Question 1

Toller Drug Store had net credit sales of $6,000,000 and cost of goods sold of $2,000,000 for the year.The Accounts Receivable balances at the beginning and end of the year were $350,000 and $250,000,respectively.The accounts receivable turnover ratio was

Accepted Answer

The answer of Toller Drug Store had net credit sales...

Question 2

Arnold Company had $650,000 in sales on account last year.The beginning accounts receivable balance was $24,000 and the ending accounts receivable balance was $36,000.The company's accounts receivable turnover ratio was closest to

Accepted Answer

The answer of Arnold Company had $650,000 in sales on...

Question 3

The quick ratio differs from the current ratio in that it

Accepted Answer

The quick ratio is a stricter test of a company's ability to pay its current debts as they are due because it excludes inventory and other less liquid assets from the numerator, while the current ratio includes all current assets in the numerator. The quick ratio only considers cash, marketable securities, and accounts receivable, which are considered to be the most liquid assets.

Question 4

Lost Shoe Company,a retailer,had cost of goods sold of $220,000 last year.The beginning inventory balance was $30,000 and the ending inventory balance was $21,000.The company's inventory turnover ratio was closest to

Accepted Answer

Inventory turnover ratio = Cost of Goods Sold / Average Inventory

Average Inventory = (Beginning Inventory + Ending Inventory) / 2

Average Inventory = ($30,000 + $21,000) / 2 = $25,500

Inventory turnover ratio = $220,000 / $25,500 ≈ 8.63

Therefore, the closest answer choice is D) 8.63.

Question 5

A company has an account receivable turnover ratio of 6.The average accounts receivable during the period are $350,000.What is the amount of net sales for the period?

Accepted Answer

Account receivable turnover ratio = Net sales / Average accounts receivable
6 = Net sales / $350,000
Net sales = 6 x $350,000
Net sales = $2,100,000

Question 6

Siri Company has $20,000 in cash,$8,000 in marketable securities,$36,000 in current receivables,$18,000 in inventories,and $68,000 in current liabilities.The company's quick ratio is closest to

Accepted Answer

The quick ratio is calculated as (Cash + Marketable Securities + Current Receivables) / Current Liabilities. For Siri Company, this is ($20,000 + $8,000 + $36,000) / $68,000 = $64,000 / $68,000 = .94.

Question 7

The Grand Department Store had net credit sales of $12,000,000 and cost of goods sold of $8,000,000 for the year.The average inventory for the year amounted to $1,600,000. The inventory turnover ratio for the year is

Accepted Answer

Inventory turnover ratio = Cost of goods sold / Average inventory
= 8,000,000 / 1,600,000
= 5 times
Therefore, the inventory turnover ratio for the year is 5 times.

Question 8

Kringle Company,a retailer,had cost of goods sold of $1,400,000 last year.The beginning inventory balance was $125,000 and the ending inventory balance was $142,000.The company's inventory turnover ratio was closest to

Accepted Answer

The inventory turnover ratio is calculated as Cost of Goods Sold divided by Average Inventory. Average Inventory is calculated as (Beginning Inventory + Ending Inventory) / 2. So, for Kringle Company, Average Inventory = ($125,000 + $142,000) / 2 = $133,500. Inventory Turnover Ratio = $1,400,000 / $133,500 ≈ 10.49.

Question 9

Miller Company had $120,000 in sales on account last year.The beginning accounts receivable balance was $8,000 and the ending accounts receivable balance was $14,000.The company's accounts receivable turnover ratio was closest to

Accepted Answer

The formula for accounts receivable turnover ratio is:

Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable

Where, 
Net Credit Sales = Sales on Account – Sales Returns and Allowances
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Given, 
Sales on Account = $120,000
Beginning Accounts Receivable = $8,000
Ending Accounts Receivable = $14,000

Net Credit Sales = $120,000 - 0 (assuming no sales returns and allowances)
Average Accounts Receivable = ($8,000 + $14,000) / 2 = $11,000

Therefore, Accounts Receivable Turnover Ratio = $120,000 / $11,000 = 10.91

Hence, the closest answer is option C.

Question 10

Which of the following formulas would be used to determine the inventory turnover ratio?

Accepted Answer

The inventory turnover ratio formula is cost of goods sold divided by average inventory. This helps to determine the number of times a company has sold and replaced its inventory during a period.

Question 11

Dartmouth Company has a quick ratio of 2.5 to 1.It has current liabilities of $40,000 and noncurrent assets of $70,000.If Dartmouth's current ratio is 3.1 to 1,its inventory and prepaid expenses must be

Accepted Answer

The quick ratio is calculated by subtracting inventory and prepaid expenses from current assets and then dividing by current liabilities.

Quick Ratio = (Current Assets - Inventory and Prepaid Expenses) / Current Liabilities

2.5 = (Current Assets - X) / 40,000   ......(1)

where X is the sum of inventory and prepaid expenses.

The current ratio is calculated by dividing current assets by current liabilities.

Current Ratio = Current Assets / Current Liabilities

3.1 = Current Assets / 40,000              ......(2)

Solve for Current Assets in (2):

Current Assets = 3.1 x 40,000

Current Assets = 124,000

Substitute Current Assets as 124,000 in (1):

2.5 = (124,000 - X) / 40,000

100,000 = 124,000 - X

X = 24,000

Therefore, the inventory and prepaid expenses must be $24,000. Option B is the correct answer.

Question 12

Phillips Company had $300,000 in sales on account last year.The beginning accounts receivable balance was $25,000 and the ending accounts receivable balance was $18,000.The company's accounts receivable turnover ratio was closest to

Accepted Answer

Accounts Receivable Turnover Ratio = Sales on Account / Average Accounts Receivable

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Average Accounts Receivable = ($25,000 + $18,000) / 2 = $21,500

Accounts Receivable Turnover Ratio = $300,000 / $21,500 = 13.95

Therefore, the closest answer choice is D, with an accounts receivable turnover ratio of 13.95.

Question 13

If the accounts receivable turnover is 42 days,what is the account receivable turnover ratio (assuming a 365 day year)?

Accepted Answer

Account Receivable Turnover Ratio = 365 days / Accounts Receivable Turnover
Substitute the given value:
Account Receivable Turnover Ratio = 365 / 42 = 8.69 times (approx) 
Therefore, the answer is B.

Question 14

Which of the following is an example of liquidity analysis?

Accepted Answer

Liquidity analysis focuses on the ability of a company to meet its short-term financial obligations. The ratio of current assets divided by current liabilities is a commonly used liquidity ratio. This ratio measures a company's ability to pay off its short-term liabilities with its current assets.

Question 15

Which of the following is considered a liquidity analysis ratio?

Accepted Answer

Liquidity ratios are measures of a company's ability to pay its short-term obligations, and the quick ratio is a commonly used liquidity ratio. A) Return on total assets ratio measures how effectively a company is using its assets to generate profits. C) Dividend yield ratio measures the annual dividend payments relative to the stock price. D) Return on sales ratio measures the profitability of each dollar of sales.

Question 16

Lisa's Dress Company,a retailer,had cost of goods sold of $180,000 last year.The beginning inventory balance was $13,000 and the ending inventory balance was $18,000.The company's average inventory turnover in days was closest to

Accepted Answer

We can use the formula for average inventory turnover in days:
Average Inventory Turnover in Days = (365 days) / Inventory Turnover Ratio

To find the inventory turnover ratio, we first need to calculate the average inventory:
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($13,000 + $18,000) / 2
Average Inventory = $15,500

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
Inventory Turnover Ratio = $180,000 / $15,500
Inventory Turnover Ratio = 11.61

Now we can plug this into the formula for average inventory turnover in days:
Average Inventory Turnover in Days = (365 days) / Inventory Turnover Ratio
Average Inventory Turnover in Days = 365 days / 11.61
Average Inventory Turnover in Days ≈ 31.43 days

Therefore, the closest answer choice is C.

Question 17

Jackson Company,a retailer,had cost of goods sold of $140,000 last year.The beginning inventory balance was $8,000 and the ending inventory balance was $11,000.The company's inventory turnover ratio was closest to

Accepted Answer

The answer of Jackson Company,a retailer,had cost of goods sold...

Question 18

Eagle Company has $9,000 in cash,$11,000 in marketable securities,$26,000 in current receivables,$34,000 in inventories,and $40,000 in current liabilities.The company's quick ratio is closest to

Accepted Answer

Quick ratio = (cash + marketable securities + current receivables) / current liabilities
Quick ratio = ($9,000 + $11,000 + $26,000) / $40,000
Quick ratio = $46,000 / $40,000
Quick ratio = 1.15
Therefore, the answer is B) 1.15.

Question 19

Mike's Sportswear Company,a retailer,had cost of goods sold of $420,000 last year.The beginning inventory balance was $31,000 and the ending inventory balance was $28,000.The company's average inventory turnover in days was closest to

Accepted Answer

First, we need to calculate the average inventory:
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
= ($31,000 + $28,000) / 2
= $29,500

Next, we can use the formula for inventory turnover in days:
Inventory Turnover in Days = 365 / Inventory Turnover Ratio

To find the inventory turnover ratio, we can use the formula:
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Plugging in the numbers, we get:
Inventory Turnover Ratio = $420,000 / $29,500
= 14.24

Inventory Turnover in Days = 365 / 14.24
= 25.64 days

Therefore, the closest answer is A) 25.64 days.

Question 20

The Gift Shoppe's inventory turned over five times during the year.Similar gift shops have an inventory turnover equal to ten times per year.What explains the Gift Shoppe's inventory management?

Accepted Answer

The Gift Shoppe's inventory turnover rate of five times per year is only half of the average rate for similar gift shops. This suggests that the Gift Shoppe may have more goods on hand than necessary, which could be an indication that sales are lower than they could be. Therefore, the Gift Shoppe needs to increase sales and decrease the amount of goods on hand to match the industry average and improve inventory management.

Quiz 16: Financial Statement Analysis