Question 1

In computing debt to tangible net worth,which of the following is not subtracted in the denominator?

Accepted Answer

A) Copyrights 
B) Goodwill 
C) Patents 
D) Investments 
E) Trademarks 
A) Copyrights 
B) Goodwill 
C) Patents 
D) Investments 
E) Trademarks

Question 2

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 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

In general,the profitability of a firm is not considered to be important in determining the short-term,debt-paying ability of the firm.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Match the ratio that goes with each formula.
-$\frac {\text { Total Liabilities }} { \text {Total Assets} }$

Accepted Answer

A) times interest earned 
B) fixed charge coverage 
C) debt ratio 
D) debt/equity ratio 
E) debt to tangible net worth 
A) times interest earned 
B) fixed charge coverage 
C) debt ratio 
D) debt/equity ratio 
E) debt to tangible net worth

Question 7

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 8

When a portion of operating lease payments is included in fixed charges,it is an effort to recognize the true total interest that the firm is paying.

Accepted Answer

A) True 
 B)False

Question 9

Under the Employee Retirement Income Security Act,a company can be liable for its pension plan up to:

Accepted Answer

A) 30 percent of its total assets 
B) 30 percent of its net worth 
C) 40 percent of its total assets 
D) 40 percent of its net worth 
E) 50 percent of its total assets 
A) 30 percent of its total assets 
B) 30 percent of its net worth 
C) 40 percent of its total assets 
D) 40 percent of its net worth 
E) 50 percent of its total assets

Question 10

Jones Company has long-term debt of $1,000,000,while Smith Company,Jones' competitor,has long-term debt of $200,000.Which of the following statements best represents an analysis of the long-term debt position of these two firms?

Accepted Answer

A) Smith Company's times interest earned should be lower than Jones. 
B) Jones obviously has too much debt when compared to its competitor. 
C) Jones should sell more stock and use less debt. 
D) Smith has five times better long-term borrowing ability than Jones. 
E) Not enough information to determine if any of the answers are correct. 
A) Smith Company's times interest earned should be lower than Jones. 
B) Jones obviously has too much debt when compared to its competitor. 
C) Jones should sell more stock and use less debt. 
D) Smith has five times better long-term borrowing ability than Jones. 
E) Not enough information to determine if any of the answers are correct.

Question 11

Amsterdam Antiques reported the following comparative income figures in 2012. $\begin{array}{c}
\begin{array}{lll}
\

\text {Net sales}\
\text {Other income}\
\
\text {Costs and expenses:}\
\text {Cost of goods sold}\
\text {Selling and general expenses}\
\text {Interest}\
\
\text {Income before income taxes and extraordinary items}\
\text { Income taxes}\
\text {Income before extraordinary items}\
\text {Extraordinary items losses from fire}\
\text {Net income}
\end{array}
\begin{array}{lll}
\underline{2010}\quad\quad\underline{2009}\
\$701\quad\quad\$646\
\underline{10}\quad\quad\quad\underline{8}\
\underline{\$711}\quad\quad\underline{\$654}\
\
\$472\quad
\quad\$408\
176\quad
\quad156\
\underline{28}\quad
\quad\quad\underline{22}\
\underline{\$676}\quad
\quad\underline{\$586}\
\$35\quad
\quad\$68\
\underline{(15)}\quad
\quad\underline{(30)}\
\$20\quad
\quad\$38\
\underline{\quad\quad}\quad\quad\underline{18}\
\underline{\$20}\quad
\quad\underline{\$20} 
\end{array}
\end{array}$
 
Your boss,the president of Amsterdam bank,is concerned about Amsterdam's borrowing capacity.A representative of Amsterdam Antiques feels that there should be no problem,since net income are the same with slightly higher sales.
Required:
Compute times interest earned and comment on the bank's position.

Accepted Answer

@#IMG-DLM&_TB2094_00 
 @#IMG-DLM&_TB2094_00 
The ability of

Question 12

When analyzing a firm's long-term,debt-paying ability,we only want to determine the firm's ability to pay the principal.

Accepted Answer

A) True 
 B)False

Question 13

Match the ratio that goes with each formula.
-$\frac {\text {Recurring Earnings, Excluding Interest Expense, Tax Expense, Equity Earnings, and Noncontrolling Interest + Interest Portion of Rentals + Interest Portion of Rentals }} { \text {Interest Expense, including Capitalized Interest +Interest Portion of Rentals} }$

Accepted Answer

A) times interest earned 
B) fixed charge coverage 
C) debt ratio 
D) debt/equity ratio 
E) debt to tangible net worth 
A) times interest earned 
B) fixed charge coverage 
C) debt ratio 
D) debt/equity ratio 
E) debt to tangible net worth

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

Which of these items represents a definite commitment to pay out funds in the future?

Accepted Answer

A) Bonds payable 
B) Reserves for rebuilding furnaces 
C) Deferred taxes 
D) Noncontrolling shareholders' interests 
E) Redeemable preferred stock 
A) Bonds payable 
B) Reserves for rebuilding furnaces 
C) Deferred taxes 
D) Noncontrolling shareholders' interests 
E) Redeemable preferred stock

Question 16

Capitalization of interest results in interest being added to a fixed asset instead of expensed.

Accepted Answer

A) True 
 B)False

Question 17

As with the debt ratio and the debt/equity ratio,from a long-term,debt-paying ability view,the lower the debt to tangible net worth ratio,the better.

Accepted Answer

A) True 
 B)False

Question 18

Some companies achieve benefits by hundreds of millions of dollars by a pension termination.

Accepted Answer

A) True 
 B)False

Question 19

Jordan Manufacturing reports the following capital structure:
$\begin{array}{llcc}
  \text { Current liabilities } & \$100,000 \
 \text { Long-term debt } &400,000\
 \text {Deferred income taxes  } &10,000\
 \text { Preferred stock } &80,000\
 \text {Common stock  } &100,000\
 \text { Premium on common stock } &180,000\
 \text { Retained earnings } &170,000\
\end{array}$

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 20

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.

In computing debt to tangible net worth,which of the following is not subtracted in the denominator?

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

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

In general,the profitability of a firm is not considered to be important in determining the short-term,debt-paying ability of the firm.

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

Match the ratio that goes with each formula. - $\frac {\text { Total Liabilities }} { \text {Total Assets} }$

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

When a portion of operating lease payments is included in fixed charges,it is an effort to recognize the true total interest that the firm is paying.

Under the Employee Retirement Income Security Act,a company can be liable for its pension plan up to:

Jones Company has long-term debt of $1,000,000,while Smith Company,Jones' competitor,has long-term debt of $200,000.Which of the following statements best represents an analysis of the long-term debt position of these two firms?

When analyzing a firm's long-term,debt-paying ability,we only want to determine the firm's ability to pay the principal.

Which of the following statements is not correct?

Which of these items represents a definite commitment to pay out funds in the future?

Capitalization of interest results in interest being added to a fixed asset instead of expensed.

As with the debt ratio and the debt/equity ratio,from a long-term,debt-paying ability view,the lower the debt to tangible net worth ratio,the better.

Some companies achieve benefits by hundreds of millions of dollars by a pension termination.

Jordan Manufacturing reports the following capital structure: Current liabilities \1 00,000 Long-term debt 400,000 Deferred income taxes 10,000 Preferred stock 80,000 Common stock 100,000 Premium on common stock 180,000 Retained earnings 170,000 What is the debt ratio?

A times interest earned ratio of 0.90 to 1 means:

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

Exam 7: Long-Term Debt-Paying Ability

In computing debt to tangible net worth,which of the following is not subtracted in the denominator?

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

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

In general,the profitability of a firm is not considered to be important in determining the short-term,debt-paying ability of the firm.

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

Match the ratio that goes with each formula. - Total Liabilities Total Assets\frac {\text { Total Liabilities }} { \text {Total Assets} }Total Assets Total Liabilities ​

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

When a portion of operating lease payments is included in fixed charges,it is an effort to recognize the true total interest that the firm is paying.

Under the Employee Retirement Income Security Act,a company can be liable for its pension plan up to:

Jones Company has long-term debt of $1,000,000,while Smith Company,Jones' competitor,has long-term debt of $200,000.Which of the following statements best represents an analysis of the long-term debt position of these two firms?

When analyzing a firm's long-term,debt-paying ability,we only want to determine the firm's ability to pay the principal.

Which of the following statements is not correct?

Which of these items represents a definite commitment to pay out funds in the future?

Capitalization of interest results in interest being added to a fixed asset instead of expensed.

As with the debt ratio and the debt/equity ratio,from a long-term,debt-paying ability view,the lower the debt to tangible net worth ratio,the better.

Some companies achieve benefits by hundreds of millions of dollars by a pension termination.

Jordan Manufacturing reports the following capital structure: Current liabilities \1 00,000 Long-term debt 400,000 Deferred income taxes 10,000 Preferred stock 80,000 Common stock 100,000 Premium on common stock 180,000 Retained earnings 170,000 What is the debt ratio?

A times interest earned ratio of 0.90 to 1 means:

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

Match the ratio that goes with each formula. - $\frac {\text { Total Liabilities }} { \text {Total Assets} }$