Question 1

Which of the following calculates the debt-to-owners' equity ratio?

Accepted Answer

Total liabilities divided by owners' equity

Question 2

Jack wants to compare Algoma Steel and Dofasco's earnings per share.Which formula would Jack use?

Accepted Answer

Net income divided by number of common shares outstanding.

Question 3

What does return on equity measure?

Accepted Answer

The amount of profit earned for each dollar invested

Question 4

The ________ is the value of a nation's currency as determined by market forces.

Accepted Answer

foreign currency exchange rate

Question 5

Marilyn wants to know how to determine the amount of net income the business earns for each dollar invested by the owner.You tell her that she should

Accepted Answer

compute return-on-equity ratio.

Question 6

Delavan Company has fixed assets of $5 billion,current assets of $2 billion,long-term liabilities of $2 billion,current liabilities of $1 billion,and owners' equity of $5 billion.What is Delavan's debt-to-equity ratio?

Accepted Answer

.
6

Question 7

Firm A enjoys a better activity ratio than Firm B.What might this mean?

Accepted Answer

Firm A generates greater profits on sales and uses its resources more efficiently than B.

Question 8

A(n)_____ ratio evaluates management's use of assets.

Accepted Answer

activity

Question 9

Don wants to compute the earnings per share for SFX Ltd.How does he do it?

Accepted Answer

Divide net income by the number of common shares outstanding

Question 10

What is the purpose of computing the current ratio?

Accepted Answer

To measure the firm's ability to meet its current obligations out of its current assets

Question 11

An activity ratio measures a firm's

Accepted Answer

efficiency in using its assets.

Question 12

The ______________ ratio is calculated by dividing the cost of goods sold by average inventory.

Accepted Answer

inventory turnover

Question 13

What is the primary thing the inventory turnover ratio says about a business?

Accepted Answer

How often new merchandise replaces old merchandise

Question 14

________ ratios give investors an idea of what returns they can expect on their investment; dividing ________ by total owners' equity is one such ratio.

Accepted Answer

Profitability; net income

Question 15

The current ratio is an example of ________,while earnings per share is an example of __________:

Accepted Answer

a short-term solvency ratio; a profitability ratio

Question 16

The debt-to-owners' equity ratio measures a firm's ability to meet

Accepted Answer

all liabilities.

Question 17

What does the debt-to-owners'-equity ratio tell us?

Accepted Answer

The extent to which the firm is financed through borrowed money

Question 18

ABC Company has net income of $5 million,$40 million of assets,and $10 million of liabilities.The number of outstanding shares of stock is 3 870 000 shares.What are earnings per share?

Accepted Answer

$1.
29

Question 19

Realm Company has fixed assets of $4 billion,current assets of $1.7 billion,long-term liabilities of $2 billion,and current liabilities of $0.34 billion.What is Realm's current ratio?

Accepted Answer

5

Question 20

The inventory turnover ratio is calculated by

Accepted Answer

dividing cost of goods sold by average inventory.

Quiz 14: Understanding Accounting Issues