Question 1

During the year,Dempsey Corporation's current ratio increased while its quick ratio decreased.Which of the following could help explain this situation?

Accepted Answer

An increase in inventory levels during the year would decrease the quick ratio, which only includes highly liquid assets, but would increase the current ratio, which includes all current assets. The other choices may affect the current and quick ratio differently, but not in the way described in the question.

Question 2

A company with a current ratio of 2.4 times will see that ratio decrease when the company

Accepted Answer

Borrowing cash by issuing a short-term note payable increases current liabilities without a corresponding increase in current assets, thus decreasing the current ratio.

Question 3

Which of the following describes the interest coverage ratio?

Accepted Answer

The interest coverage ratio is calculated as income before income taxes plus interest expense divided by interest expense. This measures a company's ability to make interest payments on its debt.

Question 4

Days' inventory on hand is used to analyze

Accepted Answer

Days' inventory on hand measures the number of days it takes for a company to sell its inventory. This metric is used to analyze a company's liquidity, or its ability to meet short-term financial obligations. A higher number of days' inventory on hand indicates that a company may be experiencing inventory management issues, while a lower number suggests that a company is efficiently managing its inventory and able to quickly turn it into cash.

Question 5

Following are the financial statements for Starman Corporation for the year ended December 31,20xx.Assume that all balance sheet amounts represent both average and ending figures. Starman Corporation
 Balance Sheet
December $ 31,20 x x $
$\begin{array}{lrr}
\text { Assets }\
\text { Cash } & \$ 20,000 \
\text { Marketable securities } & 30,000 \
\text { Accounts receivable } & 50,000 \
\text { Inventory } & 100,000 \
\text { Long-term receivables } & 35,000 \
\text { Property, plant, and equipment } & 65,000\\text { Total assets }&\$300,000\\
\text { Liabilities and Stockholders' Equity }\
\text { Current liabilities } & \$ 100,000 \
\text { Long-term liabilities } & 60,000 \
\text { Stockholders' equity } & 140,000\
\text { Total liabilities and stockholders' equity }&\$300,000
\end{array}$ $\begin{array}{c}
\text {Starman Corporation}\
\text { Income Statement }\
\text {For the Year Ended December $ 31,20 \times\times $}\\\begin{array}{lr}
\text { Net sales } & \$ 400,000 \
\text { Cost of goods sold } & 240,000 \
 \text { Gross margin } & \$ 160,000 \
\text { Operating expenses } & 40,000 \
\text { Income before income taxes } & \$ 120,000 \
\text { Income taxes expense } & 30,000 \
\text { Net income } & \$ 90,000
\end{array}\end{array}$
 What is the receivable turnover for this corporation?

Accepted Answer

The receivable turnover is calculated as Net Sales divided by Average Accounts Receivable. Here, it is $400,000 / $50,000 = 8.0 times.

Question 6

Following are the financial statements for Starman Corporation for the year ended December 31,20xx.Assume that all balance sheet amounts represent both average and ending figures. Starman Corporation
 Balance Sheet
December $ 31,20 x x $
$\begin{array}{lrr}
\text { Assets }\
\text { Cash } & \$ 20,000 \
\text { Marketable securities } & 30,000 \
\text { Accounts receivable } & 50,000 \
\text { Inventory } & 100,000 \
\text { Long-term receivables } & 35,000 \
\text { Property, plant, and equipment } & 65,000\\text { Total assets }&\$300,000\\
\text { Liabilities and Stockholders' Equity }\
\text { Current liabilities } & \$ 100,000 \
\text { Long-term liabilities } & 60,000 \
\text { Stockholders' equity } & 140,000\
\text { Total liabilities and stockholders' equity }&\$300,000
\end{array}$ $\begin{array}{c}
\text {Starman Corporation}\
\text { Income Statement }\
\text {For the Year Ended December $ 31,20 \times\times $}\\\begin{array}{lr}
\text { Net sales } & \$ 400,000 \
\text { Cost of goods sold } & 240,000 \
 \text { Gross margin } & \$ 160,000 \
\text { Operating expenses } & 40,000 \
\text { Income before income taxes } & \$ 120,000 \
\text { Income taxes expense } & 30,000 \
\text { Net income } & \$ 90,000
\end{array}\end{array}$
 What is the profit margin for this corporation? Round your answer to one decimal place.

Accepted Answer

Profit margin = Net income / Net sales = 90,000 / 400,000 = 0.225 or 22.5%

Question 7

Which of the following describes the asset turnover ratio?

Accepted Answer

The asset turnover ratio measures how efficiently a company is using its assets to generate revenue. It is calculated by taking a company's net sales and dividing it by its average total assets. This ratio helps investors and analysts understand how well a company is able to generate sales from its assets. A higher asset turnover ratio is generally seen as a positive sign, as it indicates that a company is making effective use of its resources to generate revenue.

Question 8

A change from FIFO to LIFO in a period of rising prices will

Accepted Answer

In a period of rising prices, switching from FIFO (First In, First Out) to LIFO (Last In, First Out) accounting for inventory will generally result in lower ending inventory values on the balance sheet because the cost of goods sold (COGS) will be higher with LIFO (as it assumes the latest, and thus more expensive, inventory items are sold first). This leads to a decrease in the current ratio (current assets/current liabilities) because inventory is a component of current assets. Meanwhile, the inventory turnover ratio (COGS/average inventory) will increase because the denominator (average inventory) decreases while COGS increases, indicating a faster turnover of inventory.

Question 9

Assuming that the current ratio was 1.6 times and the quick ratio was 1.4 times before this transaction,the entry to record the payment of a previously declared and recorded cash dividend will

Accepted Answer

The answer of Assuming that the current ratio was 1.6...

Question 10

Which of the following describes the return on assets ratio?

Accepted Answer

The return on assets ratio is calculated by dividing net income by average total assets, which represents how efficiently a company is using its assets to generate profits.

Question 11

Holiday Corporation provided these figures for the year ended December 31,20xx: Cost of goods sold,$516,117; change in inventory,$67,483 decrease; average accounts payable,$52,529.
What is the company's payables turnover? Round your answer to one decimal place.

Accepted Answer

The answer of Holiday Corporation provided these figures for the...

Question 12

Following are the financial statements for Starman Corporation for the year ended December 31,20xx.Assume that all balance sheet amounts represent both average and ending figures. Starman Corporation
 Balance Sheet
December $ 31,20 x x $
$\begin{array}{lrr}
\text { Assets }\
\text { Cash } & \$ 20,000 \
\text { Marketable securities } & 30,000 \
\text { Accounts receivable } & 50,000 \
\text { Inventory } & 100,000 \
\text { Long-term receivables } & 35,000 \
\text { Property, plant, and equipment } & 65,000\\text { Total assets }&\$300,000\\
\text { Liabilities and Stockholders' Equity }\
\text { Current liabilities } & \$ 100,000 \
\text { Long-term liabilities } & 60,000 \
\text { Stockholders' equity } & 140,000\
\text { Total liabilities and stockholders' equity }&\$300,000
\end{array}$ 
$\begin{array}{c}
\text {Starman Corporation}\
\text { Income Statement }\
\text {For the Year Ended December $ 31,20 \times\times $}\\\begin{array}{lr}
\text { Net sales } & \$ 400,000 \
\text { Cost of goods sold } & 240,000 \
 \text { Gross margin } & \$ 160,000 \
\text { Operating expenses } & 40,000 \
\text { Income before income taxes } & \$ 120,000 \
\text { Income taxes expense } & 30,000 \
\text { Net income } & \$ 90,000
\end{array}\end{array}$ What is the current ratio for this corporation? Round your answer to two decimal places.

Accepted Answer

The answer of Following are the financial statements for Starman...

Question 13

Which of the following best describes the debt to equity ratio?

Accepted Answer

The answer of Which of the following best describes the...

Question 14

What is the effect of the payment of an account payable on the current ratio and the quick ratio,respectively? (Assume the current ratio was 2.3 times and the quick ratio was 2.1 times before this transaction.)

Accepted Answer

The answer of What is the effect of the payment...

Question 15

A quick ratio that is much smaller than the current ratio indicates that

Accepted Answer

The answer of A quick ratio that is much smaller...

Question 16

The receivable turnover and inventory turnover ratios are used to analyze

Accepted Answer

The receivable turnover and inventory turnover ratios are used to analyze liquidity. The receivable turnover ratio measures how quickly a company collects its receivables from customers, while the inventory turnover ratio measures how quickly a company sells its inventory. Both ratios are used to assess a company's ability to convert assets into cash in a timely manner to meet its short-term obligations.

Question 17

Following are the financial statements for Starman Corporation for the year ended December 31,20xx.Assume that all balance sheet amounts represent both average and ending figures. Starman Corporation
 Balance Sheet
December $ 31,20 x x $
$\begin{array}{lrr}
\text { Assets }\
\text { Cash } & \$ 20,000 \
\text { Marketable securities } & 30,000 \
\text { Accounts receivable } & 50,000 \
\text { Inventory } & 100,000 \
\text { Long-term receivables } & 35,000 \
\text { Property, plant, and equipment } & 65,000\\text { Total assets }&\$300,000\\
\text { Liabilities and Stockholders' Equity }\
\text { Current liabilities } & \$ 100,000 \
\text { Long-term liabilities } & 60,000 \
\text { Stockholders' equity } & 140,000\
\text { Total liabilities and stockholders' equity }&\$300,000
\end{array}$ $\begin{array}{c}
\text {Starman Corporation}\
\text { Income Statement }\
\text {For the Year Ended December $ 31,20 \times\times $}\\\begin{array}{lr}
\text { Net sales } & \$ 400,000 \
\text { Cost of goods sold } & 240,000 \
 \text { Gross margin } & \$ 160,000 \
\text { Operating expenses } & 40,000 \
\text { Income before income taxes } & \$ 120,000 \
\text { Income taxes expense } & 30,000 \
\text { Net income } & \$ 90,000
\end{array}\end{array}$ 
What is the inventory turnover for this corporation? Round your answer to one decimal place.

Accepted Answer

Inventory turnover = Cost of goods sold / Average inventory= 240,000 / (100,000 + 100,000) / 2= 240,000 / 100,000= 2.4 times

Question 18

The number of days' sales uncollected is determined by dividing

Accepted Answer

The answer of The number of days' sales uncollected is...

Question 19

How would the collection of an account receivable affect the current ratio and the quick ratio,respectively?

Accepted Answer

The answer of How would the collection of an account...

Question 20

Following are the financial statements for Starman Corporation for the year ended December 31,20xx.Assume that all balance sheet amounts represent both average and ending figures. Starman Corporation
 Balance Sheet
December $ 31,20 x x $
$\begin{array}{lrr}
\text { Assets }\
\text { Cash } & \$ 20,000 \
\text { Marketable securities } & 30,000 \
\text { Accounts receivable } & 50,000 \
\text { Inventory } & 100,000 \
\text { Long-term receivables } & 35,000 \
\text { Property, plant, and equipment } & 65,000\\text { Total assets }&\$300,000\\
\text { Liabilities and Stockholders' Equity }\
\text { Current liabilities } & \$ 100,000 \
\text { Long-term liabilities } & 60,000 \
\text { Stockholders' equity } & 140,000\
\text { Total liabilities and stockholders' equity }&\$300,000
\end{array}$ $\begin{array}{c}
\text {Starman Corporation}\
\text { Income Statement }\
\text {For the Year Ended December $ 31,20 \times\times $}\\\begin{array}{lr}
\text { Net sales } & \$ 400,000 \
\text { Cost of goods sold } & 240,000 \
 \text { Gross margin } & \$ 160,000 \
\text { Operating expenses } & 40,000 \
\text { Income before income taxes } & \$ 120,000 \
\text { Income taxes expense } & 30,000 \
\text { Net income } & \$ 90,000
\end{array}\end{array}$ 
What is the return on assets for this corporation? Round your answer to one decimal place.

Accepted Answer

Return on assets (ROA) is calculated as Net Income divided by Total Assets. For Starman Corporation, ROA = $90,000 / $300,000 = 0.30 or 30.0 percent.

Quiz 28: Financial Analysis of Performance