Question 1

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

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

Question 2

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. 
$\begin{array}{c}
\text {Starman Corporation}\
\text {Balance Sheet}\
\text {December $ 31,20 \mathrm{xx} $}\
\begin{array}{lcr}
&\text { Assets }\
\text { Cash } && \$ 20,000 \
\text { Marketable securities } && 30,000 \
\text { Accounts receivable } && 50,000 \
\text { Inventory } && 100,000 \
\text { Long-term receivables } && 35,000 \
\text { Property, plant, and equipment } && 65,000 \
\text { Total assets } && \$ 300,000\
\
&\text { Liabilities and Stockholders' Equity }\
\text { Current liabilities } && \$ 100,000 \
\text { Long-term liabilities } && 60,000 \
\text { Stockholders' equity } && 140,000 \
 \text { Total liabilities and stockholders' equity } && \$ 300,000 \
\end{array}\end{array}$ 
$\begin{array}{c}
\text {Starman Corporation}\
\text { Income Statement}\
\text { For the Year Ended December 31, 20xx}\\begin{array}{lr}
\text { Net sales } & \$ 400,000 \
\text { Cost of goods sold } & 240,000 \
\text { Gross margin } & \$ 160,000 \
\text { Operating expenses } & 40,000 \
\text { Income before income taxes } & \$ 120,000 \
\text { Income taxes expense } & 30,000 \
\text { Net income } & \$ 90,000 \
\end{array}\end{array}$ 
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. Here, ROA = $90,000 / $300,000 = 0.30 or 30.0 percent.

Question 3

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

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

Question 4

The number of days' sales uncollected is determined by dividing

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

Question 5

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 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. 
$\begin{array}{c}
\text { Starman Corporation}\
\text { Balance Sheet}\
\text { December $ 31,20 \mathrm{xx} $}\\begin{array}{lcr}
&\text { Assets }&\
\text { Cash } && \$ 20,000 \
\text { Marketable securities } && 30,000 \
\text { Accounts receivable } && 50,000 \
\text { Inventory } && 100,000 \
\text { Long-term receivables } && 35,000 \
\text { Property, plant, and equipment } && \underline{65,000} \
\text { Total assets }& & \underline{\$ 300,000}\
&\text { Liabilities and Stockholders' Equity }\
\text { Current liabilities } && \$ 100,000 \
\text { Long-term liabilities } && 60,000 \
\text { Stockholders' equity } && 140,000 \
\text { Total liabilities and stockholders' equity } && \$ 300,000
\end{array}\end{array}$

$\begin{array}{c}
\text { Starman Corporation}\
\text {  Income Statement }\
\text { For the Year Ended December 31, 20xx}\
\begin{array}{lr}
\text { Net sales } & \$ 400,000 \
\text { Cost of goods sold } & \$ 40,000 \
\text { Gross margin }& \$ 160,000 \ 
\text { Operating expenses } & 40,000 \
\text { Income before income taxes } & \$ 120,000 \
\text { Income taxes expense } & \$ 30,000 \
\text { Net income } & \$ 90,000
\end{array}\end{array}$ 
 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 7

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

Accepted Answer

Inventory turnover is calculated by dividing Cost of Goods Sold by Average Inventory. 
Inventory turnover for Starman Corporation = $420,000/$175,000 = 2.4 times. Therefore, the answer is (C) 2.4 times.

Question 8

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.)

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

Question 9

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 10

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. $$\begin{array} { c } 
\text { Starman Corporation } \
\text { Balance Sheet } \
\text { December 31, 20xx }\ 
\begin{array} { | l r | } 
\hline  { \text { Assets } } \
\text { Cash } & \$ 20,000 \
\text { Marketable securities } & 30,000 \
\text { Accounts receivable } & 50,000 \
\text { Inventory } & 100,000 \
\text { Long-term receivables } & 35,000 \
\text { Property, plant, and equipment } & 65,000 \
\text { Total assets } & \$ 3300,000 \
& \
\text { Liabilities and Stockholders' Equity }\
\text { Current liabilities } & \$ 100,000 \
\text { Long-term liabilities } & 60,000 \
\text { Stockholders' equity } & 140,000 \
\text { Total liabilities and stockholders' equity } & \$ 300,000 \
\hline
\end{array}
\end{array}$$ 
$\begin{array}{c}\text { Starman Corporation }\
\text { Income Statement }\
\text { For the Year Ended December $ 31,20 xx $}\
\begin{array}{|lr|}
\hline\text { Net sales } & \$ 400,000 \
\text { Cost of goods sold } & 240,000 \
 \text { Gross margin } & \$ 160,000 \
\text { Operating expenses } & 40,000 \
\text { Income before income taxes } & \$ 120,000 \
\text { Income taxes expense } & 30,000 \
\text { Net income } & \$ 90.000 \
\hline
\end{array}\end{array}$

What is the profit margin for this corporation? Round your answer to one decimal place.

Accepted Answer

The profit margin is calculated by dividing net income by net sales and multiplying by 100 to express it as a percentage. 
Profit margin = (Net income / Net sales) x 100
Net income = $135,000 
Net sales = $600,000 
Profit margin = (135,000 / 600,000) x 100
Profit margin = 0.225 x 100 
Profit margin = 22.5% 
Therefore, the answer is A, 22.5%.

Question 11

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

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

Question 12

Days' inventory on hand is used to analyze

Accepted Answer

Days' inventory on hand is a measure of inventory management efficiency and indicates the number of days that a company's inventory is expected to last. This metric helps in analyzing the liquidity of a company as it shows how quickly the inventory can be converted into cash. A higher number of days' inventory on hand may indicate poor inventory management or slow sales, which can negatively impact a company's liquidity.

Question 13

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.

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

Question 14

Which of the following describes the asset turnover ratio?

Accepted Answer

The asset turnover ratio is calculated by dividing net sales by average total assets. This ratio measures how efficiently a company is using its assets to generate sales. A higher ratio indicates better asset utilization and efficiency.

Question 15

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 16

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 lead to an increase in the current ratio (since inventory is included in the current assets) and a decrease in the quick ratio (since inventory is not considered a highly liquid asset in the quick ratio calculation). Option A would also lead to an increase in both the current and quick ratios. Option B would lead to an increase in the current ratio, but may not affect the quick ratio. Option C would result in an increase in cash (a current asset) but would not necessarily impact the current or quick ratios.

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. $\begin{array}{c}
\text { Starman Corporation}\
\text { Balance Sheet}\
\text { December $ 31,20 \mathrm{xx} $}\\begin{array}{lr}
&\text { Assets }&\
\text { Cash } && \$ 20,000 \
\text { Marketable securities } && 30,000 \
\text { Accounts receivable } && 50,000 \
\text { Inventory } && 100,000 \
\text { Long-term receivables } && 35,000 \
\text { Property, plant, and equipment } && \underline{65,000} \
\text { Total assets }& & \underline{\$ 300,000}\
&\text { Liabilities and Stockholders' Equity }\
\text { Current liabilities } && \$ 100,000 \
\text { Long-term liabilities } && 60,000 \
\text { Stockholders' equity } && 140,000 \
\text { Total liabilities and stockholders' equity } && \$ 300,000
\end{array}\end{array}$

$\begin{array}{c}
\text { Starman Corporation}\
\text { Balance Sheet}\
\text { December $ 31,20 \mathrm{xx} $}\\begin{array}{lcr}
&\text { Assets }&\
\text { Cash } && \$ 20,000 \
\text { Marketable securities } && 30,000 \
\text { Accounts receivable } && 50,000 \
\text { Inventory } && 100,000 \
\text { Long-term receivables } && 35,000 \
\text { Property, plant, and equipment } && \underline{65,000} \
\text { Total assets }& & \underline{\$ 300,000}\
&\text { Liabilities and Stockholders' Equity }\
\text { Current liabilities } && \$ 100,000 \
\text { Long-term liabilities } && 60,000 \
\text { Stockholders' equity } && 140,000 \
\text { Total liabilities and stockholders' equity } && \$ 300,000
\end{array}\end{array}$
 
What is the current ratio for this corporation? Round your answer to two decimal places.

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

Question 18

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

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

Question 19

Which of the following describes the return on assets ratio?

Accepted Answer

The return on assets (ROA) ratio is calculated by dividing net income by average total assets. It measures how efficiently a company is utilizing its assets to generate profits. A higher ROA indicates better asset utilization and profitability.

Question 20

The receivable turnover and inventory turnover ratios are used to analyze

Accepted Answer

The receivable turnover ratio and inventory turnover ratio are used to analyze a company's liquidity. The receivable turnover ratio measures how efficiently a company is collecting its accounts receivable, while the inventory turnover ratio measures how quickly a company is selling its inventory. Both ratios provide insight into a company's ability to quickly convert assets into cash, which is important for maintaining liquidity.

Quiz 28: Financial Analysis of Performance