Question 1

Candle Shop, Inc. has net sales on account of $1,800,000. The average net accounts receivable are $680,000. Calculate the days' sales in receivables.(Use 365 days for any calculations. Round any intermediate calculations and your final answer to two decimal places.)

Accepted Answer

Days' sales in receivables can be calculated using the formula: 
Days' sales in receivables = (Accounts Receivable / Net Sales) x 365

Substituting the given values: 
Days' sales in receivables = (680,000 / 1,800,000) x 365 
= 0.3778 x 365 
= 137.74 days

Therefore, the best choice is C.

Question 2

Surround, Inc. provides the following data:  Calculate the debt to equity ratio. (Round your answer to two decimal places.)

Accepted Answer

Debt to equity ratio = Total liabilities / Total equity
From the given data, total liabilities = TB5019_00 = $85,553 and total equity = $118,200. 
Therefore, debt to equity ratio = 85553/118200 = 0.72 (rounded to two decimal places). 
Thus, the best choice is D.

Question 3

Danby, Inc. provides the following data from its income statement for 2018: $$\begin{array} { | l | r | } 
\hline \text { Net Sales } & \$ 520,000 \
\hline \text { Cost of Goods Sold } &( 190,000) \
\hline \text { Gross Profit } & \$ 330,000 \
\hline
\end{array}$$ Calculate the gross profit percentage. (Round your answer to two decimal places.)

Accepted Answer

Gross profit percentage is calculated as (Gross Profit / Net Sales) * 100. Here, it's (\$330,000 / \$520,000) * 100 = 63.46%.

Question 4

Milton, Inc. provides the following income statement for 2019:  Calculate the times-interest-earned ratio. (Round your answer to two decimal places.)

Accepted Answer

The answer of Milton, Inc. provides the following income statement...

Question 5

Elephant, Inc.'s cost of goods sold for the year is $2,000,000, and the average merchandise inventory for the year is $129,000. Calculate the inventory turnover ratio of the company. (Round your answer to two decimal places.)

Accepted Answer

The answer of Elephant, Inc.'s cost of goods sold for...

Question 6

The debt ratio is the ratio of total debt divided by total equity.

Accepted Answer

The debt ratio is calculated by dividing total liabilities (not just debt) by total assets, to show the proportion of a company's assets that are financed by debt.

Question 7

The times-interest-earned ratio measures the number of times earnings before interest and taxes can cover interest expense.

Accepted Answer

The times-interest-earned (TIE) ratio is calculated by dividing earnings before interest and taxes (EBIT) by interest expense. The resulting ratio indicates how many times EBIT can cover interest expense. A higher ratio indicates a company's ability to meet its interest obligations and is therefore considered a positive indicator of financial health.

Question 8

The rate of return on common stockholders' equity shows how much income is earned for each $1 of total stockholders' equity.

Accepted Answer

The rate of return on common stockholders' equity specifically measures how much income is earned for each $1 of common stockholders' equity, not total stockholders' equity, which includes preferred stock.

Question 9

Normally, companies with low gross profit percentages will have low asset turnover.

Accepted Answer

Companies with low gross profit percentages can have high asset turnover if they operate on a high volume, low margin business model, which allows them to generate significant sales relative to their assets.

Question 10

The debt to equity ratio shows the proportion of total liabilities relative to total equity.

Accepted Answer

The debt to equity ratio is calculated by dividing total liabilities by total equity, showing the relationship between a company's debt financing and its equity financing. Therefore, it measures the proportion of total liabilities relative to total equity.

Question 11

National, Inc. provides the following data: $$\begin{array} { | l | r | r | } 
\hline & { \underline { \underline { 2019 } } } &{ \underline { 2018 } } \
\hline \text { Cash } & \$ 45,000 & \$ 25,000 \
\hline \text { Accounts Receivable, Net } & 138,000 & 62,000 \
\hline \text { Merchandise Inventory } & 70,000 & 50,000 \
\hline \text { Property, Plant, and Equipment, Net } & \underline { 200,000 } & \underline { 120,000 } \
\hline \text { Total Assets } & \$ 453,000 & \$ 257,000 \
\hline
\end{array}$$ For the year ending December 31, 2019:
$$\begin{array} { | l | r | } 
\hline \text { Net Credit Sales } & \$ 250,000 \
\hline \text { Cost of Goods Sold } & ( 110,000 )\
\hline \text { Gross Profit } & \$ 140,000 \
\hline
\end{array}$$ Calculate the accounts receivable turnover ratio for 2019. (Round your answer to two decimal places.)

Accepted Answer

The answer of National, Inc. provides the following data: \[\begin{array}...

Question 12

Ottawa, Inc. provides the following data: $$\begin{array} { | l | r | r | } 
\hline & { \underline { 2019 } } &  { \underline { 1018 } } \
\hline \text { Cash } & \$ 23,000 & \$ 22,000 \
\hline \text { Accounts Receivable, Net } & 37,000 & 37,000 \
\hline \text { Merchandise Inventory } & 55,000 & 25,000 \
\hline \text { Property, Plant, and Equipment, Net } & \underline { 127,000 } & \underline { 96,000 } \
\hline \text { Total Assets } & \$ 242,000 & \$ 180,000 \
\hline
\end{array}$$ For the year ending December 31, 2019:
$$\begin{array} { | l | r | } 
\hline \text { Net Credit Sales } & \$ 300,000 \
\hline \text { Cost of Goods Sold } & ( 170,000) \
\hline \text { Gross Profit } & \$ 130,000 \
\hline
\end{array}$$ Calculate the days' sales in inventory for 2019. (Use 365 days for any calculations. Round any intermediate calculations and your final answer to two decimal places.)

Accepted Answer

Days' sales in inventory for 2019 is calculated as follows: $$ \text{Days' Sales in Inventory} = \left( \frac{\text{Ending Inventory}}{\text{Cost of Goods Sold}} \right) \times 365 $$ $$ = \left( \frac{55,000}{170,000} \right) \times 365 \approx 118.09 $$ However, the correct formula should be: $$ \text{Days' Sales in Inventory} = \left( \frac{\text{Ending Inventory}}{\text{Cost of Goods Sold}} \right) \times 365 $$ $$ = \left( \frac{55,000}{170,000} \right) \times 365 \approx 118.09 $$ The mistake in the explanation is acknowledging an error in the formula and then repeating the same formula without correction. The correct calculation indeed results in approximately 118.09 days, indicating that the inventory turns over approximately every 118.09 days.

Question 13

A high times-interest-earned ratio indicates difficulty in paying interest expense.

Accepted Answer

A high times-interest-earned ratio indicates that a company has a strong ability to pay its interest expenses because it has a high level of income relative to its interest expenses.

Question 14

Which of the following statements is true for financial leverage?

Accepted Answer

Financial leverage is measured by the amount of debt relative to equity, also known as the debt to equity ratio. The higher the debt to equity ratio, the higher the financial leverage. However, it is important to note that while financial leverage has the potential to increase profitability, it also increases the risk and volatility of a company's earnings. The asset turnover ratio measures how efficiently a company is using its assets to generate sales, but it is not directly related to financial leverage.

Question 15

Use the following to calculate the inventory turnover ratio for the year 2019.
 $\begin{array}{lll}
&2019&2018\
\text { Cost of Goods Sold } & 585,000 & 475,000 \
\text { Merchandise Inventory } & 320,000 & 295,000
\end{array}$

Accepted Answer

The answer of Use the following to calculate the inventory...

Question 16

The rate of return on total assets measures a company's success in using its assets to earn a profit.

Accepted Answer

The rate of return on total assets (ROTA) is a profitability ratio that measures a company's ability to generate profits from its total assets. It is calculated by dividing net income by the average total assets. A high ROTA indicates that the company is effectively using its assets to generate profits, while a low ROTA indicates inefficiency in asset utilization. The ROTA is a key performance indicator that is widely used by investors and financial analysts to evaluate a company's financial soundness and profitability.

Question 17

Which of the following items is a measure of a company's ability to collect receivables?

Accepted Answer

Days' sales in receivables is a measure of a company's ability to collect receivables by showing the number of days it takes to collect its accounts receivable balance.

Question 18

Grand Office Supply reported the following gross profit percentages: 2017: 37.5%; 2018: 36.2%; 2019: 20.8%. The industry average is 35%. What are some possible reasons for the decline in 2019?

Accepted Answer

The answer of Grand Office Supply reported the following gross...

Question 19

A company reports total assets of $910,000 and stockholders' equity of $530,000. Calculate the debt ratio. (Round your answer to two decimal places.)

Accepted Answer

The debt ratio is calculated as total liabilities divided by total assets. Using this formula gives us: 
Debt ratio = (Total assets - Stockholders' equity) / Total assets = ($910,000 - $530,000) / $910,000 = 0.4176 or 41.76%. Therefore, the correct answer is B.

Question 20

The relationship between total liabilities and total assets is the ________.

Accepted Answer

The relationship between total liabilities and total assets is known as the debt ratio. It calculates the percentage of assets financed by liabilities and helps in assessing a company's level of leverage or indebtedness.

Quiz 15: Financial Statement Analysis