Question 1

Spring Market has an inventory turnover ratio of 15 times. Fall Market has a turnover of 14 times. Fall is more effective in managing inventory.

Accepted Answer

A) True 
 B)False  False

Question 2

Indicate the type of each ratio listed below.
-Earnings per share

Accepted Answer

A) Liquidity ratio 
B) Solvency ratio 
C) Profitability ratio 
A) Liquidity ratio 
B) Solvency ratio 
C) Profitability ratio C

Question 3

The Stockholders' Equity section of the balance sheet for Grant Corp. at the end of 2016 appears as follows:
   Net income for the year was $1,250,000. Dividends were declared and paid on the preferred shares during the year, and a quarterly dividend of $0.30 per share was declared and paid each quarter on the common shares. The closing market price for the common shares on December 31, 2016, was $24.72 per share.
REQUIRED:
1. Compute the following ratios for the common stock:
a. Earnings per share
b. Price/earnings ratio
c. Dividend payout ratio
d. Dividend yield ratio
2. Assume that you are an investment adviser. What other information would you want to have before advising a client regarding the purchase of Grant stock?

Accepted Answer

1. Ratios:
a. Earnings per Common Share = Net Income - Preferred Dividends/Number of Common Shares
Outstanding
= [$1,250,000 - 7%$5,500,000]/420,000 shares
= $1,250,000 - $385,000/420,000
= $865,000/420,000 = $2.06 per share
   b. Price/Earnings Ratio = Current Market Price/EPS
= $24.72/$2.06 = 12 to 1
c. Dividend Payout Ratio = Common Dividends per Share/EPS
= $0.30 × 4 quarters/$2.06
= $1.20/$2.06 = 58.3%
   d. Dividend Yield Ratio = Common Dividends per Share/Market Price
= $1.20 [from part c]/$24.72 = 4.85%
   
2. An investment advisor needs to be aware of industry trends, the general economic environment, the historical performance of the company, the investor's attitudes about risk, and any other relevant data needed to make an informed decision.

Question 4

Which of the following is considered a profitability ratio?

Accepted Answer

A)  Earnings per share 
B)  Debt-to-equity ratio 
C)  Acid-test ratio 
D)  Inventory turnover ratio 
A)  Earnings per share 
B)  Debt-to-equity ratio 
C)  Acid-test ratio 
D)  Inventory turnover ratio

Question 5

Select the term below most properly satisfies each statement.
-A comparison of financial statement items within a single period

Accepted Answer

A) Total assets 
B) Horizontal analysis 
C) Vertical analysis 
D) Net sales 
A) Total assets 
B) Horizontal analysis 
C) Vertical analysis 
D) Net sales

Question 6

A solvency measure that focuses specifically on the extent to which a company relies on outsiders for funds is:

Accepted Answer

A)  cash flow from operations to capital expenditures ratio. 
B)  debt service coverage ratio. 
C)  times interest earned ratio. 
D)  debt-to-equity ratio. 
A)  cash flow from operations to capital expenditures ratio. 
B)  debt service coverage ratio. 
C)  times interest earned ratio. 
D)  debt-to-equity ratio.

Question 7

Since almost all debts require payment with quick assets, the quick ratio is more useful than the cash flow from operations to current liabilities ratio.

Accepted Answer

A) True 
 B)False

Question 8

Because net income is on an after-tax basis, interest in the return on assets ratio must be placed on a before-tax basis.

Accepted Answer

A) True 
 B)False

Question 9

A non-business entity would be particularly concerned about its

Accepted Answer

A)  earnings per share. 
B)  price/earnings ratio. 
C)  liquidity. 
D)  income tax rate. 
A)  earnings per share. 
B)  price/earnings ratio. 
C)  liquidity. 
D)  income tax rate.

Question 10

The following items appear on the balance sheet of The Piano Company at the end of 2016 and 2015:   Between 2015 and 2016

Accepted Answer

A)  The Piano Company's debt-to-equity ratio and current ratio both increased. 
B)  The Piano Company's debt-to-equity ratio and current ratio both decreased. 
C)  The Piano Company's debt-to-equity ratio increased and its debt-to-total assets ratio decreased. 
D)  The Piano Company's debt-to-equity ratio decreased and its debt-to-total assets ratio increased. 
A)  The Piano Company's debt-to-equity ratio and current ratio both increased. 
B)  The Piano Company's debt-to-equity ratio and current ratio both decreased. 
C)  The Piano Company's debt-to-equity ratio increased and its debt-to-total assets ratio decreased. 
D)  The Piano Company's debt-to-equity ratio decreased and its debt-to-total assets ratio increased.

Question 11

Which of the following is not a characteristic of extraordinary items reported on the income statement?

Accepted Answer

A)  Appear near the end of the income statement 
B)  Reported separately from continuing operations 
C)  Shown net of tax effects 
D)  Is shown as a combined amount with discontinued operations 
A)  Appear near the end of the income statement 
B)  Reported separately from continuing operations 
C)  Shown net of tax effects 
D)  Is shown as a combined amount with discontinued operations

Question 12

The definition of a conglomerate is a company that operates in one industry and uses different inventory valuation techniques.

Accepted Answer

A) True 
 B)False

Question 13

Solvency is the company's ability to pay its current debts when they become due.

Accepted Answer

A) True 
 B)False

Question 14

The following account balances are taken from the records of Clarke Inc., a wholesaler:
   
1. Compute Clarke's inventory turnover ratio for 2016 and 2015.
2. Compute the number of days' sales in inventory for 2016 and 2015. Assume 360 days in a year.
3. Comment on your answers in 1 and 2 relative to the company's management of inventory over the two years.
What problems do you see in its inventory management?

Accepted Answer

1. Inventory turnover:
Cost of goods sol

Question 15

Solvency is concerned with the ability of a company to pay next year's debts as they come due.

Accepted Answer

A) True 
 B)False

Question 16

Indicate the type of each ratio listed below.
-Dividend payout ratio

Accepted Answer

A) Liquidity ratio 
B) Solvency ratio 
C) Profitability ratio 
A) Liquidity ratio 
B) Solvency ratio 
C) Profitability ratio

Question 17

Paint Company
Following are selected data from Paint Company's financial statements.
  
-Refer to the Paint Company data. The company's debt service coverage ratio for 2016 indicates that the

Accepted Answer

A)  company's ability to pay principal and interest to creditors has declined. 
B)  company has more net income available to allocate to stockholders after the payment of debt. 
C)  company had significantly changes in current assets and current liabilities during the period. 
D)  company generates about $2 of cash from operations to cover every $1 of debt. 
A)  company's ability to pay principal and interest to creditors has declined. 
B)  company has more net income available to allocate to stockholders after the payment of debt. 
C)  company had significantly changes in current assets and current liabilities during the period. 
D)  company generates about $2 of cash from operations to cover every $1 of debt.

Question 18

Indicate the type of each ratio listed below.
-Price/earnings ratio

Accepted Answer

A) Liquidity ratio 
B) Solvency ratio 
C) Profitability ratio 
A) Liquidity ratio 
B) Solvency ratio 
C) Profitability ratio

Question 19

Sunshine Farm Supply
Following are selected data from the financial statements of Sunshine Farm Supply:
  
-Refer to the data for Sunshine Farm Supply. Which of the following would result from a vertical analysis of its income statement?

Accepted Answer

A)  Accounts receivable increased $22,000 or 57.9% during 2016. 
B)  Gross profit is 57.9% of net sales for 2016. 
C)  Cost of goods sold increased $50,000 or 23.8% during 2016. 
D)  Net sales increased $110,000 or 28.9% during 2016. 
A)  Accounts receivable increased $22,000 or 57.9% during 2016. 
B)  Gross profit is 57.9% of net sales for 2016. 
C)  Cost of goods sold increased $50,000 or 23.8% during 2016. 
D)  Net sales increased $110,000 or 28.9% during 2016.

Question 20

Which profitability ratio requires the use of earnings per share and the current market price?

Accepted Answer

A)  Return on common stockholders' equity 
B)  Dividend payout ratio 
C)  Dividend yield ratio 
D)  Price/earnings ratio 
A)  Return on common stockholders' equity 
B)  Dividend payout ratio 
C)  Dividend yield ratio 
D)  Price/earnings ratio

Spring Market has an inventory turnover ratio of 15 times. Fall Market has a turnover of 14 times. Fall is more effective in managing inventory.

Indicate the type of each ratio listed below. -Earnings per share

Which of the following is considered a profitability ratio?

Select the term below most properly satisfies each statement. -A comparison of financial statement items within a single period

A solvency measure that focuses specifically on the extent to which a company relies on outsiders for funds is:

Since almost all debts require payment with quick assets, the quick ratio is more useful than the cash flow from operations to current liabilities ratio.

Because net income is on an after-tax basis, interest in the return on assets ratio must be placed on a before-tax basis.

A non-business entity would be particularly concerned about its

The following items appear on the balance sheet of The Piano Company at the end of 2016 and 2015: Between 2015 and 2016

Which of the following is not a characteristic of extraordinary items reported on the income statement?

The definition of a conglomerate is a company that operates in one industry and uses different inventory valuation techniques.

Solvency is the company's ability to pay its current debts when they become due.

Solvency is concerned with the ability of a company to pay next year's debts as they come due.

Indicate the type of each ratio listed below. -Dividend payout ratio

Paint Company Following are selected data from Paint Company's financial statements. -Refer to the Paint Company data. The company's debt service coverage ratio for 2016 indicates that the

Indicate the type of each ratio listed below. -Price/earnings ratio

Sunshine Farm Supply Following are selected data from the financial statements of Sunshine Farm Supply: -Refer to the data for Sunshine Farm Supply. Which of the following would result from a vertical analysis of its income statement?

Which profitability ratio requires the use of earnings per share and the current market price?

Accounting As a Form of Communication

Financial Statements and the Annual Report

Processing Accounting Information

Income Measurement and Accrual Accounting

Inventories and Cost of Goods Sold

Cash and Internal Control

Receivables and Investments

Operating Assets: Property, Plant, and Equipment, and Intangibles

Current Liabilities, Contingencies, and the Time Value of Money

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

International-Financial-Reporting-Standards

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Exam 13: Financial Statement Analysis

Spring Market has an inventory turnover ratio of 15 times. Fall Market has a turnover of 14 times. Fall is more effective in managing inventory.

Indicate the type of each ratio listed below. -Earnings per share

Which of the following is considered a profitability ratio?

Select the term below most properly satisfies each statement. -A comparison of financial statement items within a single period

A solvency measure that focuses specifically on the extent to which a company relies on outsiders for funds is:

Since almost all debts require payment with quick assets, the quick ratio is more useful than the cash flow from operations to current liabilities ratio.

Because net income is on an after-tax basis, interest in the return on assets ratio must be placed on a before-tax basis.

A non-business entity would be particularly concerned about its

The following items appear on the balance sheet of The Piano Company at the end of 2016 and 2015: Between 2015 and 2016

Which of the following is not a characteristic of extraordinary items reported on the income statement?

The definition of a conglomerate is a company that operates in one industry and uses different inventory valuation techniques.

Solvency is the company's ability to pay its current debts when they become due.

Solvency is concerned with the ability of a company to pay next year's debts as they come due.

Indicate the type of each ratio listed below. -Dividend payout ratio

Paint Company Following are selected data from Paint Company's financial statements. -Refer to the Paint Company data. The company's debt service coverage ratio for 2016 indicates that the

Indicate the type of each ratio listed below. -Price/earnings ratio

Sunshine Farm Supply Following are selected data from the financial statements of Sunshine Farm Supply: -Refer to the data for Sunshine Farm Supply. Which of the following would result from a vertical analysis of its income statement?

Which profitability ratio requires the use of earnings per share and the current market price?

Accounting As a Form of Communication

Financial Statements and the Annual Report

Processing Accounting Information

Income Measurement and Accrual Accounting

Inventories and Cost of Goods Sold

Cash and Internal Control

Receivables and Investments

Operating Assets: Property, Plant, and Equipment, and Intangibles

Current Liabilities, Contingencies, and the Time Value of Money

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

International-Financial-Reporting-Standards

Filters