1. Which of these transactions would result in an increase in a company's current ratio (current assets/current liabilities)? Assume current assets are equal to current liabilities before the transactions below take place.

a.None of the other alternatives are correct

b.collecting an accounts receivable

c.issuing long-term debt

d.making a mortgage payment

e.declaring a cash dividend

2.Great Lakes Manufacturing Inc. comparative Statement of Financial Position at December 31in (000)'s

	20X4	20X3
Cash	$ 5,100	$ 4,800
Accounts Receivable	$ 9,010	$ 6,100
Inventory	$ 10,400	$ 14,000
Prepaid Expenses	$ 1,950	$ 1,020
Equipment	$ 58,500	$ 59,900
Accumulated Depreciation - equipment	$ (33,100)	$ (32,000)
Total Assets	$ 51,860	$ 53,820
Account Payable	$ 7,000	$ 11,400
Interest Payable	$ 350	$ 110
Income taxes payable	$ 650	$ 500
Dividends Payable	$ 2,400	$ 3,200
Long-term Notes Payable	$ 17,500	$ 17,000
Common shares	$ 22,000	$ 20,000
Retained Earnings	$ 1,960	$ 1,610
Total Liabilities & Shareholders' Equity	$ 51,860	$ 53,820

Great Lakes Manufacturing Inc.

Income Statement

Year Ended December 31, 20X4 in (000)'s

Sale		$ 130,000
Cost of goods sold		$ 97,000
Gross Profit		$ 33,000
Operating Expenses	$ 30,000
Gain on Sale of equipment	$ (1,000)	$ 29,000
Profit from Operations		$ 4,000
Other expenses
Interest Expense		$ 200
Profit before Income Tax		$ 3,800
Income Tax Expense		$ 1,550
Profit		$ 2,250

Additional Information:

Operating expenses include depreciation expense of $3,500,000

Accounts Payable related to the purchase of inventory

Equipment that cost $3,900,000 was sold at a gain of $1,000,000

New equipment was purchased during the year for $2,500,000

Dividends declared and paid in 20X4 totaled $1,900,000

Common shares were sold for $2,000,000 cash

Interest payable in 20X4 was $240,000 greater than interest payable in 20X3

Total return on sales at December 20X4 was:

a.Equal of above 3%

b.1%

c.2%

d.Not enough data provided to calculate it

e.0%

3.The interest coverage at December 20X4 was:

a.Not enough data provided to calculate it

b.Equal of above 15.01

c.Equal or below 3.74

dBetween 3.75 and 7.49

e.Between 7.50 and 15

4.If the business had the opportunity to triple sales and maintain the same profit margin by increasing plant capacity at a cost of $380,000, then, ignoring changes in the risk, to maximize the return to the shareholders (measured by net income / shareholders' equity) the business should finance this expansion by

a.not paying dividends for 2 years and using the savings at the end of that time

b.None of the other alternatives are correct

c.issuing more preferred shares

d.borrowing at a lower rate of interest than it earns on shareholder's equity

e.issuing more common shares

5.An analysis of Mickey Corporation and Minnie Corporation reveals the following:

	Mickey	Minnie
Quick ratio	3.2/1	2.5/1
Receivables turnover	4/1	3/1
Inventory turnover	7/1	5/1
EPS	$0.25	$0.80
Looking at this data it could be argued that:

a.Mickey has better solubility

b.Mickey has better liquidity

c.This data is not relevant for assessing either liquidity or solubility

d.Minnie has better liquidity

e.Minnie has better solubility

6.Seaforce Manufacturing Inc.

Income Statement

Year Ended December 31, 20X5

Sale		$ 340,000
Cost of goods sold		$ 250,100
Gross Profit		$ 89,900
Operating Expenses	$ 55,000
Loss on Sale of equipment	$ 2,500	$ 57,500
Profit from Operations		$ 32,400
Other expenses
Interest Expense		$ 3,500
Profit before Income Tax		$ 28,900
Income Tax Expense		$ 12,000
Profit		$ 16,900

Additional Information:

1.Operating expenses include depreciation expense of $10,000

2. Accounts Payable related to the purchase of inventory

3. Equipment that cost $12,500 was sold at a loss of $2,500

4. New equipment was purchased during the year for $8,500

5. Dividends declared and paid in 20X5 totalled $3,000

6. Common shares were sold for $12,000 cash

7. Interest payable in 20X5 was $800 greater than interest payable in 20X4

Seaforce Manufacturing Inc. comparative balance sheet at December 31 20X5

	20X5	20X4
Cash	$ 6,450	$ 4,100
Accounts Receivable	$ 72,000	$ 6,500
Inventory	$ 110,250	$ 140,000
Prepaid Expenses	$ 1,750	$ 1,020
Equipment	$ 96,000	$ 100,000
Accumulated Depreciation - equipment	$ (50,000)	$ (42,000)
Total Assets	$ 236,450	$ 209,620
Account Payable	$ 16,230	$ 9,900
Interest Payable	$ 810	$ 10
Income taxes payable	$ 10,800	$ 9,500
Dividends Payable	$ 1,800	$ 2,800
Long-term Notes Payable	$ 55,000	$ 62,000
Common shares	$ 135,000	$ 123,000
Retained Earnings	$ 16,310	$ 2,410
Total Liabilities & Shareholders' Equity	$ 236,450	$ 209,620

answers to fit 2 decimal places in all questions (in % questions a 0.12 is presented as 12%, so a 0.124 is rounded as 12% and 0.127 is rounded as 13%)

The working capital turnover at December 20X4 was:

a.Between 0.24 and 0.47

b.Equal or above 0.48

c.Equal or below 0.11

d.Not enough data provided to calculate it

e.Between 0.12 and 0.23

7.Round answers to fit 2 decimal places in all questions (in % questions a 0.12 is presented as 12%, so a 0.124 is rounded as 12% and 0.127 is rounded as 13%)

Return on Common Equity at December 20X5 was:

a.Between 20% and 39%

b.Equal or below 19%

c.Not enough data provided to calculate it

d.Equal or above 82%

e.Between 40% and 81%

8.Round answers to fit 2 decimal places in all questions (in % questions a 0.12 is presented as 12%, so a 0.124 is rounded as 12% and 0.127 is rounded as 13%)

The interest coverage at December 20X5 was:

a.Between 8.10 and 16.19

b.Equal or below 8.09

c.Not enough data provided to calculate it

d.Between 16.20 and 32.41

e.Equal or above 32.42