Question 1

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, not by total equity.

Question 2

The relationship between total liabilities and total assets is the ________.
A) debt ratio
B) debt to equity ratio
C) current ratio
D) earnings per share

Accepted Answer

The relationship between total liabilities and total assets is known as the debt ratio. This ratio measures the proportion of a company's assets that are financed through debt, and is calculated by dividing total liabilities by total assets.

Question 3

Which of the following statements is TRUE for financial leverage?
A) The asset turnover ratio measures financial leverage.
B) Financial leverage always increases profitability.
C) Financial leverage is measured in the proportion of total assets relative to total equity.
D) The higher the debt to equity ratio, the higher the financial leverage.

Accepted Answer

Financial leverage is directly related to the debt ratio. The higher the debt ratio, the higher the financial leverage.

Question 4

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

Accepted Answer

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

Question 5

Elephant,Inc.'s cost of goods sold for the year is $1,900,000,and the average merchandise inventory for the year is $132,000.Calculate the inventory turnover ratio of the company.(Round your answer to two decimal places.)
A) 6.95 times
B) 14.39 times
C) 7.20 times
D) 9.31 times

Accepted Answer

Inventory turnover ratio = Cost of Goods Sold / Average Merchandise Inventory =
$1,900,000 / 132,000 = 14.39 times

Question 6

Ottawa,Inc.provides the following data: $$\begin{array} { | l | r | r | } 
\hline & { 2019 } & { \underline { 1018 } } \
\hline \text { Cash } & \$ 29,000 & \$ 18,000 \
\hline \text { Accounts Receivable, Net } & 40,000 & 36,000 \
\hline \text { Merchandise Inventory } & 55,000 & 25,000 \
\hline \text { Property, Plant, and Equipment, Net } & \underline { 121,000 } & \underline { 90,000 } \
\hline \text { Total Assets } & \$ 245,000 & \$ 169,000 \
\hline
\end{array}$$ For the year ending December 31,2019:
$$\begin{array} { | l | r | } 
\hline \text { Net Credit Sales } & \$ 240,000 \
\hline \text { Cost of Goods Sold } & ( 110,000 )\
\hline \text { Gross Profit } & \$ 130,000 \
\hline
\end{array}$$ 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.)
A) 82.95
B) 182.50
C) 60.83
D) 132.73

Accepted Answer

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

Question 7

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

Accepted Answer

This statement is true. The times-interest-earned ratio, also known as the interest coverage ratio, is a financial ratio that indicates a company's ability to pay interest on its debt. It measures the number of times a company's earnings before interest and taxes (EBIT) can cover its interest expense. A higher times-interest-earned ratio indicates that a company has a stronger ability to cover its interest expenses with its earnings.

Question 8

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

Accepted Answer

A high times-interest-earned ratio indicates a company has sufficient earnings to cover its interest expense, indicating a lower risk of defaulting on its debt obligations. A low times-interest-earned ratio would indicate difficulty in paying interest expenses.

Question 9

A company reports total assets of $920,000 and stockholders' equity of $540,000.Calculate the debt ratio.(Round your answer to two decimal places.)
A) 36.99%
B) 41.30%
C) 58.70%
D) 70.37%

Accepted Answer

Debt ratio is calculated by dividing total liabilities by total assets. 
Total liabilities = Total assets – Stockholders' Equity = $920,000 - $540,000 = $380,000 
Debt Ratio = Total Liabilities/Total Assets = $380,000/$920,000 = 0.413 or 41.30%.

Therefore, the best choice is B) 41.30%.

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, which shows the proportion of debt (liabilities) relative to equity in a company. Therefore, the statement is true.

Question 11

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 12

Danby,Inc.provides the following data from its income statement for 2018: $$\begin{array} { | l | r | } 
\hline \text { Net Sales } & \$ 540,000 \
\hline \text { Cost of Goods Sold } & \$ 190,000 \
\hline \text { Gross Profit } & \$ 350,000 \
\hline
\end{array}$$ Calculate the gross profit percentage.(Round your answer to two decimal places.)
A) 18.42%
B) 64.81%
C) 100.00%
D) 35.19%

Accepted Answer

Gross profit percentage is calculated as (Gross Profit / Net Sales) * 100. Here, it is (\$350,000 / \$540,000) * 100 = 64.81%.

Question 13

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 14

Which of the following items is a measure of a company's ability to collect receivables?
A) inventory turnover ratio
B) current ratio
C) days' sales in receivables
D) account receivable balance

Accepted Answer

Days' sales in receivables is a measure of the average number of days it takes a company to collect its accounts receivable. This ratio measures the effectiveness of a company's credit and collection policies in collecting its outstanding receivables. A higher figure indicates that it takes longer for the company to collect its receivables, which may indicate poor credit and collection policies.

Question 15

Candle Shop,Inc.has net sales on account of $1,700,000.The average net accounts receivable are $630,000.Calculate the days' sales in receivables.(Use 365 days for any calculations.Round any intermediate calculations and your final answer to two decimal places.)
A) 328.50 days
B) 365.00 days
C) 135.19 days
D) 2.70 days

Accepted Answer

Accounts receivable turnover ratio = Net credit sales / Average net accounts receivable = $1,700,000 / $630,000 = 2.70
Days' sales in receivables = 365 / Accounts receivable turnover ratio = 365 / 2.70 = 135.19

Question 16

National,Inc.provides the following data: $$\begin{array} { | l | r | r | } 
\hline &\underline {2019 } & { \underline { 1018 } } \
\hline \text { Cash } & \$ 45,000 & \$ 25,000 \
\hline \text { Accounts Receivable, Net } & 98,000 & 62,000 \
\hline \text { Merchandise Inventory } & 75,000 & 50,000 \
\hline \text { Property, Plant, and Equipment, Net } & \underline { 185,000 } & \underline { 120,000 } \
\hline \text { Total Assets } & \$ 403,000 & \$ 257,000 \
\hline 
\end{array}$$ For the year ending December 31,2019:
$$\begin{array} { | l | r | } 
\hline \text { Net Credit Sales } & \$ 280,000 \
\hline \text { Cost of Goods Sold } & ( 150,000 \
\hline \text { Gross Profit } & \$ 130,000 \
\hline
\end{array}$$ Calculate the accounts receivable turnover ratio for 2019.(Round your answer to two decimal places.)
A) 5.60 times
B) 4.11 times
C) 3.50 times
D) 2.86 times

Accepted Answer

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

Question 17

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 is a financial ratio that measures a company's ability to generate profits from its assets. It is calculated by dividing net income by total assets. Therefore, it is a measure of a company's success in using its assets to earn a profit.

Question 18

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

Accepted Answer

Companies with low gross profit percentages often operate with high asset turnover rates as a way to compensate for lower margins by selling more volume.

Question 19

Surround,Inc.provides the following data:  Calculate the debt to equity ratio.(Round your answer to two decimal places.)
A) 0.39
B) 0.05
C) 1.23
D) 0.65

Accepted Answer

Debt to equity ratio = Total liabilities / Total equity = $91,600 / $141,400 = 0.65

Question 20

Milton,Inc.provides the following income statement for 2019: $$\begin{array} { | l | r | } 
\hline & \
\hline \text { Net Sales } & \$ 240,000 \
\hline \text { Cost of Goods Sold } & \$ 10,000 \
\hline \text { Gross Profit } & \$ 130,000 \
\hline \text { Operating Expenses: } &\
\hline \text { Selling Expenses } &   45,000 \ 
\hline \text { Administrative Expenses } & \underline { 12,000 }\
\hline \text { Total Operating Expenses } &  \underline { 57,000 } \
\hline \text { Operating Income } & \$ 73,000\
\hline \text { Other Income and (Expenses): } & \
\hline \text { Loss on Sale of Capital Assets } &  (26,000 ) \
\hline \text { Interest Expense } & (1000 ) \
\hline \text { Total Other Income and (Expenses) } &(27,000 ) \
\hline \text { Income Before Income Taxes } & \$ 46,000\
\hline \text { Income Tax Expense } &  5700 \
\hline \text { Net Income } & \$ 40,300\
\hline
\end{array}$$ Calculate the times-interest-earned ratio.(Round your answer to two decimal places.)
A) 73.00 times
B) 46.00 times
C) 40.30 times
D) 47.00 times

Accepted Answer

The times-interest-earned ratio is calculated by dividing the operating income by the interest expense. In this case, it's \$73,000 / \$1,000 = 73.00 times.

Quiz 17: Financial Statement Analysis

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

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

Which of the following statements is TRUE for financial leverage?

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

Elephant,Inc.'s cost of goods sold for the year is $1,900,000,and the average merchandise inventory for the year is $132,000.Calculate the inventory turnover ratio of the company.(Round your answer to two decimal places.)

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

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

A company reports total assets of $920,000 and stockholders' equity of $540,000.Calculate the debt ratio.(Round your answer to two decimal places.)

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

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

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?

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

Candle Shop,Inc.has net sales on account of $1,700,000.The average net accounts receivable are $630,000.Calculate the days' sales in receivables.(Use 365 days for any calculations.Round any intermediate calculations and your final answer to two decimal places.)

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

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

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