Question 1

Negative financial leverage occurs when the:

Accepted Answer

A)  Average net (after tax) interest rate on borrowed funds is less than the company's earnings rate on its assets. 
B)  Return on assets is more than return on equity. 
C) Return on equity is more than return on assets. 
D) Operating expenses exceed gross profit. 
A)  Average net (after tax) interest rate on borrowed funds is less than the company's earnings rate on its assets. 
B)  Return on assets is more than return on equity. 
C) Return on equity is more than return on assets. 
D) Operating expenses exceed gross profit. B

Question 2

If the current ratio is 2, what will be the effect of the payment of a cash dividend, which was recorded as a liability on the date of declaration?

Accepted Answer

A)  An increase in the current ratio. 
B)  A decrease in the current ratio. 
C) No effect on the current ratio. 
D) A decrease in the cash coverage ratio. 
A)  An increase in the current ratio. 
B)  A decrease in the current ratio. 
C) No effect on the current ratio. 
D) A decrease in the cash coverage ratio. A

Question 3

The inventory turnover ratio is significantly affected by the choice of inventory accounting method.

Accepted Answer

A) True 
 B)False  True

Question 4

The base amount in preparing component percentages for an income statement is usually which of the following?

Accepted Answer

A)  Income from operations. 
B)  Gross profit. 
C) Net income. 
D) Net sales. 
A)  Income from operations. 
B)  Gross profit. 
C) Net income. 
D) Net sales.

Question 5

Finding comparable companies in order to compare performance is often difficult since no two companies have identical products, markets, and operating strategies.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following ratios is not part of the DuPont model?

Accepted Answer

A)  Asset turnover. 
B)  Debt-to-equity. 
C) Net profit margin. 
D) Return on equity. 
A)  Asset turnover. 
B)  Debt-to-equity. 
C) Net profit margin. 
D) Return on equity.

Question 7

Agnes Company reported the following data: $$\begin{array} { l r } 
\text { Quick assets } & \$ 55,000 \
\text { Current assets } & 150,000 \
\text { Total liabilities } & 300,000 \
\text { Average net receivables } & 12,600 \
\text { Beginning inventory } & 38,000 \
\text { Long-term liabilities } & 200,000 \
\text { Net credit sales } & 126,000 \
\text { Cost of goods sold } & 84,000 \
\text { Ending inventory } & 46,000
\end{array}$$ What was the inventory turnover ratio?

Accepted Answer

A)  2.2 
B)  1.8 
C) 2.0 
D) 3.0 
A)  2.2 
B)  1.8 
C) 2.0 
D) 3.0

Question 8

Which of the following transactions will not increase the cash ratio?

Accepted Answer

A)  Receiving cash from a common stock issue. 
B)  Refinancing a current liability with long-term debt. 
C) Using cash to purchase a two-month treasury bill. 
D) Collecting an account receivable. 
A)  Receiving cash from a common stock issue. 
B)  Refinancing a current liability with long-term debt. 
C) Using cash to purchase a two-month treasury bill. 
D) Collecting an account receivable.

Question 9

Which of the following statements is not correct?

Accepted Answer

A)  Purchasing fixed assets through debt financing decreases the financial leverage ratio. 
B)  Accruing an expense will affect the net profit margin ratio. 
C) Return on equity may increase even when the financial leverage ratio decreases. 
D) Purchasing treasury stock results in a decrease in asset turnover. 
A)  Purchasing fixed assets through debt financing decreases the financial leverage ratio. 
B)  Accruing an expense will affect the net profit margin ratio. 
C) Return on equity may increase even when the financial leverage ratio decreases. 
D) Purchasing treasury stock results in a decrease in asset turnover.

Question 10

Which of the following correctly describes the effect of Mogul Company declaring and distributing a 10% common stock dividend?

Accepted Answer

A)  Mogul's current ratio decreased. 
B)  Mogul's return on equity ratio decreased. 
C) Mogul's debt-to-equity ratio remained the same. 
D) Mogul's return on assets decreaseD.Stock dividends do not affect debt or total stockholders' equity. Therefore, the debt-to-equity ratio remained the same. 
A)  Mogul's current ratio decreased. 
B)  Mogul's return on equity ratio decreased. 
C) Mogul's debt-to-equity ratio remained the same. 
D) Mogul's return on assets decreaseD.Stock dividends do not affect debt or total stockholders' equity. Therefore, the debt-to-equity ratio remained the same.

Question 11

Which of the following transactions will increase the quality of income ratio?

Accepted Answer

A)  Paying cash to suppliers. 
B)  Accruing sales revenue. 
C) Selling treasury stock for more than its cost. 
D) Collecting an account receivable. 
A)  Paying cash to suppliers. 
B)  Accruing sales revenue. 
C) Selling treasury stock for more than its cost. 
D) Collecting an account receivable.

Question 12

Which of the following ratios increases when inventory is sold on account for a price equal to its original cost?

Accepted Answer

A)  Current. 
B)  Quick. 
C) Return on assets. 
D) Return on equity. 
A)  Current. 
B)  Quick. 
C) Return on assets. 
D) Return on equity.

Question 13

At the end of 2014, Jared Corporation reported a return on assets of 16%; net income of $42,000; average total assets of $365,000, and average total liabilities of $165,000.
Required:
What was Jared's financial leverage percentage?

Accepted Answer

The return on equity ratio = 21% = Net i

Question 14

Lee Company has provided the following information: • Cash flow from operating activities, $240,000
• Net income, $204,000
• Interest expense, $20,000
• Interest cash payments, $10,000
• Income tax payments, $140,000
• Income tax expense, $136,000
What was Lee's cash coverage ratio?

Accepted Answer

A)  39.0 
B)  20.0 
C) 19.8 
D) 39.6 
A)  39.0 
B)  20.0 
C) 19.8 
D) 39.6

Question 15

Component percentages are used to express items on financial statements as a percentage of a single base amount.

Accepted Answer

A) True 
 B)False

Question 16

The year-end adjusting entry to adjust the unearned revenue account for revenue earned decreases which of the following ratios?

Accepted Answer

A)  Current. 
B)  Debt-to-equity. 
C) Quick. 
D) Profit margin. 
A)  Current. 
B)  Debt-to-equity. 
C) Quick. 
D) Profit margin.

Question 17

Bailey Corporation reported the following information for 2014: $\begin{array}{lr}
\text { Net income } & \$ 10,000 \
\text { Total assets } & 16,000 \
\text { Total stockholders' equity } & 8,000
\end{array}$ What is Bailey's debt-to-equity ratio?

Accepted Answer

A)  2 
B)  1.25 
C) 1.0 
D) 3.0 
A)  2 
B)  1.25 
C) 1.0 
D) 3.0

Question 18

A primary objective of financial statements is to provide information to current and potential investors and creditors.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following ratios is not considered to be a test of profitability?

Accepted Answer

A)  Current ratio. 
B)  Profit margin. 
C) Return on assets. 
D) Earnings per share. 
A)  Current ratio. 
B)  Profit margin. 
C) Return on assets. 
D) Earnings per share.

Question 20

During 2014, Home Style's cost of goods sold percentage was 68.2%, and selling and store operating costs was 19.3% of sales. During 2013, Home Style's cost of goods sold percentage was 68.9% while selling and store operating costs was 19.2% of sales. What effect would the change in these percentages have on 2014's gross profit percentage and profit margin percentage?

Accepted Answer

A)  The decrease in the cost of goods sold percentage would increase both the gross profit and profit margin percentages, but the increase in the selling and store operating costs percentage would decrease both the gross profit and profit margin percentages. 
B)  The decrease in the cost of goods sold percentage would decrease both the gross profit and profit margin percentages, but the increase in the selling and store operating costs percentage would increase both the gross profit and profit margin percentages. 
C) The decrease in the cost of goods sold percentage would increase both the gross profit and profit margin percentages, but the increase in the selling and store operating costs percentage would decrease only the profit margin percentage. 
D) The decrease in the cost of goods sold percentage would decrease both the gross profit and profit margin percentages, but the increase in the selling and store operating costs percentage would increase only the profit margin percentage. 
A)  The decrease in the cost of goods sold percentage would increase both the gross profit and profit margin percentages, but the increase in the selling and store operating costs percentage would decrease both the gross profit and profit margin percentages. 
B)  The decrease in the cost of goods sold percentage would decrease both the gross profit and profit margin percentages, but the increase in the selling and store operating costs percentage would increase both the gross profit and profit margin percentages. 
C) The decrease in the cost of goods sold percentage would increase both the gross profit and profit margin percentages, but the increase in the selling and store operating costs percentage would decrease only the profit margin percentage. 
D) The decrease in the cost of goods sold percentage would decrease both the gross profit and profit margin percentages, but the increase in the selling and store operating costs percentage would increase only the profit margin percentage.

Negative financial leverage occurs when the:

If the current ratio is 2, what will be the effect of the payment of a cash dividend, which was recorded as a liability on the date of declaration?

The inventory turnover ratio is significantly affected by the choice of inventory accounting method.

The base amount in preparing component percentages for an income statement is usually which of the following?

Finding comparable companies in order to compare performance is often difficult since no two companies have identical products, markets, and operating strategies.

Which of the following ratios is not part of the DuPont model?

Which of the following transactions will not increase the cash ratio?

Which of the following statements is not correct?

Which of the following correctly describes the effect of Mogul Company declaring and distributing a 10% common stock dividend?

Which of the following transactions will increase the quality of income ratio?

Which of the following ratios increases when inventory is sold on account for a price equal to its original cost?

At the end of 2014, Jared Corporation reported a return on assets of 16%; net income of $42,000; average total assets of $365,000, and average total liabilities of $165,000. Required: What was Jared's financial leverage percentage?

Lee Company has provided the following information: • Cash flow from operating activities, $240,000 • Net income, $204,000 • Interest expense, $20,000 • Interest cash payments, $10,000 • Income tax payments, $140,000 • Income tax expense, $136,000 What was Lee's cash coverage ratio?

Component percentages are used to express items on financial statements as a percentage of a single base amount.

The year-end adjusting entry to adjust the unearned revenue account for revenue earned decreases which of the following ratios?

Bailey Corporation reported the following information for 2014: Net income \ 10,000 Total assets 16,000 Total stockholders' equity 8,000 What is Bailey's debt-to-equity ratio?

A primary objective of financial statements is to provide information to current and potential investors and creditors.

Which of the following ratios is not considered to be a test of profitability?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Statement of Cash Flows

Reporting and Interpreting Investments in Other Corporations

Filters

Exam 13: Analyzing Financial Statements

Negative financial leverage occurs when the:

If the current ratio is 2, what will be the effect of the payment of a cash dividend, which was recorded as a liability on the date of declaration?

The inventory turnover ratio is significantly affected by the choice of inventory accounting method.

The base amount in preparing component percentages for an income statement is usually which of the following?

Finding comparable companies in order to compare performance is often difficult since no two companies have identical products, markets, and operating strategies.

Which of the following ratios is not part of the DuPont model?

Which of the following transactions will not increase the cash ratio?

Which of the following statements is not correct?

Which of the following correctly describes the effect of Mogul Company declaring and distributing a 10% common stock dividend?

Which of the following transactions will increase the quality of income ratio?

Which of the following ratios increases when inventory is sold on account for a price equal to its original cost?

At the end of 2014, Jared Corporation reported a return on assets of 16%; net income of $42,000; average total assets of $365,000, and average total liabilities of $165,000. Required: What was Jared's financial leverage percentage?

Lee Company has provided the following information: • Cash flow from operating activities, $240,000 • Net income, $204,000 • Interest expense, $20,000 • Interest cash payments, $10,000 • Income tax payments, $140,000 • Income tax expense, $136,000 What was Lee's cash coverage ratio?

Component percentages are used to express items on financial statements as a percentage of a single base amount.

The year-end adjusting entry to adjust the unearned revenue account for revenue earned decreases which of the following ratios?

Bailey Corporation reported the following information for 2014: Net income \ 10,000 Total assets 16,000 Total stockholders' equity 8,000 What is Bailey's debt-to-equity ratio?

A primary objective of financial statements is to provide information to current and potential investors and creditors.

Which of the following ratios is not considered to be a test of profitability?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Statement of Cash Flows

Reporting and Interpreting Investments in Other Corporations

Filters