Question 1

A company has current assets of $450,000 and a current ratio is 2.5.Assume that the company prepays rent for 9 months in the amount of $20,000.The current ratio after this transaction is closest to:

Accepted Answer

The answer of A company has current assets of $450,000...

Question 2

A company has a debt-to-assets ratio of 0.45.If the company then borrows cash from the bank to finance a building acquisition,which of the following is a correct statement?

Accepted Answer

Borrowing cash will increase the company's debt, but the acquisition of a building will also increase the company's assets, so the denominator in the debt-to-assets ratio will increase more than the numerator. Therefore, the ratio will increase.

Question 3

Which of these are liquidity ratios?

Accepted Answer

Receivables turnover is a measure of how quickly a company collects its accounts receivable, which is a component of current assets (i.e., liquid assets), making it a liquidity ratio. Net profit margin, fixed asset turnover, and times interest earned are all different ratios that measure a company's profitability, asset efficiency, and debt-servicing ability, respectively, but they are not liquidity ratios.

Question 4

During the current accounting period,revenue from credit sales is $671,000.The Accounts Receivable balance is $51,480 at the beginning of the period and $52,200 at the end of the period.Which of the following statements is correct?

Accepted Answer

To calculate the receivables turnover ratio, we divide the revenue from credit sales by the average accounts receivable balance.

Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2
                           = ($51,480 + $52,200) / 2
                           = $51,840

Receivables turnover ratio = Revenue from credit sales / Average accounts receivable
                            = $671,000 / $51,840
                            = 12.93

Therefore, the correct statement is that the receivables turnover ratio is 12.9.

Question 5

The following information is taken from the financial statements of Lopez Company.:

The company's times interest earned ratio is closest to:

Accepted Answer

The answer of The following information is taken from the...

Question 6

Cost of goods sold divided by average inventory is the calculation for which of the following ratios?

Accepted Answer

The calculation for inventory turnover ratio is cost of goods sold divided by average inventory. This ratio measures how many times a company sells and replaces its inventory within a certain time period.

Question 7

At the end of last year,Ace Company had total assets in the amount of $6,000,000 and total liabilities in the amount of $4,000,000.The company issued shares to new stockholders at the beginning of the current year for $1,000,000.As a direct result of this transaction,the:

Accepted Answer

Issuing shares increases total assets without affecting sales, which can decrease the asset turnover ratio, as it is calculated by dividing sales by total assets.

Question 8

Which of these ratios measure liquidity?

Accepted Answer

Receivables turnover measures how quickly a company is able to collect its outstanding debts, which is a measure of liquidity. Net profit margin measures profitability. Debt-to-assets ratio measures solvency. Fixed asset turnover measures how efficiently a company is using its fixed assets to generate sales.

Question 9

Company X has net sales revenue of $436,000,cost of goods sold of $343,000,and net income of $3,000.If interest expense is $10,000 and income tax expense is $1,000,the times interest earned ratio is closest to:

Accepted Answer

Times interest earned ratio = EBIT / Interest expense= (Net income + Interest expense + Income tax expense) / Interest expense= (3,000 + 10,000 + 1,000) / 10,000= 14,000 / 10,000= 1.4

Question 10

Which of these is not one of the categories of ratio analysis?

Accepted Answer

The categories of ratio analysis are profitability, liquidity, and solvency. Probability is not a category of ratio analysis.

Question 11

Westcott,Inc.has the following information from its accounting records:

If Westcott uses cash of $5,000 to pay a current liability,its:

Accepted Answer

The answer of Westcott,Inc.has the following information from its accounting...

Question 12

A company has $72,500 in inventory at the beginning of the accounting period and $65,500 at the end of the accounting period.Sales revenue is $986,400,cost of goods sold is $572,700,and net income is $124,200 for the accounting period.On average,the number of days to sell inventory is approximately:

Accepted Answer

To find the average number of days to sell inventory, we need to use the formula:

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

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Average Number of Days to Sell Inventory = 365 / Inventory Turnover Ratio

Using the given values:

Average Inventory = ($72,500 + $65,500) / 2 = $69,000
Inventory Turnover Ratio = $572,700 / $69,000 = 8.3
Average Number of Days to Sell Inventory = 365 / 8.3 = 44 days

Therefore, the best choice is B, which is 44, as it represents the average number of days to sell inventory.

Question 13

Which of the following ratios is calculated by dividing current assets by current liabilities?

Accepted Answer

Current ratio is calculated by dividing current assets by current liabilities. Quick ratio is also calculated using current assets and liabilities, but excludes inventory. Solvency ratio and debt ratio are calculated using long-term liabilities and assets.

Question 14

The following information comes from the balance sheets and income statements of the Rocket Company:

What is the times interest earned ratio for the current year?

Accepted Answer

The answer of The following information comes from the balance...

Question 15

Which of the following ratios does not use net income in its calculation?

Accepted Answer

Fixed asset turnover uses gross profit or total revenue in its calculation, not net income.

Question 16

A company has $72,500 of inventory at the beginning of the year and $65,500 at the end of the year.Sales revenue is $986,400,cost of goods sold is $572,700,and net income is $124,200 for the year.The inventory turnover ratio is closest to:

Accepted Answer

Inventory turnover ratio measures how quickly a company is selling its inventory.

Inventory turnover ratio = Cost of Goods Sold / Average Inventory

We can calculate the average inventory as:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2 
Average Inventory = ($72,500 + $65,500) / 2 
Average Inventory = $69,000

Using the given values:

Inventory turnover ratio = $572,700 / $69,000 
Inventory turnover ratio = 8.3

Therefore, the closest answer choice is B) 8.3.

Question 17

If a company increases the selling price of the product it sells and all other data on the financial statements remains the same,which of the following ratios will be unaffected?

Accepted Answer

If sales revenue increases and all other data on the financial statements remains the same,there will be an increase in gross profit (sales revenues minus cost of goods sold),an increase in operating income,and an increase in net income.The fixed asset turnover ratio increases because its numerator is net sales revenue which has been increased.The net profit margin and earnings per share increase because both ratios have net income in their numerators.Inventory turnover is not affected by an increase in the selling price since neither cost of goods sold (numerator)nor the average inventory (denominator)is impacted by an increase in the selling price.

Question 18

Which of the following is calculated by dividing cost of goods sold by average inventory and then dividing this result into 365 days?

Accepted Answer

Dividing cost of goods sold by average inventory gives the inventory turnover ratio. Dividing this result into 365 days gives the days to sell ratio, which measures the average number of days it takes for a company to sell its inventory. Therefore, the correct answer is D) Days to sell ratio.

Question 19

Which type of ratio indicates a company's ability to generate income in the current period?

Accepted Answer

Profitability ratios, such as gross profit margin, net profit margin, and return on equity, measure a company's ability to generate income in the current period.

Question 20

Which of the following is a profitability ratio?

Accepted Answer

Return on equity is a profitability ratio that measures the amount of net income returned as a percentage of shareholders' equity. Choices B, C, and D are all efficiency ratios that measure how efficiently a company is using its resources, rather than profitability.

Quiz 13: Measuring and Evaluating Financial Performance