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chapter 9
Copyright Cengage Learning. Powered by Cognero.
Page 12
64. The debt ratio is computed as _____.
a. net income divided by interest expense
b. total liabilities divided by total assets
c. total bonds payable divided by total stockholders' equity
d. fixed assets divided by long-term liabilities
65. Working capital is calculated as _____.
a. cost of goods sold minus total assets
b. average daily sales plus quick assets
c. net sales minus current assets
d. current assets minus current liabilities
66. Based on the following data for the current year, determine the days' sales in accounts receivable.
Net sales on account during the year $1,080,000
Cost of merchandise sold during the year 750,000
Accounts receivable, beginning of year 46,500
Accounts receivable, end of year 36,500
Inventory, beginning of year 170,000
Inventory, end of year 232,000
a. 14.03
b. 11.3
c. 13.79
d. 12.5
67. The percentage analysis of increases and decreases in related items in comparative financial statements is called
_____.
a. profitability analysis
b. vertical analysis
c. horizontal analysis
d. solvency analysis
68. For most profitable companies, the return on total assets _____.
a. will be less than the rate earned on sales
b. cannot be determined without more information
c. will be less than the rate earned on total liabilities and stockholders' equity
d. will be less than the return on stockholders' equity
69. The balance sheets at the end of each of the first two years of operations indicate the following:
20Y8 20Y7
Total current assets $600,000 $560,000
Total investments 60,000 40,000
Total property, plant, and equipment 900,000 700,000
Total current liabilities 125,000 80,000
Total long-term liabilities 350,000 250,000
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Date:
chapter 9
Preferred 9% stock, $100 par 100,000 100,000
Common stock, $10 par 600,000 600,000
Paid-in capital in excess of par--common stock 60,000 60,000
Retained earnings 325,000 210,000
Based on the above information, if net income is $130,000 and interest expense is $40,000 for 20Y8, and the market price
is $40, what is the price-earnings ratio on common stock (rounded to one decimal place)?
a. 14.9
b. 19.8
c. 17.3
d. 18.4
70. The independent auditor's report does which of the following?
a. Summarizes what the auditor did
b. States that the financial statements are effective
c. Gives the auditor's opinion regarding the fairness of the financial statements
d. Describes that the common-sized statements are covered by the audit
71. The purpose of an audit is to _____.
a. render an opinion on the fairness of the statements
b. determine whether or not a company has a good credit risk
c. determine whether or not a company complies with income tax regulations
d. determine whether or not a company is a good investment
72. The following information is available for Morgan Corporation:
20Y8
Market price per share of common stock $25.00
Earnings per share on common stock 1.25
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 20Y8.
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 20Y8.
c. The market price per share and the earnings per share are not statistically related to each other.
d. 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 20Y8.
73. Transic Corporation has the following financial data for 20Y7 and 20Y8.
20Y8 20Y7
ASSETS
Current Assets:
Cash $ 48,000 $ 14,000
Marketable Securities 9,000 13,000
Accounts Receivable 35,000 24,000
Other Current Assets 15,000 18,000
Name:
Class:
Date:
chapter 9
Fixed Assets (net) 140,000 130,000
Total Assets $247,000 $199,000
LIABILITIES
Current Liabilities $ 72,000 $ 52,000
Long-term Liabilities 50,000 37,000
Total Liabilities $122,000 $ 89,000
Total Stockholders' Equity $125,000 $110,000
Total Liabilities And Stockholders' Equity $247,000 $199,000
What is Transic's working capital for 20Y8?
a. $35,000
b. $125,000
c. $90,000
d. $18,000
74. Which of the following is the formula to calculate current ratio?
a. Cost of goods sold/Average inventory
b. Quick assets/Current liabilities
c. Sales/Average accounts receivable
d. Current assets/Current liabilities
75. A company with working capital of $600,000 and a current ratio of 3.25 pays a $200,000 short-term liability. The
amount of working capital immediately after payment is _____.
a. $400,000
b. $800,000
c. $600,000
d. $200,000
76. Which of the following focuses on the ability of a company to earn profits?
a. The return on total assets
b. The inventory turnover
c. The quick ratio
d. The fixed charge coverage ratio
77. Based on the following data, calculate the amount of quick assets.
Accounts payable $ 68,000
Accounts receivable 89,000
Accrued liabilities 12,000
Cash 58,500
Intangible assets 38,000
Inventory 61,000
Long-term investments 250,000
Long-term liabilities 66,000
Marketable securities 59,000
Notes payable (short-term) 47,000
Property, plant, and equipment 637,000
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Class:
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chapter 9
Supplies 17,000
a. $205,600
b. $208,400
c. $206,500
d. $204,200
78. An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to _____.
a. decrease
b. neither increase nor decrease
c. increase
d. remain the same
79. The following items are reported on a company's balance sheet:
Cash $258,000
Marketable securities 114,000
Accounts receivable 187,000
Inventory 204,000
Notes payable (short-term) 249,000
Determine the (a) current ratio and (b) quick ratio. (Round your answer to one decimal place.)
80. The following data are taken from the financial statements:
Current Preceding
Year Year
Net sales $3,592,000 $4,056,000
Cost of goods sold 2,092,000 2,656,000
Average monthly inventory 332,000 328,000
Inventory, end of year 372,000 347,000
(a) Determine for each year (1) the inventory turnover and (2) the days' sales in inventory.
(b) Comment on the favorable and unfavorable trends revealed by the data.
81. A company reports the following:
Net sales $750,000
Average accounts receivable (net) $ 50,000
Determine the (a) accounts receivable turnover and (b) days' sales in receivables. Round your answers to one decimal
place.
82. Revenue and expense data for Reuters Company are as follows:
20Y8 20Y7
Administrative expenses $ 24,750 $ 18,000
Cost of goods sold 500,000 375,000
Income tax expense 11,600 12,000
Net sales 750,000 600,000
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chapter 9
Selling expenses 182,250 154,800
(a) Prepare a comparative income statement, with vertical analysis, stating each item for both 20Y8 and 20Y7 as a
percentage of sales.
(b) Comment upon significant changes disclosed by the comparative income statement.
83. Condensed data taken from the ledger of Crawford Company at December 31, 20Y8 and 20Y7, are as follows:
20Y8 20Y7
Current assets $200,000 $180,000
Property, plant, and equipment 450,000 400,000
Intangible assets 20,700 30,000
Current liabilities 70,000 80,000
Long-term liabilities 200,000 250,000
Common stock 275,000 200,000
Retained earnings 125,700 80,000
Prepare a comparative balance sheet, with horizontal analysis, for December 31, 20Y8 and 20Y7. (Round percentages to
one decimal place.)
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Date:
chapter 9
Answer Key
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