Question 1

The debt to tangible net worth ratio is a more conservative ratio than the debt ratio.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is not true relating to a capitalized (capital)lease?

Accepted Answer

A) A capital lease is handled as if the lessee bought the asset. 
B) The leased asset is in the fixed assets and the related obligation is included in liabilities. 
C) On the balance sheet,the capitalized asset amount will not usually agree with the capitalized liability amount because the liability is reduced by payments,and the asset is reduced by depreciation taken. 
D) Usually,a company depreciates capitalized leases faster than payments are made. 
E) On the balance sheet,the capitalized asset amount will usually be higher than the capitalized liability amount. 
A) A capital lease is handled as if the lessee bought the asset. 
B) The leased asset is in the fixed assets and the related obligation is included in liabilities. 
C) On the balance sheet,the capitalized asset amount will not usually agree with the capitalized liability amount because the liability is reduced by payments,and the asset is reduced by depreciation taken. 
D) Usually,a company depreciates capitalized leases faster than payments are made. 
E) On the balance sheet,the capitalized asset amount will usually be higher than the capitalized liability amount.

Question 3

You have been asked to evaluate the long-term borrowing position of Client,Inc.However,you were given only the following limited information. $\begin{array}{lr}
\text { Bonds payable, 12\% } & \$ 1,000,000 \
\text { Stockholders' equity } & 1,800,000 \
\text { Current assets } & 1,870,000 \
\text { Tangible assets, net } & 1,600,000 \
\text { Intangible assets } & 40,000 \
\text { Investments } & 120,000 \
\text { Other assets } & 90,000 \
\text { Sales } & 4,000,000 \
\text { Operating expenses } & 3,620,000
\end{array}$
  
Required:
Assuming that this is the only information you will receive,estimate the following ratios: 
a.Times interest earned ratio
b.Debt ratio
c.Debt/equity ratio
d.Debt to tangible net worth ratio

Accepted Answer

Computations for figures needed in the r

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

A joint venture can add significant potential liabilities to the parent company that are not on the face of the balance sheet.

Accepted Answer

A) True 
 B)False

Question 6

Aristocrats Art reported the following trend analysis to its bank as an attachment to a loan application. $\begin{array}{lll}
&\underline{2012}&\underline{2011}&\underline{2010}\
 \text {Fixed Charge Ratio}&4.00 & 2.50 & 1.54 \
 \text {Times Interest Earned Ratio}&4.94 & 3.17 & 2.08 \
\text {Debt Ratio}&0.47 & 0.51 & 0.56 \
 \text {Debt to Tangible Net Worth Ratio}&0.91 & 1.06 & 1.36
\end{array}$ 
You have been asked to evaluate the long-term borrowing capacity.You know that a rule of thumb for this industry for the debt/ equity ratio is 1 to 1.
Required: 
a.Compute the debt/equity ratio for 2012,2011,and 2010,using the debt ratio as a guide.
b.Comment on the long-term borrowing ability of this firm.

Accepted Answer

a.If total liabilities are .47 of total

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

In the short run,a firm can often meet its interest obligations even when the times interest earned is less than 1.00.

Accepted Answer

A) True 
 B)False

Question 9

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

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 10

There are a number of assumptions about future events that must be made regarding a defined benefit plan.An assumption that does not need to be made is:

Accepted Answer

A) interest rates. 
B) employee turnover. 
C) mortality rates. 
D) compensation. 
E) how long the firm will continue. 
A) interest rates. 
B) employee turnover. 
C) mortality rates. 
D) compensation. 
E) how long the firm will continue.

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

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 13

Equity earnings are excluded from earnings for the times interest earned coverage.

Accepted Answer

A) True 
 B)False

Question 14

Required:
Following is a list of paired ratios and transactions.For each transaction,indicate the effect of that transaction on the specific ratio.Use + for increase,- for decrease,and 0 for no effect.

Accepted Answer

The answer of Required:
Following is a list of paired ratios...

Question 15

The following financial statement data are taken from Xeron Company's 2012 annual report:
$\begin{array}{lccc}
&\text { (in millions) }\
  \text {Current assets  } &  \$12.8\
 \text {Investments  } &9.4\
 \text { Intangibles } &6.8\
 \text {Property, plant, and equipment  } &58.1\
 \text { Current liabilities } &6.4\
 \text {  Long-term debt} &39.7\
 \text {Stockholders' equity  } &40.8
\end{array}$

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 16

Which of the following will not cause times interest earned to drop? Assume no other changes than those listed.

Accepted Answer

A) An increase in bonds payable with no change in operating income. 
B) An increase in interest rates. 
C) A rise in preferred stock dividends. 
D) A rise in cost of goods sold with no change in interest expense. 
E) A drop in sales with no change in interest expense. 
A) An increase in bonds payable with no change in operating income. 
B) An increase in interest rates. 
C) A rise in preferred stock dividends. 
D) A rise in cost of goods sold with no change in interest expense. 
E) A drop in sales with no change in interest expense.

Question 17

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

Accepted Answer

A) True 
 B)False

The debt to tangible net worth ratio is a more conservative ratio than the debt ratio.

Which of the following statements is not true relating to a capitalized (capital)lease?

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

A joint venture can add significant potential liabilities to the parent company that are not on the face of the balance sheet.

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

In the short run,a firm can often meet its interest obligations even when the times interest earned is less than 1.00.

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

There are a number of assumptions about future events that must be made regarding a defined benefit plan.An assumption that does not need to be made is:

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.

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.

Equity earnings are excluded from earnings for the times interest earned coverage.

Required: Following is a list of paired ratios and transactions.For each transaction,indicate the effect of that transaction on the specific ratio.Use + for increase,- for decrease,and 0 for no effect.

The following financial statement data are taken from Xeron Company's 2012 annual report: (in millions) Current assets \1 2.8 Investments 9.4 Intangibles 6.8 Property, plant, and equipment 58.1 Current liabilities 6.4 Long-term debt 39.7 Stockholders' equity 40.8 Compute the debt ratio.

Which of the following will not cause times interest earned to drop? Assume no other changes than those listed.

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

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

The debt to tangible net worth ratio is a more conservative ratio than the debt ratio.

Which of the following statements is not true relating to a capitalized (capital)lease?

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

A joint venture can add significant potential liabilities to the parent company that are not on the face of the balance sheet.

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

In the short run,a firm can often meet its interest obligations even when the times interest earned is less than 1.00.

Match the ratio that goes with each formula. - Total Liabilities Shareholders’ Equity\frac {\text { Total Liabilities }} { \text {Shareholders' Equity} }Shareholders’ Equity Total Liabilities ​

There are a number of assumptions about future events that must be made regarding a defined benefit plan.An assumption that does not need to be made is:

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.

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.

Equity earnings are excluded from earnings for the times interest earned coverage.

Required: Following is a list of paired ratios and transactions.For each transaction,indicate the effect of that transaction on the specific ratio.Use + for increase,- for decrease,and 0 for no effect.

The following financial statement data are taken from Xeron Company's 2012 annual report: (in millions) Current assets \1 2.8 Investments 9.4 Intangibles 6.8 Property, plant, and equipment 58.1 Current liabilities 6.4 Long-term debt 39.7 Stockholders' equity 40.8 Compute the debt ratio.

Which of the following will not cause times interest earned to drop? Assume no other changes than those listed.

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

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. - $\frac {\text { Total Liabilities }} { \text {Shareholders' Equity} }$