Question 1

Which of the following is an example of a current liability?
A) Accounts payable
B) Accounts receivable
C) Equipment
D) Fixtures
E) Merchandise

Accepted Answer

Accounts payable is a current liability since it represents the money that a business owes to suppliers or vendors that is due for payment within a short period of time, usually less than a year. The other options (B, C, D, and E) are not current liabilities - accounts receivable is an asset, equipment and fixtures are fixed assets, and merchandise is inventory.

Question 2

Which of the following is an example of an accrued liability for a florist?
A) Employees' salaries
B) Payment due to a supplier
C) Its inventory of long-stemmed roses
D) Its refrigeration cases
E) Its funeral displays

Accepted Answer

Employees' salaries are accrued liabilities because they accumulate daily but are paid only at the end of a pay period.

Question 3

An advantage of high inventory turnover is:
A) increased asset turnover
B) more funds for other market opportunities
C) decreased operating expenses
D) improved salespersons' morale
E) all of these

Accepted Answer

High inventory turnover is beneficial because it leads to increased asset turnover (A), more funds for other market opportunities (B), and decreased operating expenses (C). Additionally, improved salespersons' morale (D) may also result from high inventory turnover as they will have a better sense of productive sales performance. Therefore, option E is the correct answer as it includes all the benefits of high inventory turnover.

Question 4

Corporations most frequently issue which kind of shares?
A) Choice
B) Common
C) Long-term
D) Ordinary
E) Preferred

Accepted Answer

Common shares are the most frequently issued type of shares by corporations.

Question 5

Calculate the return on assets for a hunting outfitter store that has total assets of $350,000,current assets of $74,000,total liabilities of $280,000,accounts receivable of $12,000,net sales of $64,000,and net profit of $23,000.
A) 6.6 percent
B) 8.2 percent
C) 18.3 percent
D) 25.0 percent
E) 26.5 percent

Accepted Answer

Return on assets = Net profit ($23,000) divided by total assets ($350,000) converted to a percentage.

Question 6

If you had $50,000 and you wanted to invest in either a restaurant or in Loblaws stock,which of the following ratios would best help you to decide what to do?
A) Gross profit margin
B) Asset turnover
C) Return on assets
D) Inventory turnover
E) Net profit margin

Accepted Answer

Return on assets is effective in evaluating the profitability of individual investments in assets because it can be easily compared with yields of other investments of similar risks.

Question 7

A disadvantage of too high an inventory turnover would be:
A) increased cost of goods sold
B) increased sales volume
C) less risk of markdowns
D) increased asset turnover
E) decreased operating expenses

Accepted Answer

Too high of an inventory turnover could lead to increased cost of goods sold, which means the business is selling through inventory too quickly and may need to continuously restock at a higher cost. This can negatively impact profit margins.

Question 8

By knowing the return on assets for his garden supply store,Chuck will know:
A) information found only on a firm's balance sheet
B) how much profit was generated from the investment in assets
C) information found only in a firm's income statement
D) total assets divided by owners' equity
E) total assets divided by net profits

Accepted Answer

Return on assets is calculated from information found on the balance sheet and income statement. It equals net profit divided by total assets.

Question 9

_______________ equals a company's net sales divided by its total assets.
A) Asset turnover
B) Current Ratio
C) Gross margin
D) Net sales margin
E) Return on assets

Accepted Answer

Asset turnover is defined as a company's net sales divided by its total assets, and represents the efficiency with which a company utilizes its assets to generate revenue. It is a measure of the company's ability to generate revenue from its assets, and a higher asset turnover ratio indicates better efficiency in asset management.

Question 10

The strategic profit model is useful to retailers because it:
A) is derived from the income statement
B) uses owner's equity as its primary criterion
C) uses inventory turnover as its primary criterion
D) is derived from the balance sheet from the last day of the year
E) combines margin management and asset management

Accepted Answer

The strategic profit model combines both margin management and asset management, making it useful for retailers to analyze and improve their profitability. It is a tool that indicates how changes in sales, expenses, and asset utilization will impact a retailer's return on investment, and it helps retailers to identify areas where improvements can be made to increase profitability.

Question 11

When Morgan Hardware Stores orders two cases of paint from their supplier Sherwin-Williams on credit,the paint store has created for itself a/an:
A) notes payable
B) accounts payable
C) notes receivable
D) long-term liability
E) accounts receivable

Accepted Answer

When Morgan Hardware Stores orders paint from their supplier Sherwin-Williams on credit, they have received the goods but have not yet paid for them. This creates an accounts payable for Sherwin-Williams, which is a liability for Morgan Hardware Stores. A notes payable (A) is a liability created when a company borrows money and promises to repay it at a specified time. Notes receivable (C) is an asset created when a company lends money to someone and receives a promissory note to repay. Long-term liabilities (D) are debts that have a maturity of more than one year. Accounts receivable (E) is an asset created when a company sells goods or services on credit and expects to receive payment in the future.

Question 12

Notes payable are an example of a/an:
A) current asset
B) long-term liability
C) current liability
D) accrued liability
E) fixed asset

Accepted Answer

Notes payable are a type of debt that must be repaid within a year, making them a current liability.

Question 13

Which of the following is not an example of a fixed asset for a lawn care service?
A) The trucks used to haul away debris
B) The plant nursery owned by the service
C) A computer which is used to manage the store's inventory
D) The bucket truck it uses to do tree surgery
E) Its accounts receivable

Accepted Answer

Buildings, stocks, and equipment, which cannot be converted into cash quickly, are fixed assets.

Question 14

Felicia's Rent to Own has total assets of $2,800,000,accounts receivable of $900,000,accounts payable of $700,000,inventory valued at $1,500,000,and total liabilities of $2,500,000.Calculate the owners' equity.
A) $100,000
B) $300,000
C) $1,000,000
D) $1,300,000
E) This is no owners' equity.

Accepted Answer

Total assets minus total liabilities: $2,800,000 - $2,500,000 = $300,000.

Question 15

An appliance store has total assets of $2,800,000,accounts receivable of $900,000,accounts payable of $700,000,inventory valued at $1,500,000,and total liabilities of $2,500,000.In 1999,its net sales were $2,100,000,and its net profit equalled $42,000.Calculate the store's return on assets.
A) 1.5 percent
B) 2.8 percent
C) 7.5 percent
D) 71.4 percent
E) 75 percent

Accepted Answer

Return on assets equals net profit ($42,000) divided by total assets ($2,800,000) converted to a percentage.

Question 16

Retained earnings are a portion of owner's equity that has:
A) accumulated over time, but hasn't been paid to investors through dividends.
B) all forms of long-term liabilities.
C) been paid to owners in dividends.
D) been used to pay debts.
E) none of these

Accepted Answer

Retained earnings represent the portion of owner's equity that has accumulated over time and has not been distributed to shareholders as dividends. Therefore, option A is the correct answer. Option B refers to all forms of long-term liabilities, which is not related to retained earnings. Option C states that retained earnings have been paid to owners in dividends, which is the opposite of what they represent. Option D implies that retained earnings have been used to pay debts, which is possible, but not the primary purpose. Option E is a general statement that does not provide any specific information.

Question 17

Current liabilities are:
A) debts that are expected to be paid in less than one year
B) monies due to the retailer from selling merchandise
C) used to evaluate how effectively managers use their investments
D) one way to evaluate owner's equity
E) net sales minus cost of goods sold

Accepted Answer

Current liabilities are debts and obligations that are expected to be paid within one year or the operating cycle of the business, whichever is longer. This includes items such as accounts payable, accrued expenses, and short-term loans.

Question 18

When Chris charges a gallon of chlorine for his pool at Pinch-A-Penny to his store account,he creates a/an ______________ for the retailer.
A) notes payable
B) accounts payable
C) notes receivable
D) long-term liability
E) accounts receivable

Accepted Answer

When Chris charges a gallon of chlorine to his store account, it creates an accounts receivable for the retailer, as it represents money owed to the retailer by Chris.

Question 19

The Great Outdoors is a camping supply store offering its customers equipment from affordable to elite.It has total assets of $350,000,current assets of $74,000,total liabilities of $280,000,accounts receivable of $12,000,and inventory valued at $23,000.Calculate the owners' equity.
A) $51,000
B) $62,000
C) $70,000
D) $327,000
E) $276,000

Accepted Answer

Total assets minus total liabilities: $350,000 - $280,000 = $70,000.

Question 20

Asset turnover:
A) is calculated from information found on a firm's income statement
B) is calculated by dividing total assets by net sales
C) reveals how profitable a company is
D) compares how well competing firms manage their assets
E) is another term for inventory turnover

Accepted Answer

The answer of Asset turnover:
A) is calculated from information found...

Quiz 8: Financial Strategy

Which of the following is an example of a current liability?

Which of the following is an example of an accrued liability for a florist?

An advantage of high inventory turnover is:

Corporations most frequently issue which kind of shares?

Calculate the return on assets for a hunting outfitter store that has total assets of $350,000,current assets of $74,000,total liabilities of $280,000,accounts receivable of $12,000,net sales of $64,000,and net profit of $23,000.

If you had $50,000 and you wanted to invest in either a restaurant or in Loblaws stock,which of the following ratios would best help you to decide what to do?

A disadvantage of too high an inventory turnover would be:

By knowing the return on assets for his garden supply store,Chuck will know:

_______________ equals a company's net sales divided by its total assets.

The strategic profit model is useful to retailers because it:

When Morgan Hardware Stores orders two cases of paint from their supplier Sherwin-Williams on credit,the paint store has created for itself a/an:

Notes payable are an example of a/an:

Which of the following is not an example of a fixed asset for a lawn care service?

Felicia's Rent to Own has total assets of $2,800,000,accounts receivable of $900,000,accounts payable of $700,000,inventory valued at $1,500,000,and total liabilities of $2,500,000.Calculate the owners' equity.

An appliance store has total assets of $2,800,000,accounts receivable of $900,000,accounts payable of $700,000,inventory valued at $1,500,000,and total liabilities of $2,500,000.In 1999,its net sales were $2,100,000,and its net profit equalled $42,000.Calculate the store's return on assets.

Retained earnings are a portion of owner's equity that has:

Current liabilities are:

When Chris charges a gallon of chlorine for his pool at Pinch-A-Penny to his store account,he creates a/an ______________ for the retailer.

The Great Outdoors is a camping supply store offering its customers equipment from affordable to elite.It has total assets of $350,000,current assets of $74,000,total liabilities of $280,000,accounts receivable of $12,000,and inventory valued at $23,000.Calculate the owners' equity.

Asset turnover: