Question 1

Total revenues and net income for 2011 for Smith Lake Corporation is $3,500,000 and $280,000, respectively. Smith Lake Corporation has had 400,000 common shares of stock outstanding for all of 2011. The selling price of Smith Lake Corporation common stock on December 31, 2011, is $18. Earnings per share for 2011 is:
A)$ 8.75.
B)$12.50.
C)$ 0.70.
D)$35.00.

Accepted Answer

Earnings per share (EPS) = Net Income / Number of Common Shares Outstanding.
EPS = $280,000 / 400,000 = $0.70.
Therefore, the answer is (C) $0.70.

Question 2

The rate of return on net sales is calculated as:
A)net income divided by net sales.
B)operating income divided by net sales.
C)dividends paid during the year divided by net sales.
D)gross profit divided by net sales.

Accepted Answer

The rate of return on net sales, also known as the profit margin, is calculated by dividing net income by net sales. This ratio indicates how much profit a company makes for each dollar of sales.

Question 3

Which of the following statements is NOT true regarding accounts receivable turnover?
A)In general, the higher the ratio, the better.
B)If the accounts receivable turnover ratio is too high, this may indicate that credit is too tight and the company may be losing sales to good customers.
C)Accounts receivable turnover is computed by dividing net sales by end of the year receivables.
D)Accounts receivable turnover is computed by dividing net sales by average accounts receivable.

Accepted Answer

Accounts receivable turnover is computed by dividing net sales by end of the year receivables is not a true statement. The correct statement is that accounts receivable turnover is computed by dividing net sales by average accounts receivable.

Question 4

Which of the following groups of ratios measure a company's ability to sell inventory and collect receivables?
A)Current ratio, inventory turnover and accounts receivable turnover
B)Inventory turnover, accounts receivable turnover and rate of return on net sales
C)Inventory turnover, accounts receivable turnover and days' sales in receivables
D)Days' sales in receivables and rate of return on net sales

Accepted Answer

Inventory turnover measures how quickly a company sells its inventory, while accounts receivable turnover measures how quickly a company collects payment from customers. Days' sales in receivables measures how long it takes a company to collect payment from customers. These ratios together provide a comprehensive picture of a company's ability to sell inventory and collect receivables. Choices A, B, and D do not include all three of these ratios.

Question 5

Which of the following ratios is NOT used to measure the profitability of a company?
A)Rate of return on net sales
B)Rate of return on total assets
C)Price/earnings ratio
D)Rate of return on common stockholders' equity

Accepted Answer

The price/earnings ratio is actually a measure of the company's valuation, specifically the market price of the stock relative to the earnings per share. It does not directly measure profitability, unlike the other ratios listed.

Question 6

Which of the following groups of ratios measure a company's ability to pay its long-term debt?
A)Current ratio and debt ratio
B)Debt ratio, times-interest-earned ratio and rate of return on total assets
C)Current ratio and acid-test ratio
D)Debt ratio and times-interest earned ratio

Accepted Answer

The debt ratio measures the proportion of a company's assets that are financed by debt, while the times-interest-earned ratio measures the company's ability to make interest payments on its debt. Both of these ratios focus specifically on a company's long-term debt obligations.

Question 7

If the ending inventory balance was overstated on the financial statements and the beginning inventory balance was understated, but all other items were properly reported, the calculated inventory turnover ratio:
A)could not be determined from the information given.
B)would be too high.
C)would be unaffected by these errors.
D)would be too low.

Accepted Answer

The answer of If the ending inventory balance was overstated...

Question 8

The following data represent selected information from the comparative income statement and balance sheet for Dunkin Company for the years ended December 31, 2011 and 2010:  The accounts receivable turnover for Dunkin Company for the year ended December 31, 2011, was:
A)13.45.
B)12.11.
C)12.33.
D)13.32.

Accepted Answer

The answer of The following data represent selected information from...

Question 9

Which of the following statements is NOT true regarding inventory turnover?
A)Too high of an inventory turnover can mean that the company is not keeping enough inventory on hand.
B)A low inventory turnover may indicate a problem selling inventory.
C)A business strives for the most profitable rate of turnover.
D)A business strives for the highest inventory turnover.

Accepted Answer

The answer of Which of the following statements is NOT...

Question 10

Which statement regarding debt is NOT true?
A)A debt ratio of .50 means that debt finances half of the assets.
B)The debt ratio measures the proportion of assets financed with debt.
C)The higher the debt ratio, the lower the risk.
D)The higher the debt ratio, the greater the pressure to pay interest and principal.

Accepted Answer

The answer of Which statement regarding debt is NOT true?
A)A...

Question 11

Streyna Company reported net sales of $95,000 for the current year. Accounts Receivable at the beginning of the year was $11,000 and $9,000 at the end of year. The accounts receivable turnover is closest to:
A)9)5.
B)10.56.
C)8)64.
D)4)75.

Accepted Answer

Accounts receivable turnover = Net sales / Average accounts receivableAverage accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2= ($11,000 + $9,000) / 2= $10,000Accounts receivable turnover = $95,000 / $10,000= 9.5

Question 12

The times-interest-earned ratio is calculated as:
A)income from operations divided by interest expense.
B)(income from operations minus interest expense)divided by interest expense.
C)(net income after taxes plus interest expense)divided by interest expense.
D)net income divided by interest expense.

Accepted Answer

The times-interest-earned ratio is calculated by dividing income from operations by interest expense, indicating how many times a company can cover its interest obligations with its operating income.

Question 13

In order to keep receivables low and receivable turnover high, companies can sell their receivables to:
A)a subsidiary.
B)a factor.
C)a receiver.
D)none of the above.

Accepted Answer

Selling receivables to a factor (also known as factoring) can help companies maintain low receivables and high turnover. Factors act as intermediaries between the company and their customers, purchasing the unpaid invoices at a discount and collecting payment directly from the customers. This allows the company to quickly turn their receivables into cash while also reducing the risk of non-payment or late payment. Additionally, factors can provide other services such as credit checks and accounts receivable management, allowing the company to focus on other aspects of their business.

Question 14

Accounts receivable turnover is calculated as:
A)total net credit sales divided by average net accounts receivable.
B)average net accounts receivable divided by 365 days.
C)total cost of goods sold divided by 365 days.
D)total net credit sales divided by cost of goods sold.

Accepted Answer

Accounts receivable turnover is calculated by dividing the total net credit sales by the average net accounts receivable. This ratio provides an indication of how quickly a company collects its receivables, and how effective it is at managing its collections. A higher turnover ratio indicates that a company is collecting its receivables more quickly, while a lower ratio suggests that it may have difficulty collecting payments from its customers.

Question 15

The following data represent selected information from the income statement and balance sheet for Duenke Company for the year ended December 31, 2011:  For the year ending on December 31, 2011, Duenke Company's rate of return on net sales was:
A)0)21.
B)0)18.
C)0)17.
D)0)19.

Accepted Answer

The answer of The following data represent selected information from...

Question 16

1.ratio for the year ended December 31, 2011, was:
A)11.88.
B)11.38.
C)22.75.
D)10.88.

Accepted Answer

The correct ratio for the year ended December 31, 2011, was 11.88.

Question 17

The following data represent selected information from the comparative income statement and balance sheet for Dunkin Company for the years ended December 31, 2011 and 2010:  The debt ratio for Dunkin Company for 2011, was:
A)1)87.
B)0)50.
C)0)55.
D)1)82.

Accepted Answer

Debt ratio is calculated by dividing total liabilities by total assets.
For 2011, total liabilities = $452,300 and total assets = $820,985.
So, debt ratio = $452,300 / $820,985 = 0.55.
Therefore, the correct answer is C) 0.55.

Question 18

The following data represent selected information from the comparative income statement and balance sheet for Dunkin Company for the years ended December 31, 2011 and 2010:  The rate of return on total assets for Dunkin Company for 2011, was closest to:
A)1)87.
B)0)54.
C)0)39.
D)1)82.

Accepted Answer

The rate of return on total assets is calculated as net income divided by average total assets. 
For 2011: 
Net income = $28,800 
Average total assets = ($56,500 + $50,800) / 2 = $53,650 
Rate of return on total assets = $28,800 / $53,650 = 0.5371 or 0.39 (rounded to two decimal places) 
Therefore, the closest answer choice is C) 0.39.

Question 19

Beginning inventory was $28,000 and ending inventory was $22,000. Cost of goods sold was $190,000 and net sales were $360,000. Inventory turnover for the year was closest to:
A)7)6.
B)8)64.
C)6)79.
D)14.4.

Accepted Answer

Inventory turnover = Cost of goods sold / Average inventoryAverage inventory = (Beginning inventory + Ending inventory) / 2= ($28,000 + $22,000) / 2= $25,000Inventory turnover = $190,000 / $25,000= 7.6

Question 20

Guliana Company reported net sales of $150,000 for the current year. Accounts Receivable at the beginning of the year was $17,000 and $15,000 at the end of year. The days' sales in average receivables was closest to:
A)41.4 days.
B)75.4 days.
C)36.5 days.
D)38.9 days.

Accepted Answer

First, we need to calculate the average balance of accounts receivable for the year:

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2 
= ($17,000 + $15,000) / 2 
= $16,000

Next, we can calculate the Days' Sales in Average Receivables using the formula:

Days' Sales in Average Receivables = (Accounts Receivable / Net Sales) x 365

Plugging in the numbers, we get:

Days' Sales in Average Receivables = ($16,000 / $150,000) x 365 
= 38.67

Rounding to the nearest tenth, we get closest to 38.9 days, which is answer choice D.

Quiz 13: Financial Statement Analysis

The rate of return on net sales is calculated as:

Which of the following statements is NOT true regarding accounts receivable turnover?

Which of the following groups of ratios measure a company's ability to sell inventory and collect receivables?

Which of the following ratios is NOT used to measure the profitability of a company?

Which of the following groups of ratios measure a company's ability to pay its long-term debt?

If the ending inventory balance was overstated on the financial statements and the beginning inventory balance was understated, but all other items were properly reported, the calculated inventory turnover ratio:

The following data represent selected information from the comparative income statement and balance sheet for Dunkin Company for the years ended December 31, 2011 and 2010: The accounts receivable turnover for Dunkin Company for the year ended December 31, 2011, was:

Which of the following statements is NOT true regarding inventory turnover?

Which statement regarding debt is NOT true?

Streyna Company reported net sales of $95,000 for the current year. Accounts Receivable at the beginning of the year was $11,000 and $9,000 at the end of year. The accounts receivable turnover is closest to:

The times-interest-earned ratio is calculated as:

In order to keep receivables low and receivable turnover high, companies can sell their receivables to:

Accounts receivable turnover is calculated as:

The following data represent selected information from the income statement and balance sheet for Duenke Company for the year ended December 31, 2011: For the year ending on December 31, 2011, Duenke Company's rate of return on net sales was:

1.ratio for the year ended December 31, 2011, was:

The following data represent selected information from the comparative income statement and balance sheet for Dunkin Company for the years ended December 31, 2011 and 2010: The debt ratio for Dunkin Company for 2011, was:

The following data represent selected information from the comparative income statement and balance sheet for Dunkin Company for the years ended December 31, 2011 and 2010: The rate of return on total assets for Dunkin Company for 2011, was closest to:

Beginning inventory was $28,000 and ending inventory was $22,000. Cost of goods sold was $190,000 and net sales were $360,000. Inventory turnover for the year was closest to:

Guliana Company reported net sales of $150,000 for the current year. Accounts Receivable at the beginning of the year was $17,000 and $15,000 at the end of year. The days' sales in average receivables was closest to: