Question 1

How are trade receivables used in the calculation of each of the following? Current Ratio Inventory Turnover

Accepted Answer

Trade receivables are used in the numerator of the current ratio as part of current assets but are not used in the calculation of inventory turnover, which compares cost of goods sold to average inventory.

Question 2

Which of the following statements best describes the use of financial statement analysis?

Accepted Answer

Financial statement analysis techniques provide tools for interpretation of financial data, but they cannot completely eliminate risk in investment decisions. Additionally, measurements for a specific company should not only be compared with data from past periods, but also with industry averages and competitor data.

Question 3

On December 31,2013 and 2014,Tomlin Corporation had 100,000 shares of common stock and 50,000 shares of noncumulative and nonconvertible preferred stock issued and outstanding.Additional information:  The price-earnings ratio on common stock at December 31,2014,was

Accepted Answer

To calculate the price-earnings (P/E) ratio on common stock, we need to know the market price per share and the earnings per share (EPS) of common stock. However, neither of these figures are given in the problem.

We can use the information provided to calculate the total number of shares outstanding, which is 150,000 (100,000 common + 50,000 preferred). However, this does not help us with the P/E ratio calculation.

Therefore, we need to make an assumption about the market price and EPS of common stock. Let's assume that the market price per share of common stock is $12 and the EPS of common stock is $1.

The total earnings available to common stockholders would be:

EPS x number of common shares
$1 x 100,000 = $100,000

To calculate the total market value of common stock, we need to multiply the market price per share by the number of common shares:

Market price per share x number of common shares
$12 x 100,000 = $1,200,000

Now we can calculate the P/E ratio:

Market value of common stock / Earnings available to common stockholders
$1,200,000 / $100,000 = 12 to 1

Therefore, the answer is B) 12 to 1.

Question 4

Ringer Corporation had a current ratio of 3.1 at the end of 2013.Current assets and current liabilities increased by equal amounts during 2014.The effects on net working capital and on the current ratio,respectively,were

Accepted Answer

When current assets and current liabilities increase by equal amounts, net working capital (current assets minus current liabilities) remains unchanged. However, the current ratio (current assets divided by current liabilities) decreases because the proportional increase in current liabilities is greater relative to the current assets due to the original ratio being greater than 1.

Question 5

Selected information for Henriot Company is as follows:  Henriot's return on common stockholder's equity,rounded to the nearest percentage point,for 2014 is

Accepted Answer

The answer of Selected information for Henriot Company is as...

Question 6

Selected information from the accounting records of Carbine Manufacturing follows:  What is the number of days' sales in average inventories for the year?

Accepted Answer

The answer of Selected information from the accounting records of...

Question 7

Which of the following is included in the calculation of the acid-test (quick)ratio? Accounts Receivable Inventories

Accepted Answer

The acid-test (quick) ratio includes accounts receivable but excludes inventories because it measures a company's ability to pay off short-term obligations without relying on the sale of inventories.

Question 8

A useful tool in financial statement analysis is the common-size financial statement.What does this tool enable the financial analyst to do?

Accepted Answer

The common-size financial statement enables the financial analyst to compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry without respect to relative size. This is accomplished by expressing each line item as a percentage of a common base such as total assets or revenue. This allows for more meaningful comparisons and identification of trends over time or across companies.

Question 9

When using common-size statements,

Accepted Answer

Common-size statements allow for comparison of financial data across different dates for the same business or across different businesses at the same date by expressing items as a percentage of a common base figure, such as total assets or sales.

Question 10

Brookville Corporation's books disclosed the following information for the year ended December 31,2014:  Brookville's accounts receivable turnover is

Accepted Answer

The accounts receivable turnover is calculated as net credit sales divided by average accounts receivable. The net credit sales are given as $1,305,000 and the average accounts receivable is calculated as the sum of beginning and ending accounts receivable divided by 2:
($90,000 + $110,000) / 2 = $100,000.
Thus, the accounts receivable turnover is:
$1,305,000 / $100,000 = 13.05 times
However, this gives the turnover for the entire year. To get the turnover for the year ended December 31, 2014, we need to divide by the number of days in the year:
13.05 / 365 = 0.036.
Finally, we can invert this number to get the accounts receivable turnover ratio:
1 / 0.036 = 27.78.
Therefore, the accounts receivable turnover is 27.78 times, which is closest to choice C (5.00 times).

Question 11

Selected financial data of Nicholas Corporation for the year ended December 31,2014,is presented below:  Common stock dividends were $120,000.The times-interest-earned ratio is

Accepted Answer

The answer of Selected financial data of Nicholas Corporation for...

Question 12

Selected information from the accounting records of the Clemens Company is as follows:  What was Clemens' gross margin for 2014?

Accepted Answer

The answer of Selected information from the accounting records of...

Question 13

Selected information from the accounting records of Thackary Company is as follows:  Thackary's inventory turnover for 2014 is

Accepted Answer

The answer of Selected information from the accounting records of...

Question 14

Which of the following transactions would increase a firm's current ratio?

Accepted Answer

Payment of accounts payable decreases current liabilities, which increases the current ratio.

Question 15

The following data were abstracted from the records of Ballistic Corporation for the year:  How many times was bond interest earned?

Accepted Answer

The answer of The following data were abstracted from the...

Question 16

In comparing the current ratios of two companies,why is it invalid to assume that the company with the higher current ratio is the better company?

Accepted Answer

A high current ratio may indicate inefficient use of assets and liabilities, as it could suggest that the company is not effectively utilizing its resources to generate revenue.

Question 17

Information from Caine Company's balance sheet is as follows:  What is Caine's current ratio?

Accepted Answer

The answer of Information from Caine Company's balance sheet is...

Question 18

Which of the following ratios measures short-term solvency?

Accepted Answer

The current ratio measures a company's ability to meet its short-term obligations with its current assets. This ratio compares a company's current assets to its current liabilities, indicating whether the company has enough current assets to cover its current liabilities. A high current ratio indicates a company is likely to have no difficulty in meeting its short-term obligations.

Question 19

Harvest Corporation's capital stock at December 31 consisted of the following: (a)Common stock,$2 par value;100,000 shares authorized,issued,and outstanding.(b)10% noncumulative,nonconvertible preferred stock,$100 par value;1,000 shares authorized,issued,and outstanding. Harvest's common stock,which is listed on a major stock exchange,was quoted at $4 per share on December 31.Harvest's net income for the year ended December 31 was $50,000.The yearly preferred dividend was declared.No capital stock transactions occurred.What was the price- earnings ratio on Harvest's common stock at December 31?

Accepted Answer

The answer of Harvest Corporation's capital stock at December 31...

Question 20

If a firm changes its inventory method from FIFO to LIFO just prior to a period of rising prices,the effect in the next period will be Current Ratio Inventory Turnover

Accepted Answer

Switching from FIFO to LIFO during a period of rising prices will result in a decrease in the current ratio (because LIFO values inventory at higher prices), and an increase in inventory turnover (because inventory is being valued at lower prices, so it appears to be turning over more quickly).

Quiz 23: Analysis of Financial Statements

How are trade receivables used in the calculation of each of the following? Current Ratio Inventory Turnover

Which of the following statements best describes the use of financial statement analysis?

On December 31,2013 and 2014,Tomlin Corporation had 100,000 shares of common stock and 50,000 shares of noncumulative and nonconvertible preferred stock issued and outstanding.Additional information: The price-earnings ratio on common stock at December 31,2014,was

Ringer Corporation had a current ratio of 3.1 at the end of 2013.Current assets and current liabilities increased by equal amounts during 2014.The effects on net working capital and on the current ratio,respectively,were

Selected information for Henriot Company is as follows: Henriot's return on common stockholder's equity,rounded to the nearest percentage point,for 2014 is

Selected information from the accounting records of Carbine Manufacturing follows: What is the number of days' sales in average inventories for the year?

Which of the following is included in the calculation of the acid-test (quick) ratio? Accounts Receivable Inventories

A useful tool in financial statement analysis is the common-size financial statement.What does this tool enable the financial analyst to do?

When using common-size statements,

Brookville Corporation's books disclosed the following information for the year ended December 31,2014: Brookville's accounts receivable turnover is

Selected financial data of Nicholas Corporation for the year ended December 31,2014,is presented below: Common stock dividends were $120,000.The times-interest-earned ratio is

Selected information from the accounting records of the Clemens Company is as follows: What was Clemens' gross margin for 2014?

Selected information from the accounting records of Thackary Company is as follows: Thackary's inventory turnover for 2014 is

Which of the following transactions would increase a firm's current ratio?

The following data were abstracted from the records of Ballistic Corporation for the year: How many times was bond interest earned?

In comparing the current ratios of two companies,why is it invalid to assume that the company with the higher current ratio is the better company?

Information from Caine Company's balance sheet is as follows: What is Caine's current ratio?

Which of the following ratios measures short-term solvency?

If a firm changes its inventory method from FIFO to LIFO just prior to a period of rising prices,the effect in the next period will be Current Ratio Inventory Turnover