99. The rate at which accounts receivable turnover
100. The fixed asset turnover ratio
101. If the rate of return on assets for the year is 15%, a general interpretation of the ratio would be
102. The accounts payable turnover ratio can reveal
103. Rate of return on common shareholders’ equity (ROCE)
104. During Year 2, Harry Corporation purchased $600,000 of merchandise inventory. The cost of sales for
year 2 was $660,000 and the ending merchandise inventory at December 31, Year 2 was $60,000. What was the
inventory turnover for Year 2?
105. Igor Corporation’s accounts receivable, net of allowance for uncollectibles, were $250,000 at December
31, Year 3, and $350,000 at December 31, Year 4. Net cash sales for Year 4 were $300,000. The accounts
receivable turnover was 6.0. Igor’s net sales for Year 4 were
106. Earnings per share is a measure of
107. A small leverage ratio may indicate that a company is
108. Earnings per share tells the shareholder the amount of
109. The following information pertains to the Kathy Company for the year ended December 31, Year 2:
Common shares outstanding
1,000,000
Stated value per share
$10.00
Market price per share
$80.00
Year 1 dividends paid per share
$ 4.00
Year 2 dividends paid per share
$ 5.00
Earnings per share
$ 8.00
The price-earnings ratio for Kathy’s common stock is
110. Selected data from Larry Corporation’s financial statements for the year ended December 31, Year 2 are as
follows.
Current ratio
1.4
Quick ratio
0.86
Current liabilities
$450,000
Accounts receivable turnover
6.0
Merchandise inventory turnover
4.0
Rate of return on assets
6.5%
Selected Account Balances at December 31, Year 1:
Accounts receivable
$355,000
Merchandise inventory
190,000
Year 2 Operations
Sales
$1,241,000
Cost of goods sold
800,000
Assuming that prepaid expenses are immaterial, ending merchandise inventory at December 31, Year 2 is
111. Why might a firm use the quick ratio instead of the current ratio in its liquidity analysis?
112. Ramer Company and Matson Company
Assume the following information for Ramer Company, Matson Company, and for their common industry for a
recent year.
Ramer
Matson
Industry Average
Current ratio
3.50
2.80
3.00
Accounts receivable turnover
5.00
8.10
6.00
Inventory turnover
6.20
8.00
6.10
Interest coverage ratio
9.00
12.30
10.40
Debt-equity ratio
0.70
0.40
0.55
Return on investment
0.15
0.12
0.15
Dividend payout ratio
0.80
0.60
0.55
Earnings per share
$3.00
$ 2.00
–
(CMA adapted, Jun 90 #19) Refer to the Ramer Company and Matson Company example. Which one of the
following is correct if both companies have the same total assets and the same sales?
(CMA adapted, Jun 90 #19) Refer to the Ramer Company and Matson Company example. Which one of the
following is correct if both companies have the same total assets and the same sales?
113. Ramer Company and Matson Company
Assume the following information for Ramer Company, Matson Company, and for their common industry for a
recent year.
Ramer
Matson
Industry Average
Current ratio
3.50
2.80
3.00
Accounts receivable turnover
5.00
8.10
6.00
Inventory turnover
6.20
8.00
6.10
Interest coverage ratio
9.00
12.30
10.40
Debt-equity ratio
0.70
0.40
0.55
Return on investment
0.15
0.12
0.15
Dividend payout ratio
0.80
0.60
0.55
Earnings per share
$3.00
$ 2.00
–
(CMA adapted, Jun 90 #19) Refer to the Ramer Company and Matson Company example. Which one of the
following is correct if both companies have the same total assets and the same sales?
(CMA adapted, Jun 90 #20) Refer to the Ramer Company and Matson Company example. The attitudes of
both Ramer and Matson concerning risk are best explained by the
114. Ramer Company and Matson Company
Assume the following information for Ramer Company, Matson Company, and for their common industry for a
recent year.
Ramer
Matson
Industry Average
Current ratio
3.50
2.80
3.00
Accounts receivable turnover
5.00
8.10
6.00
Inventory turnover
6.20
8.00
6.10
Interest coverage ratio
9.00
12.30
10.40
Debt-equity ratio
0.70
0.40
0.55
Return on investment
0.15
0.12
0.15
Dividend payout ratio
0.80
0.60
0.55
Earnings per share
$3.00
$ 2.00
–
(CMA adapted, Jun 90 #19) Refer to the Ramer Company and Matson Company example. Which one of the
following is correct if both companies have the same total assets and the same sales?
(CMA adapted, Jun 90 #21) Refer to the Ramer Company and Matson Company example. Some of the ratios
and data for Ramer and Matson are affected by income taxes. Assuming no interperiod income tax allocation,
which of the following items would be directly affected by income taxes for the period.
115. (CMA adapted, Jun 90 #18) If a company is profitable and is effectively using leverage, which one of the
following ratios is likely to be the largest?
116. (CMA adapted, Dec 93 #17) Norton Inc. has a 2 to 1 current ratio. This ratio would increase to more than
2 to 1 if
117. Mother’s Company has current assets of $900,000 and current liabilities of $1,000,000. Mother’s
Company’s current ratio would be increased by
118. A measure of short-term debt paying ability is a company’s
119. (CMA adapted, Dec 87 #1) When a balance sheet amount is related to an income statement amount in
computing a ratio,
120. King Products Corporation
King Products Corporation
Statement of Financial Position
(in thousands)
June 30
Year 6
Year 5
Cash
$ 60
$ 50
Marketable securities (at market)
40
30
Accounts receivable (net)
90
60
Inventories (at lower of cost or market)
120
100
Prepaid items
30
40
Total current assets
$ 340
$280
Long-term investments (at cost)
50
40
Land (at cost)
150
150
Building (net)
160
180
Equipment (net)
190
200
Patents (net)
70
34
Goodwill (net)
40
26
Total long-term assets
$ 660
$630
Total assets
$1,000
$910
Notes payable
$ 46
$ 24
Accounts payable
94
56
Accrued interest
30
30
Total current liabilities
$ 170
$110
Notes payable, 10% due 12/31/Year 12
20
20
Bonds payable, 12% due 6/30/Year 15
30
30
Total long-term debt
$ 50
$ 50
Total liabilities
$ 220
$160
Preferred stock-5% cumulative, $100 par, non-participating,
authorized, issued and outstanding, 2,000 shares
200
200
Common stock-$10 par, 40,000 shares authorized, 30,000 shares
issued and outstanding
300
300
Additional paid-in capital—common
150
150
Retained earnings
130
100
Total shareholders’ equity
$ 780
$750
Total liabilities and shareholders’ equity
$1,000
$910
King Products Corporation
Income Statement
For the year ended June 30
(in thousands)
Year 6
Net sales
$600
Costs and expenses
Cost of goods sold
440
Selling, general, and administrative
60
Interest expense
10
Income before taxes
$ 90
Income taxes
45
Net income
$ 45
(CMA adapted, Dec 96 #15) Refer to the King Products Corporation example. King Products Corporation’s
inventory turnover for the fiscal year ended at June 30, Year 6, was
121. King Products Corporation
King Products Corporation
Statement of Financial Position
(in thousands)
June 30
Year 6
Year 5
Cash
$ 60
$ 50
Marketable securities (at market)
40
30
Accounts receivable (net)
90
60
Inventories (at lower of cost or market)
120
100
Prepaid items
30
40
Total current assets
$ 340
$280
Long-term investments (at cost)
50
40
Land (at cost)
150
150
Building (net)
160
180
Equipment (net)
190
200
Patents (net)
70
34
Goodwill (net)
40
26
Total long-term assets
$ 660
$630
Total assets
$1,000
$910
Notes payable
$ 46
$ 24
Accounts payable
94
56
Accrued interest
30
30
Total current liabilities
$ 170
$110
Notes payable, 10% due 12/31/Year 12
20
20
Bonds payable, 12% due 6/30/Year 15
30
30
Total long-term debt
$ 50
$ 50
Total liabilities
$ 220
$160
Preferred stock-5% cumulative, $100 par, non-participating,
authorized, issued and outstanding, 2,000 shares
200
200
Common stock-$10 par, 40,000 shares authorized, 30,000 shares
issued and outstanding
300
300
Additional paid-in capital—common
150
150
Retained earnings
130
100
Total shareholders’ equity
$ 780
$750
Total liabilities and shareholders’ equity
$1,000
$910
King Products Corporation
Income Statement
For the year ended June 30
(in thousands)
Year 6
Net sales
$600
Costs and expenses
Cost of goods sold
440
Selling, general, and administrative
60
Interest expense
10
Income before taxes
$ 90
Income taxes
45
Net income
$ 45
(CMA adapted, Dec 96 #16) Refer to the King Products Corporation example. King Products Corporation’s
accounts receivable turnover for the fiscal year ended at June 30, Year 6, was
122. King Products Corporation
King Products Corporation
Statement of Financial Position
(in thousands)
June 30
Year 6
Year 5
Cash
$ 60
$ 50
Marketable securities (at market)
40
30
Accounts receivable (net)
90
60
Inventories (at lower of cost or market)
120
100
Prepaid items
30
40
Total current assets
$ 340
$280
Long-term investments (at cost)
50
40
Land (at cost)
150
150
Building (net)
160
180
Equipment (net)
190
200
Patents (net)
70
34
Goodwill (net)
40
26
Total long-term assets
$ 660
$630
Total assets
$1,000
$910
Notes payable
$ 46
$ 24
Accounts payable
94
56
Accrued interest
30
30
Total current liabilities
$ 170
$110
Notes payable, 10% due 12/31/Year 12
20
20
Bonds payable, 12% due 6/30/Year 15
30
30
Total long-term debt
$ 50
$ 50
Total liabilities
$ 220
$160
Preferred stock-5% cumulative, $100 par, non-participating,
authorized, issued and outstanding, 2,000 shares
200
200
Common stock-$10 par, 40,000 shares authorized, 30,000 shares
issued and outstanding
300
300
Additional paid-in capital—common
150
150
Retained earnings
130
100
Total shareholders’ equity
$ 780
$750
Total liabilities and shareholders’ equity
$1,000
$910
King Products Corporation
Income Statement
For the year ended June 30
(in thousands)
Year 6
Net sales
$600
Costs and expenses
Cost of goods sold
440
Selling, general, and administrative
60
Interest expense
10
Income before taxes
$ 90
Income taxes
45
Net income
$ 45
(CMA adapted, Dec 96 #17) Refer to the King Products Corporation example. King Products Corporation’s
average collection period for the fiscal year ended at June 30, Year 6, using a 360-day year, was.
123. King Products Corporation
King Products Corporation
Statement of Financial Position
(in thousands)
June 30
Year 6
Year 5
Cash
$ 60
$ 50
Marketable securities (at market)
40
30
Accounts receivable (net)
90
60
Inventories (at lower of cost or market)
120
100
Prepaid items
30
40
Total current assets
$ 340
$280
Long-term investments (at cost)
50
40
Land (at cost)
150
150
Building (net)
160
180
Equipment (net)
190
200
Patents (net)
70
34
Goodwill (net)
40
26
Total long-term assets
$ 660
$630
Total assets
$1,000
$910
Notes payable
$ 46
$ 24
Accounts payable
94
56
Accrued interest
30
30
Total current liabilities
$ 170
$110
Notes payable, 10% due 12/31/Year 12
20
20
Bonds payable, 12% due 6/30/Year 15
30
30
Total long-term debt
$ 50
$ 50
Total liabilities
$ 220
$160
Preferred stock-5% cumulative, $100 par, non-participating,
authorized, issued and outstanding, 2,000 shares
200
200
Common stock-$10 par, 40,000 shares authorized, 30,000 shares
issued and outstanding
300
300
Additional paid-in capital—common
150
150
Retained earnings
130
100
Total shareholders’ equity
$ 780
$750
Total liabilities and shareholders’ equity
$1,000
$910
King Products Corporation
Income Statement
For the year ended June 30
(in thousands)
Year 6
Net sales
$600
Costs and expenses
Cost of goods sold
440
Selling, general, and administrative
60
Interest expense
10
Income before taxes
$ 90
Income taxes
45
Net income
$ 45
(CMA adapted, Dec 96 #18) Refer to the King Products Corporation example. King Products Corporation’s
quick (acid test) ratio at June 30, Year 6, was
124. Devlin Company
Devlin Company
Statement of Financial Position
as of May 31
(in thousands)
Assets
Year 7
Year 6
Current assets
Cash
$ 45
$ 38
Trading securities
30
20
Accounts receivable (net)
68
48
Inventories
90
80
Prepaid expenses
22
30
Total current assets
$255
$216
Investments, at equity
38
30
Property, plant, and equipment (net)
375
400
Intangible assets (net)
80
45
Total assets
$748
$691
Liabilities and shareholders’ equity
Current liabilities
Notes payable
$ 35
$ 18
Accounts payable
70
42
Accrued expenses
5
4
Income taxes payable
15
16
Total current liabilities
125
80
Long-term debt
35
35
Deferred taxes
3
2
Total liabilities
$163
$117
Shareholders’ equity
Preferred stock, 6%, $100 par value, cumulative
150
150
Common stock, $10 par value
225
195
Additional paid-in capital-common stock
114
100
Retained earnings
96
129
Total shareholders’ equity
$585
$574
Total liabilities and shareholders’ equity
$748
$691
Devlin Company
Income Statement
For the year ended May 31
(in thousands)
Year 7
Year 6
Net sales
$480
$460
Costs and expenses
Cost of goods sold
330
315
Selling, general, and administrative
52
51
Interest expense
8
9
Income before taxes
$ 90
$ 85
Income taxes
36
34
Net income
$ 54
$ 51
(CMA adapted, Jun 97 #13) Refer to the Devlin Company example. Devlin Company’s acid-test ratio at May
31, Year 7, was
125. Devlin Company
Devlin Company
Statement of Financial Position
as of May 31
(in thousands)
Assets
Year 7
Year 6
Current assets
Cash
$ 45
$ 38
Trading securities
30
20
Accounts receivable (net)
68
48
Inventories
90
80
Prepaid expenses
22
30
Total current assets
$255
$216
Investments, at equity
38
30
Property, plant, and equipment (net)
375
400
Intangible assets (net)
80
45
Total assets
$748
$691
Liabilities and shareholders’ equity
Current liabilities
Notes payable
$ 35
$ 18
Accounts payable
70
42
Accrued expenses
5
4
Income taxes payable
15
16
Total current liabilities
125
80
Long-term debt
35
35
Deferred taxes
3
2
Total liabilities
$163
$117
Shareholders’ equity
Preferred stock, 6%, $100 par value, cumulative
150
150
Common stock, $10 par value
225
195
Additional paid-in capital-common stock
114
100
Retained earnings
96
129
Total shareholders’ equity
$585
$574
Total liabilities and shareholders’ equity
$748
$691
Devlin Company
Income Statement
For the year ended May 31
(in thousands)
Year 7
Year 6
Net sales
$480
$460
Costs and expenses
Cost of goods sold
330
315
Selling, general, and administrative
52
51
Interest expense
8
9
Income before taxes
$ 90
$ 85
Income taxes
36
34
Net income
$ 54
$ 51
(CMA adapted, Jun 97 #14) Refer to the Devlin Company example. Assuming there are no preferred stock
dividends in arrears, Devlin Company’s return on common shareholders’ equity for the year ended May 31, Year
7, was
126. Devlin Company
Devlin Company
Statement of Financial Position
as of May 31
(in thousands)
Assets
Year 7
Year 6
Current assets
Cash
$ 45
$ 38
Trading securities
30
20
Accounts receivable (net)
68
48
Inventories
90
80
Prepaid expenses
22
30
Total current assets
$255
$216
Investments, at equity
38
30
Property, plant, and equipment (net)
375
400
Intangible assets (net)
80
45
Total assets
$748
$691
Liabilities and shareholders’ equity
Current liabilities
Notes payable
$ 35
$ 18
Accounts payable
70
42
Accrued expenses
5
4
Income taxes payable
15
16
Total current liabilities
125
80
Long-term debt
35
35
Deferred taxes
3
2
Total liabilities
$163
$117
Shareholders’ equity
Preferred stock, 6%, $100 par value, cumulative
150
150
Common stock, $10 par value
225
195
Additional paid-in capital-common stock
114
100
Retained earnings
96
129
Total shareholders’ equity
$585
$574
Total liabilities and shareholders’ equity
$748
$691
Devlin Company
Income Statement
For the year ended May 31
(in thousands)
Year 7
Year 6
Net sales
$480
$460
Costs and expenses
Cost of goods sold
330
315
Selling, general, and administrative
52
51
Interest expense
8
9
Income before taxes
$ 90
$ 85
Income taxes
36
34
Net income
$ 54
$ 51
(CMA adapted, Jun 97 #18) Refer to the Devlin Company example. Devlin Company’s times interest earned
for the year ended May 31, Year 7, was
127. Devlin Company
Devlin Company
Statement of Financial Position
as of May 31
(in thousands)
Assets
Year 7
Year 6
Current assets
Cash
$ 45
$ 38
Trading securities
30
20
Accounts receivable (net)
68
48
Inventories
90
80
Prepaid expenses
22
30
Total current assets
$255
$216
Investments, at equity
38
30
Property, plant, and equipment (net)
375
400
Intangible assets (net)
80
45
Total assets
$748
$691
Liabilities and shareholders’ equity
Current liabilities
Notes payable
$ 35
$ 18
Accounts payable
70
42
Accrued expenses
5
4
Income taxes payable
15
16
Total current liabilities
125
80
Long-term debt
35
35
Deferred taxes
3
2
Total liabilities
$163
$117
Shareholders’ equity
Preferred stock, 6%, $100 par value, cumulative
150
150
Common stock, $10 par value
225
195
Additional paid-in capital-common stock
114
100
Retained earnings
96
129
Total shareholders’ equity
$585
$574
Total liabilities and shareholders’ equity
$748
$691
Devlin Company
Income Statement
For the year ended May 31
(in thousands)
Year 7
Year 6
Net sales
$480
$460
Costs and expenses
Cost of goods sold
330
315
Selling, general, and administrative
52
51
Interest expense
8
9
Income before taxes
$ 90
$ 85
Income taxes
36
34
Net income
$ 54
$ 51
(CMA adapted, Jun 97 #15) Refer to the Devlin Company example. Devlin Company’s inventory turnover for
the year ended May 31, Year 7, was