Question
Chapter 12Financial Statement Analysis (10 points) MUMULTIPLE CHOICE 1. 1. The relationship of $325,000 to $125,000, expressed as a ratio, is a. 2.0 to 1
Chapter 12Financial Statement Analysis (10 points)
MUMULTIPLE CHOICE
1. 1. The relationship of $325,000 to $125,000, expressed as a ratio, is
a. | 2.0 to 1 |
b. | 2.6 to 1 |
c. | 2.5 to 1 |
d. | 0.45 to 1 |
2. In a common size income statement, the 100% figure is:
a. | net cost of goods sold. |
b. | net income. |
c. | gross profit. |
d. | net sales. |
3. Based on the following data for the current year, what is the number of days' sales in accounts receivable?
Net sales on account during year | $584,000 |
Cost of merchandise sold during year | 300,000 |
Accounts receivable, beginning of year | 45,000 |
Accounts receivable, end of year | 35,000 |
Inventory, beginning of year | 90,000 |
Inventory, end of year | 110,000 |
a. | 7.3 |
b. | 2.5 |
c. | 14.6 |
d. | 25 |
4. Based on the following data for the current year, what is the number of days' sales in inventory?
Net sales on account during year | $1,204,500 |
Cost of merchandise sold during year | 657,000 |
Accounts receivable, beginning of year | 75,000 |
Accounts receivable, end of year | 85,000 |
Inventory, beginning of year | 85,600 |
Inventory, end of year | 98,600 |
a. | 51.2 |
b. | 44.4 |
c. | 6.5 |
d. | 7.5 |
5. The number of times interest expense is earned is computed as
a. | net income plus interest expense, divided by interest expense |
b. | income before income tax plus interest expense, divided by interest expense |
c. | net income divided by interest expense |
d. | income before income tax divided by interest expense |
6. The current ratio is
a. | used to evaluate a company's liquidity and short-term debt paying ability. |
b. | is a solvency measure that indicated the margin of safety of a noteholder or bondholder. |
c. | calculated by dividing current liabilities by current assets. |
d. | calculated by subtracting current liabilities from current assets. |
7. A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will
a. | both decrease. |
b. | both increase. |
c. | increase and remain the same, respectively. |
d. | remain the same and decrease, respectively. |
8. Hsu Company reported the following on its income statement:
| Income before income taxes | $420,000 |
| Income tax expense | 120,000 |
| Net income | $300,000 |
An analysis of the income statement revealed that interest expense was $80,000. Hsu Company's times interest earned was
a. | 8 times. |
b. | 6.25 times. |
c. | 5.25 times. |
d. e. | 5 times. None of the above |
9. The following information pertains to Brock Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments |
| $ 40,000 | |
Accounts receivable (net) |
| 30,000 | |
Inventory |
| 25,000 | |
Property, plant and equipment |
| 215,000 | |
| Total Assets | $310,000 | |
Liabilities and Stockholders Equity
Current liabilities |
| $ 60,000 | |
Long-term liabilities |
| 95,000 | |
Stockholders equity-common |
| 155,000 | |
| Total Liabilities and stockholders equity | $310,000 | |
Income Statement
Sales |
| $ 90,000 | |
Cost of goods sold |
| 45,000 | |
Gross margin |
| 45,000 | |
Operating expenses |
| 20,000 | |
| Net income | $ 25,000 | |
Number of shares of common stock | 6,000 |
Market price of common stock | $20 |
What is the current ratio for this company?
a. | 1.42 |
b. | 0.78 |
c. | 1.58 |
d. e | 0.67 None of the above |
11. Based on the above data, what is the amount of quick assets?
a. | $168,000 |
b. | $96,000 |
c. | $60,000 |
d. e | $61,000 None of the above |
12. Based on the above data, what is the amount of working capital?
a. | $213,000 |
b. | $113,000 |
c. | $153,000 |
d. e | $39,000 None of the above |
13. The tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is sometimes referred to as
a. | leverage |
b. | solvency |
c. | yield |
d. | quick assets |
The balance sheets at the end of each of the first two years of operations indicate the following:
| 2012 | 2011 |
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 | 65,000 |
Total long-term liabilities | 350,000 | 250,000 |
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 | 75,000 | 75,000 |
Retained earnings | 310,000 | 210,000 |
14. If net income is $115,000 and interest expense is $30,000 for 2012 what is the rate earned on total assets for 2012 (round percent to one decimal point)?
a. | 9.3% |
b. | 10.1% |
c. | 8.0% |
d. e. | 7.4% None of the above |
15. If net income is $115,000 and interest expense is $30,000 for 2012, what is the rate earned on stockholders' equity for 2012 (round percent to one decimal point)?
a. | 10.6% |
b. | 11.1% |
c. | 12.4% |
d. e. | 14.0% None of the above |
16. If net income is $115,000 and interest expense is $30,000 for 2012, what are the earnings per share on common stock for 2012, (round to two decimal places)?
a. | $2.07 |
b. | $1.92 |
c. | $1.77 |
d. e. | $1.64 None of the above |
17. The particular analytical measures chosen to analyze a company may be influenced by all of the following except:
a. | industry type |
b. | capital structure |
c. | diversity of business operations |
d. | product quality or service effectiveness |
18. In 2012 Robert Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000. They had 50,000 shares of common stock outstanding during the entire year. Robert Corporation's common stock is selling for $50 per share on the New York Stock Exchange.
Robert Corporation's price-earnings ratio is
a. | 10 times. |
b. | 5 times. |
c. | 2 times. |
d. e. | 8 times. None of the above |
19. Leveraging implies that a company
a. | contains debt financing. |
b. | contains equity financing. |
c. | has a high current ratio. |
d. | has a high earnings per share. |
20. Percentage analyses, ratios, turnovers, and other measures of financial position and operating results are
a. | a substitute for sound judgment. |
b. | useful analytical measures. |
c. | enough information for analysis, industry information is not needed. |
d. | unnecessary for analysis, but reaction is better. |
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