Question 1

Harwichport Company has a current ratio of 3.5 to 1 and an acid-test ratio of 2.8 to 1.Current assets equal $175,000,of which $5,000 consists of prepaid expenses.What must be Harwichport Company's inventory?

Accepted Answer

The answer of Harwichport Company has a current ratio of...

Question 2

Dragin Company's working capital is $36,000,and its current liabilities are $61,000.The company's current ratio is closest to which of the following?

Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. Given working capital (current assets - current liabilities) is $36,000 and current liabilities are $61,000, current assets are $97,000 ($36,000 + $61,000). Thus, the current ratio is $97,000 / $61,000 = 1.59 to 1.

Question 3

Marcy Corporation's current ratio is currently 1.75 to 1.The firm's current ratio cannot fall below 1.5 to 1 without violating agreements with its bondholders.If current liabilities are presently $250 million,what is the maximum new short-term debt that can be issued to finance an equivalent amount of inventory expansion?

Accepted Answer

The answer of Marcy Corporation's current ratio is currently 1.75...

Question 4

At the end of the year just completed,Orem Company's total current liabilities were $75,000,and its total long-term liabilities were $225,000.Working capital at year-end was $100,000.If the company's debt-to-equity ratio is 0.30 to 1,total long-term assets must equal which of the following?

Accepted Answer

To calculate the total long-term assets, we first need to find the total equity of the company. We can find this by subtracting the total liabilities from the working capital:

Total equity = Working capital - Total liabilities
Total equity = $100,000 - ($75,000 + $225,000)
Total equity = $100,000 - $300,000
Total equity = -$200,000

Since the equity is negative, the company must have a total asset of at least $200,000. To find the total long-term assets, we can use the debt-to-equity ratio:

Debt-to-equity ratio = Total long-term liabilities / Total equity
0.30 = $225,000 / (-$200,000)
-$200,000 x 0.30 = $225,000
-$60,000 = $225,000 - Total long-term assets
Total long-term assets = $225,000 - (-$60,000)
Total long-term assets = $225,000 + $60,000
Total long-term assets = $285,000

Finally, to find the total assets, we can use the working capital formula:

Total assets = Working capital + Total liabilities
Total assets = $100,000 + ($75,000 + $225,000)
Total assets = $400,000

Therefore, the total long-term assets are $285,000, and the best choice is B.

Question 5

The following account balances have been provided for the end of the most recent year:
$\begin{array}{|l|r|}
\hline \text { Total Assets } & \$ 150,000 \
\hline \text { Total Shareholders' Equity } & \$ 120,000 \
\hline \text { Total Common Shares } & \$ 50,000(5,000 \text { shares) } \
\hline \text { Total Preferred Shares } & \$ 10,000(1,000 \text { shares }) \
\hline
\end{array}$
What is the book value per common share?

Accepted Answer

The book value per common share is calculated by subtracting the total preferred shares from the total shareholders' equity and then dividing by the number of common shares. Here, it's $(\$120,000 - \$10,000) / 5,000 = \$22$.

Question 6

Draban Company's working capital is $38,000,and its current liabilities are $59,000.The company's current ratio is closest to which of the following?

Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. Given that working capital is current assets minus current liabilities, we can find current assets as $38,000 + $59,000 = $97,000. Therefore, the current ratio is $97,000 / $59,000 = 1.64 to 1.

Question 7

Dratif Company's working capital is $33,000,and its current liabilities are $80,000.The company's current ratio is closest to which of the following?

Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. Given working capital is $33,000 and current liabilities are $80,000, current assets are $113,000 ($80,000 + $33,000). Thus, the current ratio is $113,000 / $80,000 = 1.41 to 1.

Question 8

Granger Company had $180,000 in sales on account last year.The beginning accounts receivablebalance was $10,000,and the ending accounts receivable balance was $18,000.The company's average collection period (age of receivables)was closest to which of the following? Do not round intermediate calculations.

Accepted Answer

The average collection period is calculated as (Average Accounts Receivable / Sales on Account) * 365 days. Average Accounts Receivable is (Beginning Accounts Receivable + Ending Accounts Receivable) / 2 = ($10,000 + $18,000) / 2 = $14,000. Thus, the average collection period is ($14,000 / $180,000) * 365 = 28.39 days.

Question 9

Erambo Company has $11,000 in cash,$6,000 in marketablesecurities,$27,000 in current receivables,$8,000 in inventories,and $51,000 in current liabilities.The company's acid-test (quick)ratio is closest to which of the following?

Accepted Answer

The acid-test (quick) ratio is calculated by adding up only the most liquid assets (such as cash, marketable securities, and receivables) and dividing by current liabilities. In this case, the most liquid assets would be the $11,000 in cash and the $6,000 in marketable securities, which add up to $17,000. Adding in the $27,000 in receivables gives a total of $44,000. Dividing by the $51,000 in current liabilities gives a ratio of 0.86 to 1 (rounded to two decimal places). Therefore, the closest answer choice is C.

Question 10

Erack Company has $15,000 in cash,$4,000 in marketablesecurities,$38,000 in current receivables,$18,000 in inventories,and $40,000 in current liabilities.The company's acid-test (quick)ratio is closest to which of the following?

Accepted Answer

The acid-test (quick) ratio is calculated as follows:

Quick Ratio = (Cash + Marketable Securities + Current Receivables) / Current Liabilities

Substituting the given values, we get:

Quick Ratio = ($15,000 + $4,000 + $38,000) / $40,000
Quick Ratio = $57,000 / $40,000
Quick Ratio = 1.43 to 1

Therefore, the closest answer choice is C) 1.43 to 1.

Question 11

Selected year-end data for the Brayer Company are presented below:
$\begin{array}{|l|r|}
\hline \text { Current Liabilities } & \$ 600,000 \
\hline \text { Acid-Test Ratio } & 2.5 \text { to } 1 \
\hline \text { Current Ratio } & 3.0 \text { to } 1 \
\hline \text { Cost of Goods Sold } & \$ 500,000 \
\hline
\end{array}$
The company has no prepaid expenses,and inventories remained unchanged during the year.Based on these data,the company's inventory turnover ratio for the year was closest to which of the following?

Accepted Answer

The inventory turnover ratio is calculated as Cost of Goods Sold / Average Inventory. Given that the Acid-Test Ratio (Quick Ratio) is 2.5 and the Current Ratio is 3.0, we can find the inventory amount by using the formula for these ratios. The Acid-Test Ratio formula is (Current Assets - Inventory) / Current Liabilities = 2.5, and the Current Ratio formula is Current Assets / Current Liabilities = 3.0. With Current Liabilities of $600,000, Current Assets are $1,800,000 (3.0 * $600,000). For the Acid-Test Ratio, (Current Assets - Inventory) = 2.5 * $600,000 = $1,500,000. Therefore, Inventory = $1,800,000 (Current Assets) - $1,500,000 = $300,000. The inventory turnover ratio is then $500,000 (Cost of Goods Sold) / $300,000 (Inventory) = 1.67 times.

Question 12

Frantic Company had $130,000 in sales on account last year.The beginning accounts receivablebalance was $10,000,and the ending accounts receivable balance was $16,000.The company's accounts receivable turnover was closest to which of the following?

Accepted Answer

The answer of Frantic Company had $130,000 in sales on...

Question 13

Grapp Company had $130,000 in sales on account last year.The beginning accounts receivablebalance was $18,000,and the ending accounts receivable balance was $16,000.The company's average collection period (age of receivables)was closest to which of the following? Do not round intermediate calculations.

Accepted Answer

To find the average collection period, we need to divide the total number of days in the year by the accounts receivable turnover ratio:

Accounts receivable turnover ratio = Annual credit sales / Average accounts receivable
Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2

Annual credit sales = $130,000
Beginning accounts receivable = $18,000
Ending accounts receivable = $16,000

Average accounts receivable = ($18,000 + $16,000) / 2 = $17,000
Accounts receivable turnover ratio = $130,000 / $17,000 = 7.647

To find the average collection period:

Average collection period = 365 days / Accounts receivable turnover ratio

Average collection period = 365 days / 7.647 = 47.73 days

Therefore, the answer is B.

Question 14

Frabine Company had $150,000 in sales on account last year.The beginning accounts receivablebalance was $14,000,and the ending accounts receivable balance was $18,000.The company's accounts receivable turnover was closest to which of the following?

Accepted Answer

Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable

Net Credit Sales = $150,000 
Average Accounts Receivable = (Beginning AR + Ending AR) / 2 
Average AR = ($14,000 + $18,000) / 2 = $16,000

Accounts Receivable Turnover = $150,000 / $16,000 = 9.375

The closest answer choice is (C) 9.38 times.

Question 15

Eral Company has $17,000 in cash,$3,000 in marketablesecurities,$36,000 in current receivables,$24,000 in inventories,and $45,000 in current liabilities.The company's acid-test (quick)ratio is closest to which of the following?

Accepted Answer

The answer of Eral Company has $17,000 in cash,$3,000 in...

Question 16

Eastham Company's accounts receivablewere $600,000 at the beginning of the year and $800,000 at the end of the year.Cash sales for the year were $300,000.The accounts receivable turnover for the year was 5 times.What were Eastham Company's total sales for the year?

Accepted Answer

The answer of Eastham Company's accounts receivablewere $600,000 at the...

Question 17

Grave Company had $150,000 in sales on account last year.The beginning accounts receivablebalance was $14,000,and the ending accounts receivable balance was $10,000.The company's average collection period (age of receivables)was closest to which of the following?

Accepted Answer

The answer of Grave Company had $150,000 in sales on...

Question 18

Ben Company has the following data for the year just ended:
$\begin{array}{|l|r|}
\hline \text { Cash } & \$ 42,000 \
\hline \text { Accounts Receivable } & \$ 28,000 \
\hline \text { Inventory } & \$ 35,000 \
\hline \text { Current Ratio } & 2.4 \text { to } 1 \
\hline \text { Acid-Test Ratio } & 1.6 \text { to } 1 \
\hline
\end{array}$
What were Ben Company's current liabilities?

Accepted Answer

To find the current liabilities, we can use the given current and acid-test ratios. The current ratio is calculated as Current Assets / Current Liabilities. Given a current ratio of 2.4 to 1, we can set up the equation (Cash + Accounts Receivable + Inventory) / Current Liabilities = 2.4. Plugging in the values: ($42,000 + $28,000 + $35,000) / Current Liabilities = 2.4. This simplifies to $105,000 / Current Liabilities = 2.4. Solving for Current Liabilities gives us $105,000 / 2.4 = $43,750.

Question 19

Starrs Company has current assets of $300,000 and current liabilities of $200,000.Which of the following transactions would increase its working capital?

Accepted Answer

Refinancing $50,000 of short-term debt with long-term debt decreases current liabilities, thereby increasing working capital.

Question 20

Fracus Company had $100,000 in sales on account last year.The beginning accounts receivablebalance was $14,000,and the ending accounts receivable balance was $16,000.The company's accounts receivable turnover was closest to which of the following?

Accepted Answer

Accounts receivable turnover formula is:
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable

Given that, 
Net credit sales = $100,000
Beginning accounts receivable balance = $14,000
Ending accounts receivable balance = $16,000

Average accounts receivable = (Beginning accounts receivable balance + Ending accounts receivable balance) / 2

= ($14,000 + $16,000) / 2

= $15,000

Therefore, 
Accounts Receivable Turnover = $100,000 / $15,000

= 6.67 times (approximately)

Hence, the closest answer is option C.

Quiz 14: Financial Statement Analysis