Question 1

The dividend yield ratio decreases when earnings per share increases.

Accepted Answer

A) True 
 B)False

Question 2

Many companies use high levels of debt to finance their assets because of financial leverage benefits provided to investors when return on assets exceeds the after tax cost of interest.

Accepted Answer

A) True 
 B)False

Question 3

Potaw Company reported the following data at the end of 2014: $\begin{array}{lr}\text { Sales revenue ( } 75 \% \text { on credit) }&\$300,000\
\text { Expenses ( } 26 \% \text { on credit) }&60,000\
\text { Accounts receivable, net at December } 31,2014 \text { (a decrease }\
\text { of } \$ 4,000 \text { during 2014) } & 8,000 \
\text { Total assets } & 200,000 \
\text { Stockholders' equity } & 150,000
\end{array}$ What was the accounts receivable turnover ratio?

Accepted Answer

A)  30.0 
B)  37.5 
C) 36.5 
D) 22.5 
A)  30.0 
B)  37.5 
C) 36.5 
D) 22.5

Question 4

Return on equity (ROE) provides insight with respect to a company's use of its assets.

Accepted Answer

A) True 
 B)False

Question 5

A higher current ratio is preferable for companies that do not have predictable cash flows.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is correct?

Accepted Answer

A)  When cost of goods sold as a percentage of sales increases, the gross profit percentage will increase. 
B)  It is possible that when cost of goods sold in dollars increases, cost of goods sold as a percentage of sales decreases. 
C) If gross profit percentage is the same for the current and past year, then sales and cost of goods sold in dollars did not change. 
D) If gross profit percentage increases from one year to the next, then the net income percentage will also increase from one year to the next. 
A)  When cost of goods sold as a percentage of sales increases, the gross profit percentage will increase. 
B)  It is possible that when cost of goods sold in dollars increases, cost of goods sold as a percentage of sales decreases. 
C) If gross profit percentage is the same for the current and past year, then sales and cost of goods sold in dollars did not change. 
D) If gross profit percentage increases from one year to the next, then the net income percentage will also increase from one year to the next.

Question 7

A negative financial leverage percentage occurs when a company has more debt than stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 8

Carolina Company computed the following ratios for a two-year period: $\begin{array}{lcc}\text { Ratio }&2013&2014\
1.\text { Current ratio } & 1.3 & .6 \
2.\text { Return on equity } & 25 \% & 16 \% \
3.\text { Quality of income } & 1.7 & .5 \
4.\text { Cash coverage ratio } & 346 & 122 \
5.\text { Profit margin } & 6 \% & 4 \%
\end{array}$ Required: 
A. Comment on the trend of each of the ratios from 2013 to 2014. State concerns or possible implications brought to light by each ratio.
B. State an overall opinion of the company's near future with suggestions for improvement.

Accepted Answer

Requirement A: 1. The current ratio has

Question 9

The price/earnings ratio is affected by the amount of risk that investors are willing to take.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is correct?

Accepted Answer

A)  A ratio calculation is most relevant in isolation. 
B)  One of the advantages of ratio analysis is that it allows companies of different sizes to be compared. 
C) Finding benchmarks for comparison is a straightforward task. 
D) It is always preferable to compare a company's performance to industry-wide ratios rather than to use a competitor's ratios. 
A)  A ratio calculation is most relevant in isolation. 
B)  One of the advantages of ratio analysis is that it allows companies of different sizes to be compared. 
C) Finding benchmarks for comparison is a straightforward task. 
D) It is always preferable to compare a company's performance to industry-wide ratios rather than to use a competitor's ratios.

Question 11

Which of the following transactions does not affect earnings per share?

Accepted Answer

A)  A 2-for-1 common stock split. 
B)  A 10% common stock dividend distribution. 
C) Accruing revenue at year-end. 
D) Issuing additional shares of preferred stock. 
A)  A 2-for-1 common stock split. 
B)  A 10% common stock dividend distribution. 
C) Accruing revenue at year-end. 
D) Issuing additional shares of preferred stock.

Question 12

Complete the following income statement for the dollar amounts and the component percentages: $\begin{array}{lrr}&\text { Dollar \$ }&\text {Component }\
&\text { Amount } &\text { Percentages \% }\\hline
\text { Sales revenue } & \
\text { Cost of goods sold } & & 40 \% \
\text { Gross profit } & \$ 120,000 & \
\text { Operating expenses } & \
\text { Interest expense } &  & 2 \% \
\text { Income before income tax } & \
\text { Income tax expense (rate } 20 \%) &  \
\text { Net income } & & 6 \%
\end{array}$

Accepted Answer

The answer of Complete the following income statement for the...

Question 13

Earnings per share (EPS) is affected by treasury stock transactions.

Accepted Answer

A) True 
 B)False

Question 14

The following financial data are available for Murphy Company: $$\begin{array} { l r } 
\text { Operating income } & \$ 236,500 \
\text { Net income } & 196,300 \
\text { Earnings per share } & 2.45 \
\text { Dividends paid per share } & 1.25 \
\text { Average common stockholders' equity } & 985,000 \
\text { Average total assets } & 1,870,000 \
\text { Current market price per share } & 24.50 \
\text { Book value per share } & 12.30
\end{array}$$ Required:
Calculate each of the following ratios. Round your answers to two decimal places. 
A. Return on equity
B. Price/earnings ratio
C. Dividend yield

Accepted Answer

A. Return on equity = 19.93% =

Question 15

The cash coverage ratio measures a firm's ability to pay its current liabilities with its cash flows from operating activities.

Accepted Answer

A) True 
 B)False

Question 16

A high price/earnings ratio usually indicates the market is optimistic about the company's future earnings potential.

Accepted Answer

A) True 
 B)False

Question 17

The Apple Pie Company had net income of $47,500 and earnings per share of $3.17. Apple Pie declared dividends of $2 per share of common stock during 2014. On December 31, 2014, the stock had a market price of $18.50 per share. Apple Pie's price/earnings ratio is closest to:

Accepted Answer

A)  9.25 
B)  8.11 
C) 5.84 
D) 0.17 
A)  9.25 
B)  8.11 
C) 5.84 
D) 0.17

Question 18

Time series analysis is a comparison of information for a specific company over a period of time to determine changes in operations.

Accepted Answer

A) True 
 B)False

Question 19

The records of Marshall Company include the following: $$\begin{array} { l r } 
\text { Average total assets } & \$ 3,500,000 \
\text { Average total liabilities } & 1,220,000 \
\text { Total revenue } & 4,580,000 \
\text { Total expense (including income tax) } & 4,100,000 \
\text { Interest expense (included in total expenses) } & 90,000 \
\text { Income tax rate } 40 \% &
\end{array}$$ The financial leverage percentage is closest to:

Accepted Answer

A)  1.8% 
B)  2.8% 
C) 5.8% 
D) 6.4% 
A)  1.8% 
B)  2.8% 
C) 5.8% 
D) 6.4%

Question 20

The 2014 financial statements of Companies Y and Z showed the following: $\begin{array}{lcc}&\text { Company }\\text { Item }&Y&Z\
\text { Net sales revenue } & \$ 150,000 & \$ 200,000 \
\text { Profit margin } & 6 \% & 5 \% \
\text { Total average assets } & \$ 40,000 & \$ 80,000 \
\text { Financial leverage percentage } & -5 \% & +6.5 \% \
\text { Interest expense (net of tax) } & \$ 1,000 & \$ 800
\end{array}$ Required:
Part A: For each company, calculate the items listed in the following tabulation. $\begin{array}{lcc}&\text { Company }\\text { Item }&Y&Z\
1.\text { Net income } & \$  & \$ \
2.\text { Return on assets } &  \% & \% \
3.\text { Return on equity } &  \% & \% \
4.\text { Average stockholders' equity } & \$ & \$
\end{array}$ Part B: Assuming both Company Y and Company Z are in the same industry, which company (Y or Z) appears to be the better investment and why?

Accepted Answer

Part A: @#IMG-DLM& Part B: Company Z appears to be

The dividend yield ratio decreases when earnings per share increases.

Many companies use high levels of debt to finance their assets because of financial leverage benefits provided to investors when return on assets exceeds the after tax cost of interest.

Return on equity (ROE) provides insight with respect to a company's use of its assets.

A higher current ratio is preferable for companies that do not have predictable cash flows.

Which of the following statements is correct?

A negative financial leverage percentage occurs when a company has more debt than stockholders' equity.

The price/earnings ratio is affected by the amount of risk that investors are willing to take.

Which of the following statements is correct?

Which of the following transactions does not affect earnings per share?

Earnings per share (EPS) is affected by treasury stock transactions.

The cash coverage ratio measures a firm's ability to pay its current liabilities with its cash flows from operating activities.

A high price/earnings ratio usually indicates the market is optimistic about the company's future earnings potential.

The Apple Pie Company had net income of $47,500 and earnings per share of $3.17. Apple Pie declared dividends of $2 per share of common stock during 2014. On December 31, 2014, the stock had a market price of $18.50 per share. Apple Pie's price/earnings ratio is closest to:

Time series analysis is a comparison of information for a specific company over a period of time to determine changes in operations.

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

The dividend yield ratio decreases when earnings per share increases.

Many companies use high levels of debt to finance their assets because of financial leverage benefits provided to investors when return on assets exceeds the after tax cost of interest.

Return on equity (ROE) provides insight with respect to a company's use of its assets.

A higher current ratio is preferable for companies that do not have predictable cash flows.

Which of the following statements is correct?

A negative financial leverage percentage occurs when a company has more debt than stockholders' equity.

The price/earnings ratio is affected by the amount of risk that investors are willing to take.

Which of the following statements is correct?

Which of the following transactions does not affect earnings per share?

Earnings per share (EPS) is affected by treasury stock transactions.

The cash coverage ratio measures a firm's ability to pay its current liabilities with its cash flows from operating activities.

A high price/earnings ratio usually indicates the market is optimistic about the company's future earnings potential.

The Apple Pie Company had net income of $47,500 and earnings per share of $3.17. Apple Pie declared dividends of $2 per share of common stock during 2014. On December 31, 2014, the stock had a market price of $18.50 per share. Apple Pie's price/earnings ratio is closest to:

Time series analysis is a comparison of information for a specific company over a period of time to determine changes in operations.

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