81
112)
MARNI COMPANY
Balance Sheet
As of December 31
ASSETS
Cash
$
50,000
Accounts receivable
100,000
Inventory
200,000
Net plant and equipment
650,000
Total assets
$
1,000,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
100,000
Accrued expenses
90,000
Long-term debt
250,000
Common stock
100,000
Paid-in capital
50,000
Retained earnings
410,000
Total liabilities and stockholders’ equity
$
1,000,000
MARNI COMPANY
Income Statement
For the year ended December 31
Sales (all on credit)
$
2,000,000
Cost of goods sold
1,750,000
Gross profit
$
250,000
Sales and administrative expenses
30,000
Fixed lease expenses
10,000
Depreciation
60,000
Operating profit
$
150,000
Interest expense
25,000
Profit before taxes
$
125,000
Taxes (40%)
50,000
Net income
$
75,000
Refer to the tables above. Using the DuPont method, the return on equity for Marni is
approximately ________.
A) 9.3%
B) 26.8%
C) 13.4%
D) 15%
82
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Answer: C
Explanation: Return on equity
= = = 0.134
Difficulty: 2 Medium
Topic: Profitability ratios
Learning Objective: 03-02 Ratios can be used to measure profitability, asset utilization,
liquidity, and debt utilization.
Bloom’s: Apply
AACSB: Analytical Thinking
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83
113)
MARNI COMPANY
Balance Sheet
As of December 31
ASSETS
Cash
$
50,000
Accounts receivable
100,000
Inventory
200,000
Net plant and equipment
650,000
Total assets
$
1,000,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
100,000
Accrued expenses
90,000
Long-term debt
250,000
Common stock
100,000
Paid-in capital
50,000
Retained earnings
410,000
Total liabilities and stockholders’ equity
$
1,000,000
MARNI COMPANY
Income Statement
For the year ended December 31
Sales (all on credit)
$
2,000,000
Cost of goods sold
1,750,000
Gross profit
$
250,000
Sales and administrative expenses
30,000
Fixed lease expenses
10,000
Depreciation
60,000
Operating profit
$
150,000
Interest expense
25,000
Profit before taxes
$
125,000
Taxes (40%)
50,000
Net income
$
75,000
Refer to the tables above. The firm’s receivable turnover is ________. Assume a 360-day
calendar.
A) 10x
B) 5.6x
C) 20x
D) 12x
84
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Answer: C
Explanation: Receivables turnover = = = 20
Difficulty: 2 Medium
Topic: Asset management ratios
Learning Objective: 03-02 Ratios can be used to measure profitability, asset utilization,
liquidity, and debt utilization.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
85
114)
MARNI COMPANY
Balance Sheet
As of December 31
ASSETS
Cash
$
50,000
Accounts receivable
100,000
Inventory
200,000
Net plant and equipment
650,000
Total assets
$
1,000,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
100,000
Accrued expenses
90,000
Long-term debt
250,000
Common stock
100,000
Paid-in capital
50,000
Retained earnings
410,000
Total liabilities and stockholders’ equity
$
1,000,000
MARNI COMPANY
Income Statement
For the year ended December 31
Sales (all on credit)
$
2,000,000
Cost of goods sold
1,750,000
Gross profit
$
250,000
Sales and administrative expenses
30,000
Fixed lease expenses
10,000
Depreciation
60,000
Operating profit
$
150,000
Interest expense
25,000
Profit before taxes
$
125,000
Taxes (40%)
50,000
Net income
$
75,000
Refer to the tables above. The firm’s average collection period is_______, assuming a 360-day
calendar.
A) 18 days.
B) 277 days.
C) 5.6 days.
D) 20 days.
86
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Answer: A
Explanation: Average collection period
= = = 18 days
Difficulty: 3 Hard
Topic: Asset management ratios
Learning Objective: 03-02 Ratios can be used to measure profitability, asset utilization,
liquidity, and debt utilization.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
87
115)
MARNI COMPANY
Balance Sheet
As of December 31
ASSETS
Cash
$
50,000
Accounts receivable
100,000
Inventory
200,000
Net plant and equipment
650,000
Total assets
$
1,000,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
100,000
Accrued expenses
90,000
Long-term debt
250,000
Common stock
100,000
Paid-in capital
50,000
Retained earnings
410,000
Total liabilities and stockholders’ equity
$
1,000,000
MARNI COMPANY
Income Statement
For the year ended December 31
Sales (all on credit)
$
2,000,000
Cost of goods sold
1,750,000
Gross profit
$
250,000
Sales and administrative expenses
30,000
Fixed lease expenses
10,000
Depreciation
60,000
Operating profit
$
150,000
Interest expense
25,000
Profit before taxes
$
125,000
Taxes (40%)
50,000
Net income
$
75,000
Refer to the tables above. The firm’s inventory turnover ratio is ________.
A) 10x
B) 3.75x
C) 0.4x
D) 0.1x
88
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Answer: A
Explanation: Inventory turnover = = = 10
Difficulty: 2 Medium
Topic: Asset management ratios
Learning Objective: 03-02 Ratios can be used to measure profitability, asset utilization,
liquidity, and debt utilization.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
89
116)
MARNI COMPANY
Balance Sheet
As of December 31
ASSETS
Cash
$
50,000
Accounts receivable
100,000
Inventory
200,000
Net plant and equipment
650,000
Total assets
$
1,000,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
100,000
Accrued expenses
90,000
Long-term debt
250,000
Common stock
100,000
Paid-in capital
50,000
Retained earnings
410,000
Total liabilities and stockholders’ equity
$
1,000,000
MARNI COMPANY
Income Statement
For the year ended December 31
Sales (all on credit)
$
2,000,000
Cost of goods sold
1,750,000
Gross profit
$
250,000
Sales and administrative expenses
30,000
Fixed lease expenses
10,000
Depreciation
60,000
Operating profit
$
150,000
Interest expense
25,000
Profit before taxes
$
125,000
Taxes (40%)
50,000
Net income
$
75,000
Refer to the tables above. The firm’s fixed asset turnover ratio is ________.
A) 3.1x
B) 1.5x
C) 2x
D) 0.1x
90
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Answer: A
Explanation: Fixed assed turnover = = = 3.1
Difficulty: 2 Medium
Topic: Asset management ratios
Learning Objective: 03-02 Ratios can be used to measure profitability, asset utilization,
liquidity, and debt utilization.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
91
117)
MARNI COMPANY
Balance Sheet
As of December 31
ASSETS
Cash
$
50,000
Accounts receivable
100,000
Inventory
200,000
Net plant and equipment
650,000
Total assets
$
1,000,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
100,000
Accrued expenses
90,000
Long-term debt
250,000
Common stock
100,000
Paid-in capital
50,000
Retained earnings
410,000
Total liabilities and stockholders’ equity
$
1,000,000
MARNI COMPANY
Income Statement
For the year ended December 31
Sales (all on credit)
$
2,000,000
Cost of goods sold
1,750,000
Gross profit
$
250,000
Sales and administrative expenses
30,000
Fixed lease expenses
10,000
Depreciation
60,000
Operating profit
$
150,000
Interest expense
25,000
Profit before taxes
$
125,000
Taxes (40%)
50,000
Net income
$
75,000
Refer to the tables above. What is Marni’s total asset turnover?
A) 13.3x
B) 4x
C) 1x
D) 2x
92
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Answer: D
Explanation: Total asset turnover = = = 2
Difficulty: 2 Medium
Topic: Asset management ratios
Learning Objective: 03-02 Ratios can be used to measure profitability, asset utilization,
liquidity, and debt utilization.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
93
118)
MARNI COMPANY
Balance Sheet
As of December 31
ASSETS
Cash
$
50,000
Accounts receivable
100,000
Inventory
200,000
Net plant and equipment
650,000
Total assets
$
1,000,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
100,000
Accrued expenses
90,000
Long-term debt
250,000
Common stock
100,000
Paid-in capital
50,000
Retained earnings
410,000
Total liabilities and stockholders’ equity
$
1,000,000
MARNI COMPANY
Income Statement
For the year ended December 31
Sales (all on credit)
$
2,000,000
Cost of goods sold
1,750,000
Gross profit
$
250,000
Sales and administrative expenses
30,000
Fixed lease expenses
10,000
Depreciation
60,000
Operating profit
$
150,000
Interest expense
25,000
Profit before taxes
$
125,000
Taxes (40%)
50,000
Net income
$
75,000
Refer to the tables above. Marni’s quick ratio is
A) 0.79:1
B) 0.34:1
C) 1.84:1
D) None of the options