50) Which of the following transactions decreases earnings per share?
A) Collection of an account receivable.
B) Selling treasury stock for an amount less than its cost.
C) A decrease in the market value per share.
D) Paying cash in advance for rent.
51) Trenton Company has provided the following information:
• Net income, $240,000
• Preferred shares issued, 6,000
• Weighted average number of shares of common stock issued, 24,000
• Cash dividends declared and paid on common stock, $30,000
• Market price per share, $36
• Weighted average number of treasury shares of common stock, 4,000
What is Trenton’s earnings per share?
A) $8.00.
B) $7.00.
C) $10.50.
D) $12.00.
52) Trenton Company has provided the following information:
• Net income, $240,000
• Preferred shares issued, 6,000
• Weighted average number of shares of common stock issued, 24,000
• Cash dividends declared and paid on common stock, $30,000
• Market price per share, $36
• Weighted average number of treasury shares of common stock, 4,000
What is Trenton’s price/earnings ratio?
A) 3.0
B) 5.1
C) 3.4
D) 4.5
53) Cecilia Company reported net income of $1,200,000. The average total liabilities were
$4,300,000 and average total stockholders’ equity was $5,200,000. Interest expense was
$100,000 and the tax rate was 40%. Cecilia’s return on assets ratio (calculated using the modified
method discussed in the text) is closest to:
A) 13.7%
B) 12.6%
C) 11.6%
D) 13.3%
54) Which of the following transactions will increase the quality of income ratio?
A) Paying cash to suppliers.
B) Accruing sales revenue.
C) Selling treasury stock for more than its cost.
D) Collecting an account receivable.
55) Which of the following is used to measure how efficiently a company uses the resources at
its disposal?
A) Solvency ratios.
B) Asset turnover ratios
C) Market ratios.
D) Liquidity ratios.
56) Which of the following transactions will increase a current ratio, which is currently 2.5?
A) Receiving cash from signing a 6-month note payable.
B) Accruing an expense.
C) Using cash to pay an account payable.
D) Collecting an account receivable.
57) Which of the following transactions will not increase the cash ratio?
A) Receiving cash from a common stock issue.
B) Refinancing a current liability with long-term debt.
C) Using cash to purchase a two-month treasury bill.
D) Collecting an account receivable.
58) Which of the following ratios is not an indicator of a company’s short-term financial
strength?
A) Quality of income.
B) Current ratio.
C) Cash ratio.
D) Quick ratio.
59) Teague Company’s working capital was $40,000 and total current liabilities were one-fourth
of that amount. What was the current ratio?
A) 1.00
B) 1.25
C) 3.00
D) 5.00
60) Agnes Company reported the following data:
Quick assets
$55,000
Current assets
150,000
Total liabilities
300,000
Average net receivables
12,600
Beginning inventory
38,000
Long-term liabilities
200,000
Net credit sales
126,000
Cost of goods sold
84,000
Ending inventory
46,000
What was the current ratio?
A) 0.5
B) 1.5
C) 2.5
D) 0.75
61) Agnes Company reported the following data:
Quick assets
$55,000
Current assets
150,000
Total liabilities
300,000
Average net receivables
12,600
Beginning inventory
38,000
Long-term liabilities
200,000
Net credit sales
126,000
Cost of goods sold
84,000
Ending inventory
46,000
What was the inventory turnover ratio?
A) 2.2
B) 1.8
C) 2.0
D) 3.0
62) Agnes Company reported the following data:
Quick assets
$55,000
Current assets
150,000
Total liabilities
300,000
Average net receivables
12,600
Beginning inventory
38,000
Long-term liabilities
200,000
Net credit sales
126,000
Cost of goods sold
84,000
Ending inventory
46,000
What was the average number of days to sell inventory? (Assume 365 days in a year.)
A) 165.9
B) 202.7
C) 182.5
D) 121.7
63) The operating cycle includes the number of days it takes to:
A) Purchase goods, sell goods, pay cash to suppliers.
B) Purchase goods, pay cash, collect cash from customers.
C) Borrow money, collect cash from customers, repay cash borrowed.
D) Pay cash for goods, sell goods, collect cash from customers.
64) Which of the following is not a ratio included in analysis of the operating cycle?
A) Days to collect receivables.
B) Days to sell inventory.
C) Days to pay payables.
D) Days sales in inventory.
65) Liquidity ratios concentrate on:
A) The operating cycle.
B) Profitability.
C) Short-term financial strength.
D) Ability to pay interest on loans.
66) Baron Company reported the following data:
Cash
$80,000
Accounts receivable
120,000
Marketable securities
40,000
Inventory
100,000
Prepaid rent expense
10,000
Accounts payable
70,000
Current portion of long-term debt
140,000
Net credit sales
1,000,000
Cost of goods sold
600,000
The current ratio is closest to:
A) 5.0
B) 4.92
C) 4.86
D) 1.67
67) Baron Company reported the following data:
Cash
$80,000
Accounts receivable
120,000
Marketable securities
40,000
Inventory
100,000
Prepaid rent expense
10,000
Accounts payable
70,000
Current portion of long-term debt
140,000
Net credit sales
1,000,000
Cost of goods sold
600,000
The quick ratio is closest to:
A) 3.57
B) 1.67
C) 1.19
D) 1.14
68) Baron Company reported the following data:
Cash
$80,000
Accounts receivable
120,000
Marketable securities
40,000
Inventory
100,000
Prepaid rent expense
10,000
Accounts payable
70,000
Current portion of long-term debt
140,000
Net credit sales
1,000,000
Cost of goods sold
600,000
The cash ratio is closest to:
A) 1.14
B) 0.95
C) 0.38
D) 0.36
69) If the current ratio is 2, what will be the effect of the payment of a cash dividend, which was
recorded as a liability on the date of declaration?
A) An increase in the current ratio.
B) A decrease in the current ratio.
C) No effect on the current ratio.
D) A decrease in the cash coverage ratio.
70) Which of the following transactions would increase the current ratio of a company if the ratio
is currently greater than 1?
A) Paid the principal on a long-term note payable.
B) Borrowed cash on a short-term note.
C) Sold inventory for more than cost.
D) Purchased supplies with cash.
71) Potaw Company reported the following data at the end of 2019:
Sales revenue (75% on credit)
$300,000
Expenses (26% on credit)
60,000
Accounts receivable, net at December 31, 2019
(a decrease of $4,000 during 2019)
8,000
Total assets
200,000
Stockholders’ equity
150,000
What was the accounts receivable turnover ratio?
A) 30.0
B) 37.5
C) 36.5
D) 22.5
72) Potaw Company reported the following data at the end of 2019:
Sales revenue (75% on credit)
$300,000
Expenses (26% on credit)
60,000
Accounts receivable, net at December 31, 2019
(a decrease of $4,000 during 2019)
8,000
Total assets
200,000
Stockholders’ equity
150,000
The average number of days to collect receivables during 2019 is closest to: (Assume 365 days
in a year.)
A) 16.2.
B) 14.3.
C) 36.5.
D) 21.9.
73) Cromwell Company began the year with a balance in inventory of $110,000 and ended the
year with a balance of $102,000. The net sales for the year were $983,000 with a gross profit on
sales of $295,000. The inventory turnover ratio is closest to:
A) 2.78
B) 9.27
C) 6.49
D) 2.89
74) Thomas Company had income before interest and taxes of $120,000. Interest expense for the
period was $17,000 and income taxes amounted to $28,500. The average stockholders’ equity
was $680,000. Thomas’ return on equity (ROE) is closest to:
A) 17.65%
B) 15.15%
C) 13.46%
D) 10.96%
75) Wildlife Co. reported net income of $8.3 million, interest expense of $0.5 million and $0.2
million of income tax expense. Wildlife’s average total assets are $65.8 million and average
stockholders’ equity is $48.6 million. Wildlife’s times interest earned ratio is closest to:
A) 41.5 times
B) 6 times
C) 18 times
D) 45 times
76) Which of the following is false?
A) The cash ratio is the least stringent but most reliable test of liquidity.
B) A company with a high level of inventory will have a quick ratio significantly lower than its
current ratio.
C) A current ratio that is too high could indicate funds tied up in inventory and other working
capital assets.
D) Analysts consider a current ratio of 2 to be financially conservative.
77) Which of the following is false?
A) The major difference between the quick and current ratios is inventory.
B) Current liabilities are the denominator in the cash, quick, and current ratios.
C) Companies that sell expensive merchandise tend to have high inventory turnover ratios.
D) Some analysts do not use the cash ratio because it is very sensitive to individual events.
78) Which of the following is not a measure of solvency?
A) Debt-to-equity ratio.
B) Cash coverage ratio.
C) Times interest earned ratio.
D) Earnings per share.
79) Bailey Corporation reported the following information for 2019:
Net income
$10,000
Total assets
16,000
Total stockholders’ equity
8,000
What is Bailey’s debt-to-equity ratio?
A) 2
B) 1.25
C) 1.0
D) 3.0
80) The debt-to-equity ratio measures which of the following?
A) Liquidity.
B) Solvency.
C) Profitability.
D) Market strength.
81) Which of the accounting ratios considers the importance of cash flows relating to required
interest payments?
A) Times interest earned.
B) Debt-to-equity.
C) Cash coverage.
D) Quick.
82) Which of the following is correct?
A) The times interest earned ratio is considered a better test of the ability to cover interest
charges than the cash coverage ratio.
B) The debt-to-equity ratio shows the relative proportion of total assets financed by debt.
C) The higher the debt-to-equity ratio, the higher the potential return to the stockholders, but also
the higher risk to stockholders.
D) The cash coverage ratio compares the cash generated by a company to its cash obligations for
the prior period.
83) Which ratio reflects the stock market’s assessment of a company’s future performance?
A) Price/earnings ratio.
B) Dividend yield ratio.
C) Fixed asset turnover ratio.
D) Cash coverage ratio.