Question 1

What is the ratio of net profit to the number of shares of common share outstanding?

Accepted Answer

The ratio of net profit to the number of shares of common share outstanding is called earnings per share (EPS). Therefore, the correct choice is D. The other choices (A, B, and C) do not accurately describe this particular ratio.

Question 2

What is the acceptable inventory turnover ratio?

Accepted Answer

The acceptable inventory turnover ratio differs for each industry, as the rate at which inventory moves can vary greatly depending on the type of product and market demand. It is important to compare a business's inventory turnover ratio to others in the same industry to determine if it is at an acceptable level.

Question 3

The Kosov School teaches adults how to communicate in a foreign language in a period of weeks.The school's debt-to-equity ratio is 120 percent.Which of the following interpretations is represented by the ratio?

Accepted Answer

A debt-to-equity ratio of 120 percent implies that the school has more debt than equity. It means that the school has borrowed more funds than the equity it has raised. This also indicates that the school is financing its operations mainly through borrowing rather than ownership.

Question 4

What is the ratio of total current assets to current liabilities called?

Accepted Answer

The ratio of total current assets to current liabilities is called the current ratio. This ratio is used to measure a company's ability to pay off its short-term obligations with its current assets. A higher current ratio indicates better short-term liquidity for the company.

Question 5

Which of the following is often used to measure a company's overall liquidity even though it is not really a financial ratio?

Accepted Answer

Net working capital is the difference between a company's current assets and current liabilities. It gives an idea of a company's ability to meet its current obligations. While it is not technically a financial ratio, it is often used to measure a company's overall liquidity.

Question 6

Which of the following ratios measures the relationship between the amount of debt financing and the amount of equity financing?

Accepted Answer

The ratio that measures the relationship between the amount of debt financing and the amount of equity financing is the debt to equity ratio. This ratio expresses the company's debt as a percentage of its equity, indicating the degree to which the company is using borrowed funds to finance its operations. The other options (A, B, D) do not measure the relationship between debt and equity, but instead measure the relationship between sales or revenue and ownership or liabilities.

Question 7

Myriad Canning Company has the following balance sheet figures for the year ending December 31,200X
Cash$1,000
Marketable securities$5,000
Inventory$3,000
Total current assets$9,000
Accounts payable$2,000
Notes payable$1,000
Total current liabilities$3,000
What is its net working capital?

Accepted Answer

Net working capital is calculated as total current assets minus total current liabilities, which is $9,000 - $3,000 = $6,000.

Question 8

Which of the following classifications of ratios measures the degree and effect of the company's use of borrowed funds to finance its operations?

Accepted Answer

The debt ratios measure the extent to which a company uses debt to finance its operations. These ratios indicate the extent to which the company is taking risks by borrowing money, and also its ability to repay the debt if needed. Examples of debt ratios include debt-to-equity ratio, debt-to-assets ratio, and interest coverage ratio.

Question 9

By dividing cost of goods sold by the average inventory to measure the speed with which inventory moves through the company and is turned into sales,which of the following ratios is calculated?

Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory. This ratio is used to measure how quickly inventory is being sold and replaced within the company. A higher inventory turnover ratio indicates that a company is efficiently managing its inventory and generating more sales.

Question 10

The ratio of net profit to total owners' equity is called what?

Accepted Answer

The ratio of net profit to total owners' equity is called return on equity (ROE). It measures the rate of return that owners of a company receive on their investments in the business.

Question 11

Which of the following is arrived at by subtracting current liabilities from current assets?

Accepted Answer

Net working capital is arrived at by subtracting current liabilities (debts due within one year) from current assets (assets expected to be converted into cash within one year). It measures the liquidity of a company and its ability to meet short-term obligations.

Question 12

The net profit for a company that builds portable oil well exploration rigs was $10 million last year.The company paid out $4 million in dividends and has 2 million shares of common share outstanding.What are its earnings per share?

Accepted Answer

The answer of The net profit for a company that...

Question 13

A company that specializes in planning parties for children had $7,000 worth of inventory on January 1,2007,and it had $5,000 worth of inventory on December 31,2007.If its cost of goods sold for that period was $10,000,and its net profit was $9,000,which of the following represents its inventory turnover ratio?

Accepted Answer

The formula for inventory turnover ratio is:

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

To calculate average inventory, we add the beginning inventory and ending inventory and divide by 2.

Average Inventory = (Beginning Inventory + Ending Inventory) / 2
                = ($7,000 + $5,000) / 2
                = $6,000

Now, we can calculate the inventory turnover ratio:

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
                        = $10,000 / $6,000
                        = 1.67 times

Therefore, the answer is B) 1.67 times.

Question 14

Which of the following is the most significant current trend in accounting in Canada?

Accepted Answer

The move to International Financial Reporting Standards (IFRS) is the most significant current trend in accounting in Canada. This transition has been mandatory for publicly accountable enterprises in Canada since 2011, and it affects financial reporting and disclosure requirements for many organizations.

Question 15

Which of the following ratios is a measure of the company's ability to pay its current liabilities once inventory is subtracted from current assets?

Accepted Answer

The acid-test ratio, also known as the quick ratio, is calculated by dividing a company's current assets minus inventory by its current liabilities. This ratio provides an indication of the company's ability to pay off its current liabilities without relying on the sale of inventory, which may not be easily sold or may be sold at a lower price. Therefore, option A is the correct choice. The net margin ratio and profitability ratio are measures of profitability, while the inventory ratio measures the efficiency of inventory management.

Question 16

What do liquidity ratios measure?

Accepted Answer

Liquidity ratios measure a company's ability to meet short-term obligations and maintain financial stability in the short-term.

Question 17

Myriad Canning Company has current assets of $8,000 and current liabilities of $2,000.What is its current ratio?

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. For Myriad Canning Company, this is $8,000 / $2,000 = 4.

Question 18

What are ratios of special interest to the company's creditors and measure the company's ability to pay short-term debts as they come due?

Accepted Answer

Liquidity ratios are of special interest to the company's creditors as they measure a company's ability to pay short-term debts as they come due. Current ratio, quick ratio, and cash ratio are examples of liquidity ratios. Earnings ratios measure a company's profitability relative to its sales or assets, while profitability ratios measure a company's overall profitability.

Question 19

Accounting is the process of collecting,recording,classifying,summarizing,reporting,and analyzing the financial condition of an organization.

Accepted Answer

This statement describes the overall process of accounting.

Question 20

Which of the following classification of ratios reflects the speed with which resources are converted to cash or sales?

Accepted Answer

The classification of ratios that reflects the speed with which resources are converted to cash or sales is called activity ratios. These ratios include inventory turnover, accounts receivable turnover, and accounts payable turnover, among others, which all measure different aspects of a company's ability to efficiently and effectively convert resources into revenue. Leverage ratios measure a company's ability to meet its financial obligations, equity ratios measure a company's financial position relative to its shareholders, and profitability ratios measure a company's ability to generate profit from its operations.

Quiz 16: Accounting for Financial Success