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67) Which of the following is correct?
A) The receivables turnover ratio depicts the company's frequency of cash collections.
B) The inventory turnover ratio can be used to assess the company's frequency of selling
inventory.
C) The current ratio reflects the company's ability to pay current debt.
D) All of the other answer choices are correct.
68) Which of the following ratios is most useful in evaluating liquidity?
A) Return on assets.
B) Return on equity.
C) Debt to equity ratio.
D) Current ratio.
69) Liquidity measures:
A) The company's ability to pay current obligations using current assets.
B) The company's ability to efficiently collect cash from customers.
C) The company's ability to generate profits on inventory sold.
D) The company's ability to return cash to stockholders.
70) The current ratio measures:
A) The ability of a company to quickly sell its inventory to customers.
B) The amount of profits retained in the business.
C) The ability of a company to quickly collect cash from customers.
D) The ability of a company to pay its current obligations.
71) Which of the following ratios is most useful in evaluating liquidity?
A) Acid-test ratio.
B) Return on equity.
C) Profit margin ratio.
D) Asset turnover.
72) Which of the following ratios is most useful in evaluating solvency?
A) Debt to equity ratio.
B) Current ratio.
C) Receivables turnover ratio.
D) Inventory turnover ratio.
73) Which of the following is a sign that a company can quickly turn its receivables into cash?
A) A low receivables turnover ratio.
B) A high receivables turnover ratio.
C) A high average collection period.
D) Both a low receivables turnover ratio and a high average collection period.
74) Which of the following is a sign that a company cannot quickly turn its receivables into cash?
A) A high receivables turnover ratio.
B) A low receivables turnover ratio.
C) A low average collection period.
D) Both a high receivables turnover ratio and a low average collection period.
75) Which of the following is a negative sign that a company is not selling its inventory quickly?
A) A low inventory turnover ratio.
B) A high inventory turnover ratio.
C) A low average days in inventory.
D) Both a high inventory turnover ratio and a low average days in inventory.
76) Which of the following is a positive sign that a company is selling its inventory quickly?
A) A low inventory turnover ratio.
B) A high inventory turnover ratio.
C) A low average days in inventory.
D) Both a high inventory turnover ratio and a low average days in inventory.
77) The current ratio is calculated as:
A) Current assets divided by noncurrent assets.
B) Current assets divided by current liabilities.
C) Current liabilities divided by noncurrent liabilities.
D) Current liabilities divided by current assets.
78) The acid-test ratio is most similar to the:
A) Current ratio.
B) Debt to equity ratio.
C) Times interest earned ratio.
D) Inventory turnover ratio.
79) The acid-test ratio is:
A) The liquidity ratio divided by the equity ratio.
B) Current assets minus inventory divided by current liabilities minus accounts payable.
C) Cash, net receivables, and current investments divided by current liabilities.
D) Cash divided by accounts payable.
80) Which of the following is not a solvency ratio?
A) Time interest earned ratio.
B) The debt to equity ratio.
C) The current ratio.
D) All of the other answer choices are correct.
81) When a company with a current ratio of 1.2 pays a current liability:
A) Its current ratio decreases.
B) Its current ratio increases.
C) Its current ratio remains unchanged.
D) Its debt to equity ratio increases.
82) Assuming a current ratio of 1.0, how will the purchase of inventory with cash affect the ratio?
A) Increase the current ratio.
B) No change to the current ratio.
C) Decrease the current ratio.
D) Could either increase or decrease the current ratio.
83) Assuming an acid-test ratio of 1.0, how will the purchase of inventory with cash affect the
ratio?
A) Increase the acid-test ratio.
B) No change to the acid-test ratio.
C) Decrease the acid-test ratio.
D) Could either increase or decrease the acid-test ratio.
84) Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the purchase of
inventory with cash affect each ratio?
A) Increase the current ratio and increase the acid-test ratio.
B) No change to the current ratio and decrease the acid-test ratio.
C) Decrease the current ratio and decrease the acid-test ratio.
D) Increase the current ratio and decrease the acid-test ratio.
27
85) When a company sells land for cash and makes a $25,000 gain:
A) Its acid-test ratio decreases.
B) Its current ratio decreases.
C) Its debt to equity ratio decreases.
D) Cannot determine from the given information.
86) Assume a company's current ratio and acid-test ratio are less than 1.0 before it purchases
inventory on credit. When it makes the purchase:
A) Its current ratio decreases.
B) Its acid-test ratio decreases.
C) Its current ratio remains unchanged.
D) Its acid-test ratio remains unchanged.
87) A partial balance sheet for Captain D's Sportswear is shown below.
(dollars in thousands)
Assets:
Liabilities:
Cash
$ 60
Accounts payable
$ 240
Accounts receivable (net)
170
Other liabilities
80
Investments
50
Total current liabilities
320
Inventory
200
Long-term liabilities
110
Prepaid rent
25
Total liabilities
430
Total current assets
505
Stockholders' equity:
Property & Equipment, (net)
255
Common stock
150
Retained earnings
180
Total stockholders' equity
330
Total assets
$ 760
Total liabilities and equity
$ 760
The current ratio is: (Round your answer to 2 decimal places.)
A) 1.98.
B) 1.58.
C) 1.17.
D) 0.66.
88) A partial balance sheet for Captain D's Sportswear is shown below.
(dollars in thousands)
Assets:
Liabilities:
Cash
$ 60
Accounts payable
$ 240
Accounts receivable (net)
170
Other liabilities
80
Investments
50
Total current liabilities
320
Inventory
200
Long-term liabilities
110
Prepaid rent
25
Total liabilities
430
Total current assets
505
Stockholders' equity:
Property & Equipment, (net)
255
Common stock
150
Retained earnings
180
Total stockholders' equity
330
Total assets
$ 760
Total liabilities and equity
$ 760
The acid-test ratio is: (Round your answer to 2 decimal places.)
A) 0.25.
B) 0.88.
C) 1.17.
D) 1.58.
89) A partial balance sheet for Captain D's Sportswear is shown below.
(dollars in thousands)
Assets:
Liabilities:
Cash
$ 60
Accounts payable
$ 240
Accounts receivable (net)
170
Other liabilities
80
Investments
50
Total current liabilities
320
Inventory
200
Long-term liabilities
110
Prepaid rent
25
Total liabilities
430
Total current assets
505
Stockholders' equity:
Property & Equipment, (net)
255
Common stock
150
Retained earnings
180
Total stockholders' equity
330
Total assets
$ 760
Total liabilities and equity
$ 760
The debt to equity ratio is: (Round your answer to 2 decimal places.)
A) 0.33.
B) 0.77.
C) 1.17.
D) 1.30.
90) Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.
Current liabilities
$ 180
Income before interest and taxes
$ 125
10% Bonds, long-term
360
Interest expense
36
Total liabilities
540
Income before tax
89
Stockholders' equity
Income tax
27
Common stock
200
Net income
$ 62
Retained earnings
280
Total stockholders' equity
480
Total liabilities and equity
$ 1,020
HHF's debt to equity ratio is: (Round your answer to 2 decimal places.)
A) 0.75.
B) 1.13.
C) 0.38.
D) 1.80.
32
91) Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below:
Current liabilities
$ 180
Income before interest and taxes
$ 125
10% Bonds, long-term
360
Interest expense
36
Total liabilities
540
Income before tax
89
Stockholders' equity
Income tax
27
Common stock
200
Net income
$ 62
Retained earnings
280
Total stockholders' equity
480
Total liabilities and equity
$ 1,020
HHF's times interest earned ratio is: (Round your answer to 2 decimal places.)
A) 3.47.
B) 1.72.
C) 2.47.
D) 10.0.
33
92) Excerpts from Stealth Company's December 31, 2021 and 2020, financial statements are
presented below:
2021
2020
Accounts receivable
$
40,000
$
36,000
Inventory
28,000
35,000
Net sales (all credit)
190,000
186,000
Cost of goods sold
114,000
108,000
Total assets
425,000
405,000
Total stockholders' equity
240,000
225,000
Net income
32,500
28,000
Stealth Company's 2021 receivables turnover ratio is:
A) 2.85 times.
B) 4.70 times.
C) 5.00 times.
D) 10.63 times.
34
93) Excerpts from Stealth Company's December 31, 2021 and 2020, financial statements are
presented below:
2021
2020
Accounts receivable
$
40,000
$
36,000
Inventory
28,000
35,000
Net sales (all credit)
190,000
186,000
Cost of goods sold
114,000
108,000
Total assets
425,000
405,000
Total stockholders' equity
240,000
225,000
Net income
32,500
28,000
Stealth Company's 2021 average collection period is:
A) 73 days.
B) 104 days.
C) 109 days.
D) 128 days.
35
94) Excerpts from Stealth Company's December 31, 2021 and 2020, financial statements are
presented below:
2021
2020
Accounts receivable
$
40,000
$
36,000
Inventory
28,000
35,000
Net sales
190,000
186,000
Cost of goods sold
114,000
108,000
Total assets
425,000
405,000
Total stockholders' equity
240,000
225,000
Net income
32,500
28,000
Stealth Company's 2021 inventory turnover is: (Round your answer to 2 decimal places.)
A) 3.62 times.
B) 3.96 times.
C) 4.07 times.
D) 6.03 times.
95) Excerpts from Stealth Company's December 31, 2021 and 2020, financial statements are
presented below:
2021
2020
Accounts receivable
$
40,000
$
36,000
Inventory
28,000
35,000
Net sales
190,000
186,000
Cost of goods sold
114,000
108,000
Total assets
425,000
405,000
Total stockholders' equity
240,000
225,000
Net income
32,500
28,000
Stealth Company's 2021 average days in inventory is: (Round your intermediate calculations to
2 decimal places and final answer to 1 decimal place.)
A) 60.5 days.
B) 92.2 days.
C) 100.8 days.
D) 89.7 days.
37
96) Excerpts from Stealth Company's December 31, 2021 and 2020, financial statements are
presented below:
2021
2020
Accounts receivable
$
40,000
$
36,000
Inventory
28,000
35,000
Net sales
190,000
186,000
Cost of goods sold
114,000
108,000
Total assets
425,000
405,000
Total stockholders' equity
240,000
225,000
Net income
32,500
28,000
Stealth Company's 2021 debt to equity ratio is: (Round your answer to 1 decimal place.)
A) 77.1%.
B) 80.0%.
C) 40.0%.
D) 60.0%.
38
97) Excerpts from TPX Company's December 31, 2021 and 2020, financial statements are
presented below:
2021
2020
Accounts receivable
$
80,000
$
72,000
Inventory
84,000
70,000
Net sales (all credit)
400,000
372,000
Cost of goods sold
254,000
216,000
Total assets
850,000
810,000
Total stockholders' equity
500,000
450,000
Net income
75,000
56,000
TPX Company's 2021 receivables turnover ratio is: (Round your answer to 1 decimal place.)
A) 5.3 times.
B) 5.6 times.
C) 5.0 times.
D) 0.2 times.
39
98) Excerpts from TPX Company's December 31, 2021 and 2020, financial statements are
presented below:
2021
2020
Accounts receivable
$
80,000
$
72,000
Inventory
84,000
70,000
Net sales
400,000
372,000
Cost of goods sold
254,000
216,000
Total assets
850,000
810,000
Total stockholders' equity
500,000
450,000
Net income
75,000
56,000
TPX Company's 2021 average collection period is: (Round your intermediate calculations to 1
decimal place and final answer to the nearest day.)
A) 69 days.
B) 65 days.
C) 73 days.
D) 1,825 days.
99) Excerpts from TPX Company's December 31, 2021 and 2020, financial statements are
presented below:
2021
2020
Accounts receivable
$
80,000
$
72,000
Inventory
84,000
70,000
Net sales (all credit)
400,000
372,000
Cost of goods sold
254,000
216,000
Total assets
850,000
810,000
Total stockholders' equity
500,000
450,000
Net income
75,000
56,000
TPX Company's 2021 inventory turnover is: (Round your answer to 1 decimal place.)
A) 3.0 times.
B) 5.2 times.
C) 3.3 times.
D) 3.6 times.
