Question 1

The following financial statement data are taken from Xeron Company's 2010 annual report:   Compute the debt ratio.

Accepted Answer

A)  196.9% 
B)  113.0% 
C)  53.0% 
D)  45.7% 
E)  none of the answers are correct 
A)  196.9% 
B)  113.0% 
C)  53.0% 
D)  45.7% 
E)  none of the answers are correct

Question 2

A potential significant liability is possible if the company withdraws from a multi-employer pension plan.

Accepted Answer

A) True 
 B)False

Question 3

Some revenue and expense items never go on the tax return, but do go on the income statement.

Accepted Answer

A) True 
 B)False

Question 4

Minority shareholders' interest in earnings of subsidiaries are included in earnings for the times interest earned coverage.

Accepted Answer

A) True 
 B)False

Question 5

The debt ratio indicates:

Accepted Answer

A)  the ability of the firm to pay its current obligations 
B)  the efficiency of the use of total assets 
C)  the magnification of earnings caused by leverage 
D)  a comparison of liabilities with total assets 
E)  none of the answers are correct 
A)  the ability of the firm to pay its current obligations 
B)  the efficiency of the use of total assets 
C)  the magnification of earnings caused by leverage 
D)  a comparison of liabilities with total assets 
E)  none of the answers are correct

Question 6

If a firm has substantial capital or financing leases disclosed in the notes but not capitalized in the financial statements, then:

Accepted Answer

A)  the times interest earned ratio will be overstated, based upon the financial statements 
B)  the fixed charge ratio will be overstated, based upon the financial statements 
C)  the debt ratio will be understated 
D)  the working capital will be understated 
E)  none of the answers are correct 
A)  the times interest earned ratio will be overstated, based upon the financial statements 
B)  the fixed charge ratio will be overstated, based upon the financial statements 
C)  the debt ratio will be understated 
D)  the working capital will be understated 
E)  none of the answers are correct

Question 7

Jordan Manufacturing reports the following capital structure:   What is the debt ratio?

Accepted Answer

A)  0.48 
B)  0.49 
C)  0.93 
D)  0.96 
E)  none of the answers are correct 
A)  0.48 
B)  0.49 
C)  0.93 
D)  0.96 
E)  none of the answers are correct

Question 8

Included in the Employee Retirement Income Security Act are the following:

Accepted Answer

A)  provisions requiring minimum funding of pension plans 
B)  minimum rights to employees upon termination of their employment 
C)  creation of the Pension Benefit Guaranty Corporation 
D)  provisions requiring minimum funding of pension plans and minimum rights to employees upon termination of their employment 
E)  provisions requiring minimum funding of pension plans, minimum rights to employees upon termination of their employment, and creation of the Pension Benefit Guaranty Corporation 
A)  provisions requiring minimum funding of pension plans 
B)  minimum rights to employees upon termination of their employment 
C)  creation of the Pension Benefit Guaranty Corporation 
D)  provisions requiring minimum funding of pension plans and minimum rights to employees upon termination of their employment 
E)  provisions requiring minimum funding of pension plans, minimum rights to employees upon termination of their employment, and creation of the Pension Benefit Guaranty Corporation

Question 9

To get a better indication of a firm's ability to cover interest payments in the long run, the noncash charges for depreciation, depletion, and amortization can be added back to the times interest earned ratio.

Accepted Answer

A) True 
 B)False

Question 10

Joseph and John, Inc., had the following balance sheet results for 2010:   Compute the debt-equity ratio.

Accepted Answer

A)  112.1% 
B)  87.6% 
C)  67.6% 
D)  46.7% 
E)  none of the answers are correct 
A)  112.1% 
B)  87.6% 
C)  67.6% 
D)  46.7% 
E)  none of the answers are correct

Question 11

If an employee is in the pension plan, rights under this plan will be lost if the employee leaves the firm prior to receiving a vested interest.

Accepted Answer

A) True 
 B)False

Question 12

A times interest earned ratio of 0.90 to 1 means:

Accepted Answer

A)  that the firm will default on its interest payment 
B)  that net income is less than the interest expense 
C)  that the cash flow is less than the net income 
D)  that the cash flow exceeds the net income 
E)  none of the answers are correct 
A)  that the firm will default on its interest payment 
B)  that net income is less than the interest expense 
C)  that the cash flow is less than the net income 
D)  that the cash flow exceeds the net income 
E)  none of the answers are correct

Question 13

Capitalized interest should not be considered as part of interest in the times interest earned computation.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is not correct?

Accepted Answer

A)  A ratio that indicates a firm's long-term, debt-paying ability from the income statement view is the times interest earned. 
B)  Some of the items on the income statement that are excluded in order to compute times interest earned are interest expense, income taxes, and unusual or infrequent items. 
C)  Capitalized interest should be included with interest expense when computing times interest earned. 
D)  Usually, the highest times interest coverage in the most recent five-year period is used as the primary indication of the interest coverage. 
E)  In the short run, a firm can often meet its interest obligations, even when the times interest earned is less than 1.00. 
A)  A ratio that indicates a firm's long-term, debt-paying ability from the income statement view is the times interest earned. 
B)  Some of the items on the income statement that are excluded in order to compute times interest earned are interest expense, income taxes, and unusual or infrequent items. 
C)  Capitalized interest should be included with interest expense when computing times interest earned. 
D)  Usually, the highest times interest coverage in the most recent five-year period is used as the primary indication of the interest coverage. 
E)  In the short run, a firm can often meet its interest obligations, even when the times interest earned is less than 1.00.

Question 15

When a firm is expensing an item faster on the tax return than on the financial statements, a deferred tax liability is the result.

Accepted Answer

A) True 
 B)False

Question 16

The tax expense for the financial statements often agrees with the taxes payable.

Accepted Answer

A) True 
 B)False

Question 17

A good times interest earned record would be indicated by a relatively high, stable coverage for the times interest earned coverage.

Accepted Answer

A) True 
 B)False

Question 18

Increases of profits by cutting the cost of sales would increase the times interest earned.

Accepted Answer

A) True 
 B)False

Question 19

Under generally accepted accounting principles, an item must clearly represent a commitment to pay out funds in the future in order to be classified as a liability.

Accepted Answer

A) True 
 B)False

Question 20

Repayment of a long-term bank loan would decrease the debt ratio.

Accepted Answer

A) True 
 B)False

The following financial statement data are taken from Xeron Company's 2010 annual report: Compute the debt ratio.

A potential significant liability is possible if the company withdraws from a multi-employer pension plan.

Some revenue and expense items never go on the tax return, but do go on the income statement.

Minority shareholders' interest in earnings of subsidiaries are included in earnings for the times interest earned coverage.

The debt ratio indicates:

If a firm has substantial capital or financing leases disclosed in the notes but not capitalized in the financial statements, then:

Jordan Manufacturing reports the following capital structure: What is the debt ratio?

Included in the Employee Retirement Income Security Act are the following:

To get a better indication of a firm's ability to cover interest payments in the long run, the noncash charges for depreciation, depletion, and amortization can be added back to the times interest earned ratio.

Joseph and John, Inc., had the following balance sheet results for 2010: Compute the debt-equity ratio.

If an employee is in the pension plan, rights under this plan will be lost if the employee leaves the firm prior to receiving a vested interest.

A times interest earned ratio of 0.90 to 1 means:

Capitalized interest should not be considered as part of interest in the times interest earned computation.

Which of the following statements is not correct?

When a firm is expensing an item faster on the tax return than on the financial statements, a deferred tax liability is the result.

The tax expense for the financial statements often agrees with the taxes payable.

A good times interest earned record would be indicated by a relatively high, stable coverage for the times interest earned coverage.

Increases of profits by cutting the cost of sales would increase the times interest earned.

Under generally accepted accounting principles, an item must clearly represent a commitment to pay out funds in the future in order to be classified as a liability.

Repayment of a long-term bank loan would decrease the debt ratio.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Basics of Analysis

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Profitability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

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Exam 7: Long-Term Debt-Paying Ability

The following financial statement data are taken from Xeron Company's 2010 annual report: Compute the debt ratio.

A potential significant liability is possible if the company withdraws from a multi-employer pension plan.

Some revenue and expense items never go on the tax return, but do go on the income statement.

Minority shareholders' interest in earnings of subsidiaries are included in earnings for the times interest earned coverage.

The debt ratio indicates:

If a firm has substantial capital or financing leases disclosed in the notes but not capitalized in the financial statements, then:

Jordan Manufacturing reports the following capital structure: What is the debt ratio?

Included in the Employee Retirement Income Security Act are the following:

To get a better indication of a firm's ability to cover interest payments in the long run, the noncash charges for depreciation, depletion, and amortization can be added back to the times interest earned ratio.

Joseph and John, Inc., had the following balance sheet results for 2010: Compute the debt-equity ratio.

If an employee is in the pension plan, rights under this plan will be lost if the employee leaves the firm prior to receiving a vested interest.

A times interest earned ratio of 0.90 to 1 means:

Capitalized interest should not be considered as part of interest in the times interest earned computation.

Which of the following statements is not correct?

When a firm is expensing an item faster on the tax return than on the financial statements, a deferred tax liability is the result.

The tax expense for the financial statements often agrees with the taxes payable.

A good times interest earned record would be indicated by a relatively high, stable coverage for the times interest earned coverage.

Increases of profits by cutting the cost of sales would increase the times interest earned.

Under generally accepted accounting principles, an item must clearly represent a commitment to pay out funds in the future in order to be classified as a liability.

Repayment of a long-term bank loan would decrease the debt ratio.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Basics of Analysis

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Profitability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters