Question 1

Parker Hardware Store had net credit sales of $8,000,000 and cost of goods sold of $5,000,000 for the year.The Accounts Receivable balances at the beginning and end of the year were $600,000 and $700,000, respectively.The receivables turnover was

Accepted Answer

The answer of Parker Hardware Store had net credit sales...

Question 2

Wagon Department Store had net credit sales of $16,000,000 and cost of goods sold of $15,000,000 for the year.The average inventory for the year amounted to $2,000,000.
-The average number of days in inventory during the year was

Accepted Answer

Inventory turnover = Cost of goods sold / Average inventory= $15,000,000 / $2,000,000= 7.5 times per yearAverage number of days in inventory = 365 days / Inventory turnover= 365 days / 7.5 times per year= 48.7 days

Question 3

A liquidity ratio measures the

Accepted Answer

A liquidity ratio measures the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash. It is focused on the availability of cash and other current assets to cover current liabilities. Examples of liquidity ratios include the current ratio and the quick ratio.

Question 4

Wagon Department Store had net credit sales of $16,000,000 and cost of goods sold of $15,000,000 for the year.The average inventory for the year amounted to $2,000,000.
-Inventory turnover for the year is

Accepted Answer

Inventory turnover is calculated as Cost of Goods Sold divided by Average Inventory. Here, it is $15,000,000 / $2,000,000 = 7.5 times.

Question 5

In performing a vertical analysis, the base for sales returns and allowances is

Accepted Answer

The base for sales returns and allowances in a vertical analysis is usually net sales, as this reflects the amount of sales revenue that is actually being recognized by the company after deductions for returns and allowances have been made. Using sales or total revenues as the base would not accurately reflect the true impact of returns and allowances on the company's financial performance, as these measures would include the full amount of sales before any deductions were made. Using sales discounts as the base would also be inaccurate, as discounts are not the same as returns and allowances and would not capture the full impact of these deductions on net sales.

Question 6

In performing a vertical analysis, the base for cost of goods sold is

Accepted Answer

Cost of goods sold represents the direct cost incurred in the production of goods sold by a company. The base for performing vertical analysis on this item is usually net sales, as it represents the revenue generated from the sale of these goods. Dividing cost of goods sold by net sales gives the cost of goods sold as a percentage of net sales, which is a useful metric for analyzing a company's profitability and operating efficiency.

Question 7

Harvey Clothing Store had a balance in the Accounts Receivable account of $390,000 at the beginning of the year and a balance of $410,000 at the end of the year.Net credit sales during the year amounted to $3,000,000.The average collection period of the receivables in terms of days was

Accepted Answer

The average collection period is calculated as (Average Accounts Receivable / Net Credit Sales) * 365. The average accounts receivable is ($390,000 + $410,000) / 2 = $400,000. Thus, the average collection period is ($400,000 / $3,000,000) * 365 = 48.7 days.

Question 8

Darius, Inc.has the following income statement (in millions): DARIUS, INC.
Income Statement
For the Year Ended December 31, 2013
$\begin{array}{lr}
\text { Net Sales } & \$ 300 \
\text { Cost of Goods Sold } & 120 \
\text { Gross Profit } & 180 \
\text { Operating Expenses } & \$ 44 \
\text { Net Income } & \$ 136
\end{array}$ 
-Using vertical analysis, what percentage is assigned to Net Income?

Accepted Answer

The answer of Darius, Inc.has the following income statement (in...

Question 9

The current ratio is

Accepted Answer

The current ratio is a measure of a company's ability to pay its short-term debts and obligations. It is calculated by dividing current assets by current liabilities. Therefore, (A) is incorrect as it divides current liabilities by current assets. (C) is incorrect as it evaluates long-term debt paying ability, while the current ratio evaluates short-term debt paying ability. (D) is incorrect as it subtracts current liabilities from current assets, which is unrelated to calculating the current ratio.

Question 10

Which one of the following would not be considered a liquidity ratio?

Accepted Answer

Return on assets is a profitability ratio, not a liquidity ratio. Liquidity ratios measure a company's ability to meet short-term obligations, while profitability ratios measure a company's ability to generate profits. Choices A, B, and C are all examples of liquidity ratios.

Question 11

In common size analysis,

Accepted Answer

A base amount is required in common size analysis, as it is used to compare each line item to the same baseline. Generally, the base amount is taken as 100%, making it easier to compare the relative sizes of different line items.

Question 12

In performing a vertical analysis, the base for sales revenues on the income statement is

Accepted Answer

Net sales is the appropriate base for performing a vertical analysis of the income statement because it represents the total amount of revenue generated from the sale of goods or services during a given period, and is therefore the most relevant figure to use as a reference point for analyzing the performance of individual income statement items.

Question 13

In performing a vertical analysis, the base for prepaid expenses is

Accepted Answer

In a vertical analysis, the base for prepaid expenses is total assets. This is because vertical analysis involves expressing each item in the financial statements as a percentage of a base item, and for the balance sheet, each asset, including prepaid expenses, is typically expressed as a percentage of total assets to show its relative size and importance.

Question 14

The acid-test (quick) ratio

Accepted Answer

The acid-test or quick ratio measures a company's ability to pay off current liabilities with its most liquid assets, namely cash, short-term investments, and net receivables. It is a quick way to assess a company's short-term solvency.

Question 15

Each of the following is included in computing the acid-test ratio except

Accepted Answer

The acid-test (or quick) ratio is a measure of a company's short-term liquidity and ability to pay its immediate obligations. It is calculated by excluding inventory from current assets and dividing by current liabilities. Therefore, the correct answer is B - inventory is not included in the acid-test ratio. The other options (cash, receivables, and short-term investments) are included in the calculation.

Question 16

A ratio calculated in the analysis of financial statements

Accepted Answer

A ratio expresses a mathematical relationship between two numbers, such as dividing the value of one item on a financial statement by another item on the same statement to show the relationship between them. Ratios are used in financial statement analysis to provide insight into a company's performance and financial health.

Question 17

Darius, Inc.has the following income statement (in millions): DARIUS, INC.
Income Statement
For the Year Ended December 31, 2013
$\begin{array}{lr}
\text { Net Sales } & \$ 300 \
\text { Cost of Goods Sold } & 120 \
\text { Gross Profit } & 180 \
\text { Operating Expenses } & \$ 44 \
\text { Net Income } & \$ 136
\end{array}$ 
-Using vertical analysis, what percentage is assigned to Cost of Goods Sold?

Accepted Answer

Vertical analysis involves expressing each item in the income statement as a percentage of net sales. Cost of Goods Sold is $120, and Net Sales is $300. The percentage is calculated as ($120 / $300) * 100% = 40%.

Question 18

Vertical analysis is a technique which expresses each item within a financial statement

Accepted Answer

Vertical analysis expresses each item in a financial statement as a percentage of a base amount, typically expressed as 100%. This allows for easy comparison between different items within the same statement and across multiple time periods.

Question 19

Vertical analysis is also called

Accepted Answer

Vertical analysis is also known as common size analysis where financial statements are presented as percentages of a certain base figure. This helps in comparing financial statements of different companies of different sizes. Horizontal analysis involves comparison of financial statements over a period of time while ratio analysis involves calculation and interpretation of financial ratios. Trend analysis involves predicting future trends based on past performance.

Question 20

Each of the following is a liquidity ratio except the

Accepted Answer

The debt to total assets ratio is a solvency ratio, not a liquidity ratio. The acid-test ratio and current ratio are both liquidity ratios, and inventory turnover is an efficiency ratio.

Quiz 14: Managerial Accounting