000 & \text { Common stock, } \$ 10 \text { prr } \\\hline 60,000 & 60,000 & \text { Paid-in capital in excess of par--common stock } \\\hline 210,000 & 325,000 & \text { Retained earnings }\\\hline\end{array}$
Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2013, what is the rate earned on stockholders' equity for 2013 (round to one decimal place)?

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

Question 79

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

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

Question 80

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

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