Question 1

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $29,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2 Gant paid $3,600 on accounts payable. Which of the following statements is not true?
A)Gant's quick ratio will increase and its current ratio will decrease.
B)Gant's quick ratio will increase.
C)Gant's working capital will remain the same.
D)Gant's current ratio will increase.

Accepted Answer

Paying off accounts payable reduces current liabilities, which increases both the current and quick ratios. Working capital remains the same because both current assets and current liabilities decrease by the same amount.

Question 2

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant issued common stock at par value for $10,000 cash. Which of the following statements is true?
A)Gant's current ratio will decrease.
B)Gant's current ratio will increase.
C)Gant's quick ratio will decrease.
D)Gant's working capital will decrease.

Accepted Answer

The issuance of common stock for cash will increase Gant's total assets and stockholders' equity, but will not affect its liabilities. This will increase both the current ratio (as current assets will increase) and working capital (as total assets will increase). The quick ratio may increase or decrease depending on whether the cash received from the issuance of common stock is included in the calculation of quick assets, but it is not possible to determine this from the given information. The issuance of common stock for cash does not affect the current assets or current liabilities of Gant, but it increases the total assets and total equity of the company. As a result, the current ratio, which is calculated by dividing current assets by current liabilities, will increase. The quick ratio, which is more conservative than the current ratio as it excludes inventory from current assets, may or may not be affected depending on the composition of Gant's current assets. The working capital, which is the difference between current assets and current liabilities, is not affected by the issuance of common stock for cash. Therefore, options A, C, and D are incorrect.

Question 3

Crestar Company reported net income of $112,000 on 20,000 average outstanding common shares. Preferred dividends total $12,000. On the most recent trading day, the preferred shares sold at $50 and the common shares sold at $95. What is this company's current price-earnings ratio?
A)19
B)17
C)20
D)None of these answers choices are correct.

Accepted Answer

The answer of Crestar Company reported net income of $112,000...

Question 4

Benson Company declared and paid a cash dividend totaling $500,000 on its common stock. As a result of this transaction, the company's debt to assets ratio will:
A)Decrease.
B)Increase.
C)Remain the same.
D)Cannot be determined.

Accepted Answer

The payment of a cash dividend is an asset use transaction;the current asset account Cash decreases and the stockholders' equity account Retained Earnings also decreases.The debt to assets ratio is calculated by dividing total liabilities by total assets.This transaction does not affect the numerator but decreases the denominator.As a result,this transaction causes the debt to assets ratio to increase.

Question 5

Phips Company paid total cash dividends of $200,000 on 25,000 outstanding common shares. On the most recent trading day, the common shares sold at $80. What is this company's dividend yield?
A)25%
B)6.4%
C)16.9%
D)10%

Accepted Answer

Dividend yield = Dividends per share ÷ Market price per share
Dividend yield = ($200,000 ÷ 25,000 shares)÷ $80 per share = $8 per share ÷ $80 per share = 10%

Question 6

Benson Company received cash of $1,000,000 from issuing common stock at par value. As a result of this transaction, the company's debt-to-equity ratio will:
A)Decrease.
B)Increase.
C)Remain the same.
D)Cannot be determined.

Accepted Answer

The debt-to-equity ratio measures the amount of debt a company uses in relation to its equity. Since the company did not take on any debt but instead issued stock, the equity portion of the ratio has increased while the debt portion remains the same, resulting in a decrease in the debt-to-equity ratio. The debt-to-equity ratio is calculated by dividing total liabilities by total equity. Since issuing common stock does not increase liabilities, but does increase equity, the ratio will decrease.

Question 7

Phips Company paid total cash dividends of $59,400 on 18,000 outstanding common shares. On the most recent trading day, the common shares sold at $73. What is this company's dividend yield? (Do not round your intermediate calculations.)
A)4.52%
B)2.72%
C)30.30%
D)22.20%

Accepted Answer

Dividend yield = (Total cash dividends / Market value of outstanding shares) * 100= ($59,400 / (18,000 * $73)) * 100= 4.52%

Question 8

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant recorded the sale of inventory. As a result of this transaction, Gant's quick ratio will:
A)Decrease.
B)Increase.
C)Remain the same.
D)Cannot be determined.

Accepted Answer

The quick ratio will increase because the sale of inventory will convert inventory (a non-quick asset) into cash or accounts receivable (quick assets), thus increasing the numerator of the quick ratio while the denominator (current liabilities) remains unchanged.

Question 9

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $29,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant purchased merchandise on account for $4,000. Which of the following statements is true?
A)Gant's current ratio will decrease.
B)Gant's quick ratio will increase.
C)Gant's working capital will increase.
D)Gant's quick ratio will increase and its current ratio will decrease.

Accepted Answer

Purchasing merchandise on account increases current liabilities without immediately affecting current assets, thus decreasing the current ratio.

Question 10

Which of the following statements is generally not true from an investor's perspective?
A)A 1:1 current ratio is generally preferred over a 1.5:1 current ratio.
B)A 20-day average collection period for accounts receivable is generally preferred over a 30-day average collection period.
C)A 5% dividend yield is generally preferred over a 3% dividend yield.
D)A 10% net margin is generally preferred over an 8% net margin.

Accepted Answer

A 1:1 current ratio indicates that a company may have difficulty meeting its short-term obligations, while a 1.5:1 ratio suggests stronger liquidity. Therefore, from an investor's perspective, a 1.5:1 current ratio is generally preferred over a 1:1 current ratio. A higher current ratio is generally preferred by investors as it indicates better liquidity and the company's ability to meet short-term obligations. A 20-day average collection period for accounts receivable is also generally preferred as it means the company is able to collect payments from customers more quickly. A higher dividend yield is generally preferred by investors as it signifies a higher return on their investment. A higher net margin is also generally preferred as it indicates better profitability for the company. Therefore, option A is generally not true as a 1.5:1 current ratio is generally preferred over a 1:1 current ratio by investors.

Question 11

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant collected $5,200 of accounts receivable. As a result of this transaction, Gant's working capital will:
A)Increase.
B)Decrease.
C)Remain the same.
D)Cannot be determined.

Accepted Answer

The collection from a customer on account is an asset exchange transaction;the current asset account Cash increases and the current asset account Accounts Receivable decreases.Working capital is calculated by subtracting current liabilities from current assets.Since this transaction does not affect total current assets or total current liabilities,the amount of working capital does not change.

Question 12

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:
A)Matching principle.
B)Conservatism concept.
C)Historic cost principle.
D)Time value of money concept.

Accepted Answer

The historic cost principle requires assets to be reported at their original cost at the time of acquisition, regardless of their current market value. This can lead to significant distortions in the financial statements, especially for assets that have significantly appreciated in value over time. For example, a company may have purchased a piece of land for $100,000, but its current market value may be $1 million. However, the company would still report the land on its balance sheet at the original cost of $100,000. This can make the company appear less valuable than it actually is, and can also make its financial ratios appear weaker than they actually are. The historic cost principle requires companies to record assets at their original cost, regardless of their current market value. This can lead to distorted financial statement analysis as the recorded value may not reflect the current value of the asset. For example, a company may have purchased a building several years ago for $1 million, but due to changes in the real estate market, the current market value may be $2 million. However, the building would still be recorded at $1 million on the company's financial statements, which could lead to inaccurate analysis of the company's financial position.

Question 13

Accrual accounting requires the use of many estimates, including:
A)Uncollectible accounts expense.
B)Warranty costs.
C)Assets' useful lives.
D)All of these answers choices are correct.

Accepted Answer

Accrual accounting requires the use of estimates for all the options listed, including uncollectible accounts expense, warranty costs, and assets' useful lives. These estimates are necessary to properly match expenses with revenue and accurately reflect the financial position and performance of the company.

Question 14

Crestar Company reported net income of $87,400 on 18,000 average outstanding common shares. Preferred dividends total $11,800. On the most recent trading day, the preferred shares sold at $48 and the common shares sold at $78. What is this company's current price-earnings ratio? (Do not round your intermediate calculations.)
A)16.06
B)18.57
C)20.59
D)None of these answers choices are correct.

Accepted Answer

The price-earnings ratio is calculated as the market price per share divided by the earnings per share (EPS). First, calculate EPS: (Net Income - Preferred Dividends) / Average Outstanding Common Shares = ($87,400 - $11,800) / 18,000 = $4.20. Then, the P/E ratio is $78 / $4.20 = 18.57.

Question 15

Benson Company received cash of $5,000,000 by issuing 20-year bonds payable. As a result of this transaction, the company's current ratio will:
A)Remain the same.
B)Increase.
C)Decrease.
D)Cannot be determined.

Accepted Answer

Issuing long-term debt such as bonds payable increases the company's long-term liabilities and does not affect current liabilities. Therefore, the current ratio (current assets divided by current liabilities) will increase, as the denominator remains the same while the numerator increases.

Question 16

Bernard Company provided the following information from its financial records:  What is the company's book value per share?
A)$4.78
B)$7.06
C)$2.65
D)$2.46

Accepted Answer

The answer of Bernard Company provided the following information from...

Question 17

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant paid $250 for transportation-in cost on merchandise it had received. Which of the following statements is not true?
A)Gant's current ratio will remain the same.
B)Gant's quick ratio will increase.
C)Gant's working capital will remain the same.
D)Gant's quick ratio will decrease and its current ratio will remain the same.

Accepted Answer

A payment for transportation costs on merchandise received is an asset exchange transaction;the asset account Cash decreases and the asset account Merchandise Inventory increases.The quick ratio is calculated by dividing quick assets (which include the asset accounts Cash,Accounts Receivable,and Current Marketable Securities)by current liabilities.This transaction decreases the numerator,but has no effect on the denominator.As a result,this transaction causes the quick ratio to decrease (rather than increase).

Question 18

Which of the following is a potential limitation of financial statement analysis?
A)Lack of comparability of firms in different industries
B)The impact of changing economic conditions
C)The impact of having more than one acceptable alternative accounting principle for accounting for a given transaction or economic event
D)All of these answers choices are correct.

Accepted Answer

All of these answer choices are limitations of financial statement analysis. Lack of comparability of firms in different industries can make it difficult to compare financial ratios and other metrics. Changing economic conditions can impact a company's financial performance, making historical financial statements less useful for predicting future performance. Having more than one acceptable alternative accounting principle for accounting for a given transaction or economic event can lead to different financial statements for companies that have similar underlying economic events.

Question 19

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant sold inventory on account for $6,000. Which of the following statements is not true?
A)Gant's current ratio will decrease.
B)Gant's quick ratio will increase.
C)Gant's working capital will increase.
D)None of these answers choices are correct.

Accepted Answer

Selling inventory on account for $6,000 will increase Gant Corporation's accounts receivable, which will decrease the current ratio since current ratio is calculated as current assets divided by current liabilities. As a result, statement A is not true. However, the quick ratio will increase since accounts receivable are excluded from the quick ratio calculation, and the working capital will also increase since there is an increase in current assets. Therefore, the correct answer is A.

Question 20

Bernard Company provided the following information from its financial records:  What is the company's book value per share?
A)$0.50
B)$5.50
C)$6.67
D)$1.67

Accepted Answer

The answer of Bernard Company provided the following information from...

Quiz 14: Financial Statement Analysis Available Online in Connect

Crestar Company reported net income of $112,000 on 20,000 average outstanding common shares. Preferred dividends total $12,000. On the most recent trading day, the preferred shares sold at $50 and the common shares sold at $95. What is this company's current price-earnings ratio?

Benson Company declared and paid a cash dividend totaling $500,000 on its common stock. As a result of this transaction, the company's debt to assets ratio will:

Phips Company paid total cash dividends of $200,000 on 25,000 outstanding common shares. On the most recent trading day, the common shares sold at $80. What is this company's dividend yield?

Benson Company received cash of $1,000,000 from issuing common stock at par value. As a result of this transaction, the company's debt-to-equity ratio will:

Phips Company paid total cash dividends of $59,400 on 18,000 outstanding common shares. On the most recent trading day, the common shares sold at $73. What is this company's dividend yield? (Do not round your intermediate calculations.)

Which of the following statements is generally not true from an investor's perspective?

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:

Accrual accounting requires the use of many estimates, including:

Benson Company received cash of $5,000,000 by issuing 20-year bonds payable. As a result of this transaction, the company's current ratio will:

Bernard Company provided the following information from its financial records: What is the company's book value per share?

Which of the following is a potential limitation of financial statement analysis?

Bernard Company provided the following information from its financial records: What is the company's book value per share?