Accounting Chapter 22 Examination The Relationship Between Two Numbers Sets

29) Ballard Screens has net sales in the amount of $470,000, a cash amount of $246,000, and accounts

receivables of $47,000. What is the asset turnover ratio? (Round your answer to two decimal places.)

A) 1.60 times

B) 2.44 times

C) 1.91 times

D) 10.00 times

30) Noble Company’s accounts receivable turnover was 24.6 in Year 1 and 18.2 in Year 2. This change in

accounts receivable turnover indicates:

A) the company is not selling its inventory as fast.

B) the company is selling its inventory faster.

C) the company’s customers are paying faster.

D) the company’s customers are paying slower.

31) The ratio that indicates the amount of assets that are financed by creditors is:

A) debt to stockholders’ equity.

B) debt to total retained earnings ratio.

C) debts to total assets ratio.

D) None of the above

32) The risk of creditors in relation to the risk taken by stockholders is measured by:

A) debt to stockholders’ equity ratio.

B) gross profit ratio.

C) rate of return to stockholders.

D) None of these answers are correct.

33) The lower the times interest earned ratio, the more likely:

A) a default in payment will occur.

B) a business can pay off their loan.

C) a business will produce a gain.

D) interest payments can be made.

34) The ratio that indicates how much profit is generated from each sales dollar to cover general and

selling expenses is:

A) gross profit rate.

B) return on sales.

C) rate of return on total assets.

D) rate of return on common stockholders’ equity.

35) The gross profit rate is an example of this type of ratio.

A) Liquidity

B) Asset Management

C) Debt Management

D) Profitability

36) Which of the following ratios helps evaluate how well a company is earning profit for the common

stockholders?

A) Times interest earned ratio

B) Return on sales ratio

C) Return on total assets

D) Rate of return on common stockholders’ equity

37) Which of the following ratios measures the earnings of a company on each sales dollar?

A) Return on assets

B) Return on sales

C) Return on inventory

D) Return on stockholders’ equity

38) The current ratio and quick ratio are example of this type of ratio.

A) Liquidity

B) Asset Management

C) Debt Management

D) Profitability

39) Compute the gross profit rate when sales are $600,000; net sales are $460,000 and gross profits are

$120,000. (Round your answer to the nearest whole percent.)

A) 26%

B) 20%

C) 0.26 to 1

D) 0.20 to 1

40) Asset management ratios measure:

A) a company’s ability to earn a profit.

B) a company’s ability to meet short-term obligations.

C) how well a company is using debt versus equity.

D) how effectively a company is using its assets.

41) Saxon Corporation‘s beginning inventory was $15,000. The cost of goods sold was $410,000 for the

year, with an ending inventory of $23,000. Inventory turnover for the year is: (Round your answer two

decimal places.)

A) 21.58 times.

B) 10.79 times.

C) 13.67 times.

D) 8.91 times.

42) Relationship of two quantities or numbers, one divided by the other describes:

A) summation.

B) trend percentage.

C) ratio.

D) common-size statement.

43) Interest expense was $20,000, income tax expense $26,000, and net income after taxes is $44,000. The

number of times interest was earned is: (Round your answer two decimal places.)

A) 2.20 times.

B) 1.69 times.

C) 4.50 times.

D) 3.50 times.

44) Net sales for Aaron Company are $679,000 and total assets are $422,000. What is the asset turnover

ratio?

A) 1.50 times

B) 1.61 times

C) 0.62 times

D) 2.32 times

45) Ballard Inc. has net income before taxes of $3,280,000, total assets of $4,500,000, and net sales of

$6,450,000. What is the return on sales?

A) 50.85%

B) 72.89%

C) 69.76%

D) None of the above are correct.

46) Accounts receivable on January 1 was $38,000 and, at the end of the year it was $53,000. Net credit

sales were $168,000. Accounts receivable turnover is: (Round your answer two decimal places.)

A) 1.85 times.

B) 3.69 times.

C) 4.42 times.

D) 11.20 times.

47) If current assets were $150,000, merchandise inventory was $55,000, and current liabilities were

$15,000, the acid test ratio is: (Round your answer two decimal places.)

A) 6.33:1.

B) 10.00:1.

C) 1.73:1.

D) 1:1.73.

48) What is George’s gross profit rate if net sales are $108,000, operating expenses are $26,000, and cost of

goods sold is $66,000? (Round your answer two decimal places, X.XX%.)

A) 38.89%

B) 24.07%

C) 37.04%

D) 61.11%

49) What is Jane’s rate of return on total assets if total assets are $135,000, net income is $2,700, interest

expense is $1,800, and income tax is $3,000? (Round your answer two decimal places, X.XX%.)

A) 2.00%

B) 5.56%

C) 4.22%

D) 3.33%

50) What is the rate of return on common stockholders’ equity if net income before taxes is $30,200, sales

are $202,000, and common stockholders’ equity is $81,000? (Round your answer two decimal places,

X.XX%.)

A) 40.10%

B) 14.95%

C) 37.28%

D) None of these answers is correct.

51) The net sales for James, Inc. were $4,000,000; net income before taxes was $830,000; and gross profit

was $1,400,000. The return on sales ratio would be: (Round your answer two decimal places, X.XX%.)

A) 14.25%.

B) 35.00%.

C) 59.29%.

D) 20.75%.

52) A company has cash of $221,000; short-term investments of $54,000; net receivables of $75,000; and

inventory of $103,000. Current liabilities total $83,000. The current ratio is: (Round your answer two

decimal places.)

A) 4.22:1.

B) 4.55:1.

C) 5.46:1.

D) 4.81:1.

53) Rick’s Cars had a beginning account receivables balance of $327,000. The ending account receivables

balance was $281,000. Net credit sales for the company were $4,270,000. The accounts receivable turnover

for Rick’s Cars is: (Round your answer two decimal places.)

A) 13.06.

B) 14.05.

C) 15.20.

D) None of the above is correct.

54) The liabilities of a company at the end of the year are $530,000 and the total stockholders’ equity at the

end of the year is $1,080,000. The debt to stockholders’ equity ratio is: (Round your answer two decimal

places.)

A) 0.49 to 1.

B) 0.33 to 1.

C) 0.67 to 1.

D) 3.04 to 1.

55) Tom’s Toys has a cash balance of $109,000; temporary investments of $42,000; net receivables of

$63,000; and inventory of $407,000. Tom’s current liabilities total $126,000. His quick (acid test) ratio is:

(Round your answer two decimal places.)

A) 1.70 to 1.

B) 1.87 to 1.

C) 0.87 to 1.

D) 0.59 to 1.

56) Examination of the relationship between two numbers or sets of numbers on financial reports

describes:

A) Horizontal analysis

B) Vertical analysis

C) Ratio analysis

D) Statement analysis

57) Topiary’s Unlimited has a cost of goods sold of $1,440,000. The beginning merchandise inventory was

$203,000 and its ending merchandise inventory is $212,000. Topiary’s inventory turnover ratio is: (Round

your answer two decimal places.)

A) 7.09 times.

B) 6.94 times.

C) 6.79 times.

D) None of the above is correct.

58) Coal Company has an income before taxes of $500,700, and an interest expense of $100,400. What is

the times interest earned ratio?

A) 5.99 times

B) 4.99 times

C) 3.99 times

D) 0.2 times

59) Isaiah Company has net income before interest and taxes of $834,000; beginning total assets of

$2,190,000; and ending total assets of $2,500,000. Isaiah’s return on total assets is: (Round your answer

two decimal places.)

A) 33.36%.

B) 17.78%.

C) 38.08%.

D) 35.57%.

60) The income before taxes and interest expense of Barry Builders for the year just ended is $213,000.

Their interest expense is $21,000 and their income taxes are $82,500. The number of times interest would

be earned is: (Round your answer two decimal places.)

A) 15.07.

B) 10.14.

C) 11.14.

D) 0.49.

61) Which of the following is considered a debt management ratio?

A) Debt to total assets

B) Debt to stockholders‘ equity

C) Times interest earned

D) All of the above are correct.

62) The net income before taxes for the year ended was $320,000. Equity for common stockholders at the

end of the year was $1,700,000 and $1,430,000 at the beginning of the year. The return on common

stockholders’ equity would be: (Round your answer two decimal places, X.XX%.)

A) 84.12%.

B) 20.45%.

C) 18.82%.

D) 10.22%.

63) The gross profit rate reveals how much profit from each sales dollar is generated to cover

administrative and selling expenses.

64) Accounts receivable turnover is calculated by dividing net credit sales by the average accounts

receivable.

65) The debt–to-equity ratio measures the extent of (or proportion of) assets to equity, with which a

business operates.

66) With the asset turnover ratio, assets that are not used in producing sales, such as investments, are

subtracted from total assets.

67) A current ratio of 1.5 times would mean that the business has 1.5 times more assets than liabilities.

68) The acid test ratio is the best test to determine the ability to pay short-term debt.

69) A low inventory turnover means that the company has tied up less cash in inventory.

70) If the average collection period has increased and credit terms remain the same, the company should

put a greater emphasis on collections.

71) The return on sales ratio divides net income before taxes by net sales.

72) The higher the times interest earned ratio, the more likely it is that interest payments will be made.

73) If the return on common stockholders’ equity is more than the industry standard, it means the

company is using debt financing successfully.

74) When net income before taxes and interest is $86,000 and total assets equal $234,000, the rate of return

on total assets is 36.8%.

75) Debt management ratios measure a company’s mix of debt and equity financing.

76) A horizontal analysis of an income statement automatically provides the return on sales ratio and the

gross profit ratio.

77) From the following information of Carlson’s Restoration Corporation, compute:

a. ________ Asset turnover for Year 2.

b. ________ Inventory turnover for Year 2.

c. ________ Accounts receivable turnover for Year 2.

Year 2 Year 1

Net Sales (on credit) $130,000 $100,000

Cost of Goods Sold 85,000 60,000

Net Income 45,000 20,000

Ending Acct. Receivable 28,000 22,000

Ending Inventory 18,000 12,000

Total Assets 135,000 150,000

78) Selected data for Stick’s Design are given as of December 31, Year 1 and Year 2:

Year 2 Year 1

Net Credit Sales $22,000 $40,000

Cost of Goods Sold 14,000 19,000

Net Income 1,000 1,500

Cash 8,000 1,000

Accounts Receivable 4,000 3,000

Inventory 2,500 4,500

Current Liabilities 7,000 5,500

Required: Compute the following:

a. ________ Current ratio for Year 2.

b. ________ Acid-test ratio for Year 2.

c. ________ Accounts receivable turnover for Year 2.

d. ________ Average collection period for Year 2.

e. ________ Inventory turnover for Year 2.

79)