Question 1

The ratio that averages about 2.0 for all industries is the _____.

Accepted Answer

The current ratio, which is calculated by dividing current assets by current liabilities, averages about 2.0 across all industries. This ratio is a measure of a company's ability to pay off its short-term liabilities with its short-term assets.

Question 2

The ratio that is sometimes referred to as the quick ratio is the _____.

Accepted Answer

The quick ratio, also known as the acid-test ratio, is a measure of a company's ability to pay off its current liabilities without relying on the sale of inventory. It is calculated by subtracting inventory from current assets and dividing the result by current liabilities. A higher quick ratio indicates a better ability to meet short-term liabilities without sacrificing inventory. Therefore, option B is the correct answer.

Question 3

Heather is a stockholder of Eddie Bauer.From her perspective, the best indicator of Eddie Bauer's success is the _____.

Accepted Answer

Earnings per share is a key indicator of a company's financial performance because it measures the amount of profit earned for each share of stock outstanding. As a stockholder, Heather would be interested in the company's earnings per share as it directly affects the value of her investment.

Question 4

The current ratio is calculated by dividing

Accepted Answer

The current ratio is a measure of a company's ability to pay off its short-term liabilities with its current assets. It is calculated by dividing current assets by current liabilities, so option B is the correct choice. Option A is the formula for the debt-to-equity ratio, option C is the formula for the profit margin ratio, option D is not a valid ratio, and option E is the formula for the inventory turnover ratio.

Question 5

Working capital is the difference between

Accepted Answer

Working capital is a measure of a company's liquidity and is calculated by subtracting current liabilities from current assets. Therefore, the difference between current assets and current liabilities is the correct answer.

Question 6

Dave Murray's Pontiac dealership has an inventory turnover of 5.What does this figure mean?

Accepted Answer

The inventory turnover ratio measures how many times a company sells and replaces its inventory during a given period. In this case, Dave's dealership sells its entire inventory five times during the year (assuming a one-year period), which means that the average inventory is turned over once every 72 days (365 days/5). Option E correctly explains the meaning of the 5 inventory turnover ratio.

Question 7

Because of the accounting problems at WorldCom, Enron, and other major corporations, the U.S.Congress tightened key accounting and financial reporting rules, and corporations have enacted more stringent accounting practices.

Accepted Answer

The statement is true. The Sarbanes-Oxley Act, passed by Congress in 2002, implemented stricter financial reporting rules and established the Public Company Accounting Oversight Board to oversee auditing practices. Many corporations have also implemented tighter accounting practices in response to these scandals.

Question 8

Brown Shoe Co.is a small shoe manufacturer with only 25,000 shares of common stock outstanding.It has net sales of $550,000 for the year and a net income of $29,000.What is Brown's earnings per share?

Accepted Answer

Earnings per share is calculated by dividing net income by the number of shares outstanding. 
EPS = Net Income / Number of Shares Outstanding 
EPS = $29,000 / 25,000 
EPS = $1.16

Question 9

For all businesses, the desired acid-test ratio is _____.

Accepted Answer

The desired acid-test ratio for businesses is typically 1.0 or higher. This is because the acid-test ratio measures a company's ability to pay off its current liabilities with its most liquid assets, such as cash and marketable securities. A ratio of 1.0 or higher indicates that a company has enough of these highly liquid assets to cover all of its current liabilities, which is a good sign of financial health.

Question 10

Getting the total of cash, marketable securities, and receivables and then dividing that total by the current liabilities results in the _____.

Accepted Answer

The acid-test ratio, also known as the quick ratio, measures a company's ability to pay off its current liabilities without relying on the sale of inventory. It is calculated by adding cash, marketable securities, and receivables, then dividing by current liabilities.

Question 11

An important measure of a firm's ability to pay its current liabilities quickly is the _____.

Accepted Answer

The acid-test ratio (also known as the quick ratio) measures a firm's ability to pay its current liabilities quickly using only its most liquid assets, such as cash, marketable securities, and accounts receivable. A higher acid-test ratio indicates that a firm is more able to meet its short-term obligations, making it a critical measure of liquidity. Return on sales ratio (A) measures how efficiently a company is generating profit from its sales, while calculation of cost of goods sold (C) is a measure of a company's expenses related to producing and selling its products. Earnings per share (D) shows how much profit a company has generated per share of its stock, while the debt-to-equity ratio (E) measures a company's financial leverage and indicates the extent to which a company is reliant on debt financing. While these measures may be important for evaluating a company's financial health, they are not directly related to a firm's ability to pay its current liabilities quickly.

Question 12

The ratio calculated by dividing total liabilities by owners' equity is the _____.

Accepted Answer

The ratio calculated by dividing total liabilities by owners' equity is the debt-to-owners' equity ratio. This ratio indicates the extent to which owners' equity can settle the liabilities of a company.

Question 13

Mallard Decoy Manufacturing has total liabilities of $40,000 and total assets of $120,000.The owners' equity for the firm is $100,000.What is the firm's debt-to-owners' equity ratio?

Accepted Answer

The debt-to-owners' equity ratio is calculated as:
Total Liabilities / Owners' Equity
= $40,000 / $100,000
= 0.4
Therefore, the debt-to-owners' equity ratio is 40 percent, which is the best answer choice.

Question 14

The financial ratio obtained by dividing net income after taxes by the number of shares of common stock outstanding is the _____.

Accepted Answer

The financial ratio obtained by dividing net income after taxes by the number of shares of common stock outstanding is the earnings per share (EPS). This metric indicates the amount of net income generated per share of ownership in the company.

Question 15

As the accountant for Marston Retail Stores, you must calculate the current ratio for the firm's last accounting period.The firm's current assets were $120,000, its fixed assets were $240,000, its current liabilities were $80,000, and its long-term liabilities were $60,000.Given these facts, what is the firm's current ratio?

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. Therefore, the current ratio for Marston Retail Stores is ($120,000/$80,000) = 1.5. Choice B is the correct answer.

Question 16

The cost of goods sold for McPherson Fashions is $360,000.The beginning inventory for the firm was $20,000.Twelve months later the ending inventory was $40,000.What is the firm's inventory turnover?

Accepted Answer

The answer of The cost of goods sold for McPherson...

Question 17

The number of times a firm sells its merchandise inventory in one year is known as its _____.

Accepted Answer

Inventory turnover is the number of times a firm sells its merchandise inventory in one year.

Question 18

Wiseman Bookstores has an accounts receivable turnover of 12.This means that

Accepted Answer

An accounts receivable turnover of 12 means that the company collects its accounts receivable about every thirty days. This is calculated by dividing the company's net credit sales by its average accounts receivable balance.

Question 19

The cost of goods sold divided by the average inventory equals the _____.

Accepted Answer

The cost of goods sold divided by the average inventory equals the inventory turnover. This ratio measures how many times a company's inventory is sold and replaced over a period of time. A higher inventory turnover indicates that a company is selling its products quickly and efficiently.

Question 20

As a stockholder, Charlotte is concerned about the level of long-term debt her company has.Which ratio would you recommend for determining whether or not her company has too much debt?

Accepted Answer

The debt-to-owners' equity ratio compares a company's long-term debt to its owners' equity. This ratio is a good indicator of a company's financial leverage and ability to pay back its debts. A high ratio suggests that the company is using more debt to finance its operations, which can be risky for stockholders. Therefore, it is a suitable ratio to determine if a company has too much debt.

Quiz 15: Using Accounting Information