Question 1

TransSystems Inc.has a total equity of $560,000; sales of $2,250,000; total assets of $995,000; and current liabilities of $310,000.What is TransSystems Inc.'s debt ratio?

Accepted Answer

The formula for debt ratio is Total Debt/Total Assets.
Total Debt = Total Assets - Total Equity, thus Total Debt = 995,000 - 560,000 = 435,000.
Debt Ratio = Total Debt/Total Assets = 435,000/995,000 = 0.437 or 43.7%.

Question 2

All of the following will improve a firm's liquidity position EXCEPT

Accepted Answer

Increasing the average collection period means taking longer to collect payments from customers, which will decrease a firm's liquidity position. A, B, and D will all increase a firm's liquidity position by improving cash flow or providing access to additional cash reserves.

Question 3

Which of the following ratios would be the best way to determine how customers are paying for their purchases?

Accepted Answer

The average collection period ratio measures the average number of days it takes for a business to collect payment from customers after a sale is made. This ratio would provide insight into how customers are paying for their purchases. A shorter collection period would indicate that customers are paying quickly, while a longer period could imply that customers are paying on credit or taking longer to pay. Therefore, option D is the best choice.

Question 4

A company borrows $10,000 and puts the money into its checking account.This transaction will increase the company's current ratio if prior to the transaction the company's current ratio was

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. If the company borrows $10,000 and puts it into its checking account, this will increase its current assets by $10,000 but will not affect its current liabilities. Therefore, the current ratio will increase only if prior to the transaction the company's current ratio was less than one. If the current ratio was already equal to or greater than one, this transaction will not have a significant impact on the ratio.

Question 5

a.Using the financial statements for GMT Enterprises for 2010 (given below),calculate the return on equity,the debt ratio,and the times interest earned ratio. b.Suppose the industry average debt ratio is 50%.Give one reason why the debt ratio for GMT Enterprises may be considered favorable,and give one reason why the debt ratio for GMT Enterprises may be considered unfavorable. GMT Enterprises 2010 Financial Statements

Accepted Answer

The answer of a.Using the financial statements for GMT Enterprises...

Question 6

Bill's BikeShop has a return on assets of 12%.Anton's assets = $100 while Anton's owner's equity = $40 and its debt equals $60.What is Bill's return on equity?

Accepted Answer

Bill's return on equity (ROE) can be calculated using the formula ROE = Return on Assets (ROA) / (1 - Debt/Assets). Given ROA = 12%, Debt = $60, and Assets = $100, the calculation is 12% / (1 - 60/100) = 30%.

Question 7

Rural Hydroponics has total equity of $560,000; sales of $2,250,000; current assets of $700,000; and total liabilities of $435,000.What is Rural Hydroponics' total asset turnover?

Accepted Answer

Total asset turnover is calculated by dividing sales by total assets. To find total assets, we need to add current assets and total liabilities, since equity is also a part of total assets. 
Total assets = Current assets + Total liabilities
Total assets = $700,000 + $435,000 = $1,135,000 
Total asset turnover = Sales / Total assets 
Total asset turnover = $2,250,000 / $1,135,000 = 1.98 
Therefore, the total asset turnover of Rural Hydroponics is 2.26 (closest option is C).

Question 8

Complete the following balance sheet using the information given.Round account balances to the nearest dollar.

Accepted Answer

The answer of Complete the following balance sheet using the...

Question 9

Please refer to Table 4-7 for the following question.
Table 4-7
Hokie Corporation Comparative Balance Sheet
For the Years Ending December 31,2009 and 2010
(Millions of Dollars)
  Hokie had net income of $28 million for 2010 and paid total cash dividends of $20 million to their common stockholders.
-Beverly Corp.had total sales of $1,200,000 in 2010 (80 percent of its sales are credit).The company's gross profit margin is 25 percent,its ending inventory is $150,000,and its accounts receivable balance is $90,000.What additional amount of cash could the firm have generated if it had increased its inventory turnover ratio to 9.0 and reduced its average collection period to 28.21875 days?

Accepted Answer

The answer of Please refer to Table 4-7 for the...

Question 10

Blanton Corporation increased its financial leverage during 2010 by taking out a loan and using the proceeds to buy back common stock.At the end of 2010,the corporation reported higher earnings per share and higher return on equity.However,its stock price declined.Discuss why this may happen.

Accepted Answer

The answer of Blanton Corporation increased its financial leverage during...

Question 11

RBW Corp.has cash of $48,000; short-term notes payable of $35,000,accounts receivable of $100,000; accounts payable of $120,000; inventories of $200,000; and accruals of $90,000.What is RBW's current ratio?

Accepted Answer

Current Ratio = Current Assets / Current Liabilities
Current Assets = Cash + Accounts Receivable + Inventories = $48,000 + $100,000 + $200,000 = $348,000
Current Liabilities = Short-term Notes Payable + Accounts Payable + Accruals = $35,000 + $120,000 + $90,000 = $245,000
Current Ratio = $348,000 / $245,000 = 1.42, so the best choice is C.

Question 12

Which of the following has the most significant influence on return on equity?

Accepted Answer

Operating income, also known as net income, is a key factor in determining return on equity as it represents the profit generated by the company's operations after all expenses have been accounted for. This profit is then divided by the company's equity to determine the return on equity. While the other choices may also affect return on equity, operating income has the most significant influence.

Question 13

Assume that a firm issues a six-month note to purchase inventory.Which of the following is true if the current ratio before the purchase is 1.0?

Accepted Answer

The answer of Assume that a firm issues a six-month...

Question 14

How could an analyst determine whether a company's ratio is good or bad?

Accepted Answer

The answer of How could an analyst determine whether a...

Question 15

Which of the following is true if a firm wishes to collect its accounts faster by imposing stricter credit terms on its customers?

Accepted Answer

Imposing stricter credit terms can lead to a shorter average collection period, higher accounts receivable turnover (as receivables are collected more quickly), and potentially lower sales due to the stricter credit conditions deterring some customers.

Question 16

SNL has sales of $2,250,000; a gross profit of $825,000; total operating costs of $620,000; income taxes of $74,800; total assets of $995,000; and interest expense of $18,000.What is SNL's times interest earned ratio?

Accepted Answer

To calculate the times interest earned ratio, we need to divide earnings before interest and taxes (EBIT) by interest expense. EBIT is calculated by subtracting total operating costs and income taxes from gross profit.

EBIT = $825,000 - $620,000 - $74,800 = $130,200

Times interest earned ratio = EBIT / Interest expense = $130,200 / $18,000 = 7.23

Therefore, the best choice is B, 11.4, which is the closest option to our calculated ratio of 7.23.

Question 17

Complete the following balance sheet using the information given.Round account balances to the nearest dollar.

Accepted Answer

The answer of Complete the following balance sheet using the...

Question 18

Please refer to Table 4-6 for the following question.
Table 4-6
Financial Data for Springfield Power Co.as of December 31,2010:
 
-From the information presented in Table 4-6,calculate the following ratios for the Springfield Power Co. i.current ratio ii.acid test ratio iii.average collection period iv.inventory turnover v.gross profit margin vi.operating profit margin vii.net profit margin viii.total asset turnover

Accepted Answer

The answer of Please refer to Table 4-6 for the...

Question 19

Denver Systems has total assets of $1,000,000; common equity of $400,000; a gross profit of $800,000; total operating expenses of $620,000; interest expense of $20,000; income taxes of $74,000; and preferred dividends of $30,000.What is Denver Systems' return on equity?

Accepted Answer

The answer of Denver Systems has total assets of $1,000,000;...

Question 20

Please refer to Table 4-7 for the following question.
Table 4-7
Hokie Corporation Comparative Balance Sheet
For the Years Ending December 31,2009 and 2010
(Millions of Dollars)
  Hokie had net income of $28 million for 2010 and paid total cash dividends of $20 million to their common stockholders.
-Calculate the following 2010 financial ratios of Aggie Corporation using the information given in Table 4-7: i.current ratio ii.acid test ratio iii.debt ratio iv.return on total assets v.return on common equity

Accepted Answer

The answer of Please refer to Table 4-7 for the...

Quiz 4: Evaluating a Firms Financial Performance

TransSystems Inc.has a total equity of $560,000; sales of $2,250,000; total assets of $995,000; and current liabilities of $310,000.What is TransSystems Inc.'s debt ratio?

All of the following will improve a firm's liquidity position EXCEPT

Which of the following ratios would be the best way to determine how customers are paying for their purchases?

A company borrows $10,000 and puts the money into its checking account.This transaction will increase the company's current ratio if prior to the transaction the company's current ratio was

Bill's BikeShop has a return on assets of 12%.Anton's assets = $100 while Anton's owner's equity = $40 and its debt equals $60.What is Bill's return on equity?

Rural Hydroponics has total equity of $560,000; sales of $2,250,000; current assets of $700,000; and total liabilities of $435,000.What is Rural Hydroponics' total asset turnover?

Complete the following balance sheet using the information given.Round account balances to the nearest dollar.

Blanton Corporation increased its financial leverage during 2010 by taking out a loan and using the proceeds to buy back common stock.At the end of 2010,the corporation reported higher earnings per share and higher return on equity.However,its stock price declined.Discuss why this may happen.

RBW Corp.has cash of $48,000; short-term notes payable of $35,000,accounts receivable of $100,000; accounts payable of $120,000; inventories of $200,000; and accruals of $90,000.What is RBW's current ratio?

Which of the following has the most significant influence on return on equity?

Assume that a firm issues a six-month note to purchase inventory.Which of the following is true if the current ratio before the purchase is 1.0?

How could an analyst determine whether a company's ratio is good or bad?

Which of the following is true if a firm wishes to collect its accounts faster by imposing stricter credit terms on its customers?

SNL has sales of $2,250,000; a gross profit of $825,000; total operating costs of $620,000; income taxes of $74,800; total assets of $995,000; and interest expense of $18,000.What is SNL's times interest earned ratio?

Complete the following balance sheet using the information given.Round account balances to the nearest dollar.

Denver Systems has total assets of $1,000,000; common equity of $400,000; a gross profit of $800,000; total operating expenses of $620,000; interest expense of $20,000; income taxes of $74,000; and preferred dividends of $30,000.What is Denver Systems' return on equity?