Question 1

A quick ratio that is much smaller than the current ratio indicates that
A) inventories represent a large portion of current assets.
B) the company has a low inventory turnover.
C) inventories represent a small portion of current assets.
D) the company has a high inventory turnover.

Accepted Answer

A quick ratio that is much smaller than the current ratio suggests that inventories make up a large portion of current assets, as the quick ratio excludes inventories from its calculation.

Question 2

Which of the following describes the return on assets ratio?
A) Average total assets divided by net income
B) Net income plus income tax expense divided by average total assets
C) Average total assets divided by net sales
D) Net income divided by average total assets

Accepted Answer

The return on assets ratio is calculated by dividing the net income by the average total assets, indicating the amount of profit generated by each dollar of assets invested in the business.

Question 3

Following are the financial statements for Starman Corporation for the year ended December 31, 2009. Assume that all balance sheet amounts represent both average and ending figures.   What is the receivable turnover for this corporation? Round your answer to one decimal place.
A) 8.0 times
B) 6.0 times
C) 4.8 times
D) 1.8 times

Accepted Answer

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

Question 4

How would the collection of an account receivable affect the current ratio and the quick ratio, respectively?
A) No effect on current ratio; increase in quick ratio
B) Increase in current ratio; increase in quick ratio
C) No effect on current ratio; no effect on quick ratio
D) Decrease in current ratio; decrease in quick ratio

Accepted Answer

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

Question 5

Following are the financial statements for Starman Corporation for the year ended December 31, 2009. Assume that all balance sheet amounts represent both average and ending figures.   What is the profit margin for this corporation? Round your answer to one decimal place.
A) 22.5 percent
B) 30.0 percent
C) 40.0 percent
D) 53.3 percent

Accepted Answer

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

Question 6

A change from FIFO to LIFO in a period of rising prices will
A) decrease both the current ratio and the inventory turnover ratio.
B) increase both the current ratio and the inventory turnover ratio.
C) increase the current ratio and decrease the inventory turnover ratio.
D) decrease the current ratio and increase the inventory turnover ratio.

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 7

During the year, Dempsey Corporation's current ratio increased while its quick ratio decreased. Which of the following could help explain this situation?
A) A decrease in accounts receivable during the year
B) An increase in accounts payable during the year
C) The sale of short-term investments during the year
D) An increase in inventory levels during the year

Accepted Answer

The current ratio includes inventory in its calculation but the quick ratio does not. If inventory levels increase, it will cause the current ratio to increase but the quick ratio to decrease since inventory cannot be quickly converted to cash.

Question 8

The number of days' sales uncollected is determined by dividing
A) the number of days in a year by the receivable turnover.
B) the number of days in a year by average accounts receivable.
C) net income by average accounts receivable.
D) sales by average accounts receivable.

Accepted Answer

The number of days' sales uncollected is calculated by dividing the number of days in a year by the receivable turnover ratio. This measures how many days on average it takes to collect receivables.

Question 9

The receivable turnover and inventory turnover ratios are used to analyze
A) leverage.
B) long-term solvency.
C) profitability.
D) liquidity.

Accepted Answer

The receivable turnover and inventory turnover ratios are both used to analyze a company's liquidity. Receivable turnover measures how quickly a company collects its accounts receivable, while inventory turnover measures how quickly a company sells its inventory. These ratios are important indicators of how easily a company can convert its assets into cash to meet short-term obligations.

Question 10

Holiday Corporation provided these figures for the year ended December 31, 2009: Cost of goods sold, $516,117; change in inventory, $67,483 decrease; average accounts payable, $58,209.
What is the company's payables turnover? Round your answer to one decimal place.
A) 8.3 times
B) 7.7 times
C) 10.1 times
D) 7.2 times

Accepted Answer

Payables turnover = Cost of goods sold / Average accounts payable
= 516,117 / 58,209
= 8.868
Rounding to one decimal place, the payables turnover is 7.7 times.

Question 11

Following are the financial statements for Starman Corporation for the year ended December 31, 2009. Assume that all balance sheet amounts represent both average and ending figures.   What is the inventory turnover for this corporation? Round your answer to one decimal place.
A) 1.2 times
B) 1.6 times
C) 2.4 times
D) 4.0 times

Accepted Answer

Inventory turnover = Cost of goods sold / Average inventory
= 3,800 / ((1,800 + 1,000) / 2)
= 2.4 times (rounded to one decimal place)

Question 12

Which of the following describes the interest coverage ratio?
A) Income before income taxes plus interest expense divided by interest expense
B) Income after income taxes plus interest expense divided by interest expense
C) Income after income taxes divided by interest expense
D) Income before income taxes minus interest expense divided by interest expense

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 13

Days' inventory on hand is used to analyze
A) cash flow adequacy.
B) liquidity.
C) profitability.
D) long-term solvency.

Accepted Answer

Days' inventory on hand measures the number of days it takes for a company to sell its inventory. It is a measure of a company's liquidity, indicating how quickly inventory can be converted into cash. Therefore, the best choice is B - Liquidity.

Question 14

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
A) increase the current ratio and the quick ratio.
B) decrease the current ratio and the quick ratio.
C) increase the current ratio but have no effect on the quick ratio.
D) have no effect on the current ratio or the quick ratio.

Accepted Answer

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

Question 15

Which of the following best describes the debt to equity ratio?
A) Average total assets divided by total liabilities
B) Average total assets divided by stockholders' equity
C) Stockholders' equity divided by total liabilities
D) Total liabilities divided by stockholders' equity

Accepted Answer

The debt to equity ratio is calculated by dividing total liabilities by stockholders' equity, indicating the proportion of company financing that comes from creditors versus shareholders.

Question 16

Which of the following describes the asset turnover ratio?
A) Average total assets divided by sales
B) Net sales divided by net income
C) Net sales divided by average total assets
D) Average total assets divided by net income

Accepted Answer

The asset turnover ratio is calculated as net sales divided by average total assets. It measures how efficiently a company uses its assets to generate revenue. A higher ratio indicates that a company is generating more revenue per dollar of assets, which is generally considered favorable.

Question 17

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.)
A) Decrease in current ratio; no effect on quick ratio
B) Increase in current ratio; increase in quick ratio
C) No effect on current ratio; no effect on quick ratio
D) Decrease in current ratio; decrease in quick ratio

Accepted Answer

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

Question 18

A company with a current ratio of 2.4 times will see that ratio decrease when the company
A) pays a large current liability.
B) declares a 10 percent stock dividend on its common stock.
C) borrows cash by issuing a short-term note payable.
D) converts a short-term liability to a long-term liability.

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 19

Following are the financial statements for Starman Corporation for the year ended December 31, 2009. Assume that all balance sheet amounts represent both average and ending figures.   What is the return on assets for this corporation? Round your answer to one decimal place.
A) 75.0 percent
B) 53.3 percent
C) 40.0 percent
D) 30.0 percent

Accepted Answer

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

Question 20

Following are the financial statements for Starman Corporation for the year ended December 31, 2009. Assume that all balance sheet amounts represent both average and ending figures.  Starman Corporation
Income Statement
Far the Year Ended December 31, 2009
$\begin{array}{lr}
\text { Net sales } & \$ 400,000 \
\text { Cost of goods sold } & 240,000 \
\text { Gross margin } & \$ 160,000 \
\text { Operating expenses } & 40,000 \
\text { Income before income taxes } & \$ 120,000 \
\text { Income taxes expense } & 30,000 \
\text { Net income } & \$ 90,000 \
\hline
\end{array}$ What is the current ratio for this corporation? Round your answer to two decimal places.
A) 1.00 times
B) 1.54 times
C) 1.70 times
D) 2.00 times

Accepted Answer

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

Quiz 16: Financial Performance Measurement

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

Which of the following describes the return on assets ratio?

Following are the financial statements for Starman Corporation for the year ended December 31, 2009. Assume that all balance sheet amounts represent both average and ending figures. What is the receivable turnover for this corporation? Round your answer to one decimal place.

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

Following are the financial statements for Starman Corporation for the year ended December 31, 2009. Assume that all balance sheet amounts represent both average and ending figures. What is the profit margin for this corporation? Round your answer to one decimal place.

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

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

The number of days' sales uncollected is determined by dividing

The receivable turnover and inventory turnover ratios are used to analyze

Holiday Corporation provided these figures for the year ended December 31, 2009: Cost of goods sold, $516,117; change in inventory, $67,483 decrease; average accounts payable, $58,209. What is the company's payables turnover? Round your answer to one decimal place.

Following are the financial statements for Starman Corporation for the year ended December 31, 2009. Assume that all balance sheet amounts represent both average and ending figures. What is the inventory turnover for this corporation? Round your answer to one decimal place.

Which of the following describes the interest coverage ratio?

Days' inventory on hand is used to analyze

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

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

Which of the following describes the asset turnover ratio?

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.)

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

Following are the financial statements for Starman Corporation for the year ended December 31, 2009. Assume that all balance sheet amounts represent both average and ending figures. What is the return on assets for this corporation? Round your answer to one decimal place.