Question 1

The principle factor/s affecting the quality of working capital is/are:

Accepted Answer

A) The nature of the current assets. 
B) The length of time to convert current assets into cash. 
C) Both the nature of the current assets and the length of time to convert current assets into cash. 
D) Neither the nature of the current assets nor the length of time to convert current assets into cash. 
A) The nature of the current assets. 
B) The length of time to convert current assets into cash. 
C) Both the nature of the current assets and the length of time to convert current assets into cash. 
D) Neither the nature of the current assets nor the length of time to convert current assets into cash. C

Question 2

The Piazza Company has working capital of $540,000 and current assets of $810,000.The current ratio is:

Accepted Answer

A) 0.67. 
B) 1.50. 
C) 2.00. 
D) 3.00. 
A) 0.67. 
B) 1.50. 
C) 2.00. 
D) 3.00. D

Question 3

The measures most often used in evaluating solvency-the current ratio,quick ratio,and amount of working capital-are developed from amounts appearing in the:

Accepted Answer

A) Balance sheet. 
B) Income statement. 
C) Statement of retained earnings. 
D) Statement of cash flows. 
A) Balance sheet. 
B) Income statement. 
C) Statement of retained earnings. 
D) Statement of cash flows. A

Question 4

All of the following are measures of liquidity except:

Accepted Answer

A) Quick ratio. 
B) Debt ratio. 
C) Current ratio. 
D) Working capital. 
A) Quick ratio. 
B) Debt ratio. 
C) Current ratio. 
D) Working capital.

Question 5

Deducting the cost of goods sold from net income gives us operating income.

Accepted Answer

A) True 
 B)False

Question 6

A high quality of earnings is indicated by:

Accepted Answer

A) Earnings derived largely from newly introduced products. 
B) Declaration of both cash and stock dividends. 
C) Use of the FIFO method of inventory during sustained inflation. 
D) A history of increasing earnings and conservative accounting methods. 
A) Earnings derived largely from newly introduced products. 
B) Declaration of both cash and stock dividends. 
C) Use of the FIFO method of inventory during sustained inflation. 
D) A history of increasing earnings and conservative accounting methods.

Question 7

The Plaza Company has working capital of $540,000 and a current ratio of 3 to 1.The amount of current assets is:

Accepted Answer

A) $405,000. 
B) $540,000. 
C) $810,000. 
D) $270,000. 
A) $405,000. 
B) $540,000. 
C) $810,000. 
D) $270,000.

Question 8

Improving the current ratio
Carter Corporation financed construction of a new addition to its facilities with a large long-term note payable.As a condition of obtaining the loan,Carter agreed to maintain a current ratio at year-end of at least 1.7 to 1.If Carter fails to maintain this ratio,the lender may demand immediate repayment of the principal amount of the note and all unpaid accrued interest.As the end of the year approaches,Carter is concerned about the magnitude of its current ratio.Suggest some actions that the company might take to increase the magnitude of the current ratio.

Accepted Answer

Paying any current liabilities will incr

Question 9

The gross profit rate represents:

Accepted Answer

A) Total sales revenue. 
B) The percentage change in net sales from the prior period. 
C) The percentage of sales revenue remaining after providing for the cost of the merchandise sold. 
D) Net income stated as a percentage of total sales revenue. 
A) Total sales revenue. 
B) The percentage change in net sales from the prior period. 
C) The percentage of sales revenue remaining after providing for the cost of the merchandise sold. 
D) Net income stated as a percentage of total sales revenue.

Question 10

The measurement of the relative size of each item included in a total is called:

Accepted Answer

A) Money changes. 
B) Trend percentages. 
C) Component percentages. 
D) Ratios. 
A) Money changes. 
B) Trend percentages. 
C) Component percentages. 
D) Ratios.

Question 11

The return on equity ratio usually is computed as:

Accepted Answer

A) Net income divided by average total assets. 
B) Net income divided by average total stockholders' equity. 
C) Gross profit divided by average total stockholders' equity. 
D) Net income less preferred dividends,divided by average common stockholders' equity. 
A) Net income divided by average total assets. 
B) Net income divided by average total stockholders' equity. 
C) Gross profit divided by average total stockholders' equity. 
D) Net income less preferred dividends,divided by average common stockholders' equity.

Question 12

Return on equity computations are used in evaluating:

Accepted Answer

A) Liquidity. 
B) Profitability. 
C) Gross profit. 
D) Whether a ratio is improving or deteriorating over time. 
A) Liquidity. 
B) Profitability. 
C) Gross profit. 
D) Whether a ratio is improving or deteriorating over time.

Question 13

The interest coverage ratio is computed by dividing:

Accepted Answer

A) Operating income by annual interest expense. 
B) Net income by annual interest expense. 
C) Carrying value of bonds by cash interest payments. 
D) Earnings per share by the prime interest rate. 
A) Operating income by annual interest expense. 
B) Net income by annual interest expense. 
C) Carrying value of bonds by cash interest payments. 
D) Earnings per share by the prime interest rate.

Question 14

All of the following ratios are considered measures of profitability except:

Accepted Answer

A) Earnings per share. 
B) Gross profit rate. 
C) Price earnings ratio. 
D) Return on assets. 
A) Earnings per share. 
B) Gross profit rate. 
C) Price earnings ratio. 
D) Return on assets.

Question 15

Working capital is calculated by:

Accepted Answer

A) Dividing current assets by total assets. 
B) Dividing current assets by total liabilities. 
C) Subtracting current liabilities from total assets. 
D) Subtracting current liabilities from current assets. 
A) Dividing current assets by total assets. 
B) Dividing current assets by total liabilities. 
C) Subtracting current liabilities from total assets. 
D) Subtracting current liabilities from current assets.

Question 16

Current ratio and working capital
The balance sheet of Red Missile Company contained the following items,among others:   (a)From the above information compute:
(1)Current assets: $_______
(2)Current liabilities: $______
(3)The current ratio: ______ to 1
(4)Working capital: $______
(b)Assume that Red Missile Company pays the note payable of $163,000,thus reducing cash to $17,000.Compute the following after the completion of this transaction:
(1)The current ratio: ______ to 1
(2)Working capital: $______

Accepted Answer

The answer of Current ratio and working capital
The balance sheet...

Question 17

The gross profit rate usually is lowest on fast moving merchandise and highest on specialty and novelty products.

Accepted Answer

A) True 
 B)False

Question 18

Net income stated as a percentage of sales is one means of evaluating a company's ability to control its expenses.

Accepted Answer

A) True 
 B)False

Question 19

The acid test ratio includes marketable securities but does not include accounts receivable.

Accepted Answer

A) True 
 B)False

Question 20

If a retail store has a current ratio of 2.5 and current assets of $195,000,the amount of working capital is:

Accepted Answer

A) $78,000. 
B) $380,000. 
C) $330,000. 
D) $117,000. 
A) $78,000. 
B) $380,000. 
C) $330,000. 
D) $117,000.

Exam 14: Financial Statement Analysis

The principle factor/s affecting the quality of working capital is/are:

The Piazza Company has working capital of $540,000 and current assets of $810,000.The current ratio is:

The measures most often used in evaluating solvency-the current ratio,quick ratio,and amount of working capital-are developed from amounts appearing in the:

All of the following are measures of liquidity except:

Deducting the cost of goods sold from net income gives us operating income.

A high quality of earnings is indicated by:

The Plaza Company has working capital of $540,000 and a current ratio of 3 to 1.The amount of current assets is:

The gross profit rate represents:

The measurement of the relative size of each item included in a total is called:

The return on equity ratio usually is computed as:

Return on equity computations are used in evaluating:

The interest coverage ratio is computed by dividing:

All of the following ratios are considered measures of profitability except:

Working capital is calculated by:

The gross profit rate usually is lowest on fast moving merchandise and highest on specialty and novelty products.

Net income stated as a percentage of sales is one means of evaluating a company's ability to control its expenses.

The acid test ratio includes marketable securities but does not include accounts receivable.

If a retail store has a current ratio of 2.5 and current assets of $195,000,the amount of working capital is:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values

Filters