Question 1

On December 31, 2010 and 2011, Taft Corporation had 100,000 shares of common stock and 50,000 shares of noncumulative and nonconvertible preferred stock issued and outstanding. Additional information:

The price-earnings ratio on common stock at December 31, 2011, was

Accepted Answer

A)  10 to 1. 
B)  12 to 1. 
C)  14 to 1. 
D)  16 to 1.

Question 2

In comparing the current ratios of two companies, why is it invalid to assume that the company with the higher current ratio is the better company?

Accepted Answer

A)  A high current ratio may indicate inadequate inventory on hand. 
B)  A high current ratio may indicate inefficient use of various assets and liabilities. 
C)  The two companies may define working capital in different terms. 
D)  The two companies may be different sizes.

Question 3

The following information has been collected for Gordon Company:
  
Required:
Estimate the price per share for Gordon Company's common stock using the discounted free cash flow model.

Accepted Answer

The answer of The following information has been collected for...

Question 4

The following information has been collected regarding Benjamin Company:
  
Estimate a price per share for the stock of Benjamin using the following equity valuation models:

Accepted Answer

The answer of The following information has been collected regarding...

Question 5

Orchard Corporation's capital stock at December 31 consisted of the following: (a) Common stock, $2 par value; 100,000 shares authorized, issued, and outstanding. (b) 10% noncumulative, nonconvertible preferred stock, $100 par value; 1,000 shares authorized, issued, and outstanding.
Orchard's common stock, which is listed on a major stock exchange, was quoted at $4 per share on December 31. Orchard's net income for the year ended December 31 was $50,000. The yearly preferred dividend was declared. No capital stock transactions occurred. What was the price- earnings ratio on Orchard's common stock at December 31?

Accepted Answer

A)  6 to 1 
B)  8 to 1 
C)  10 to 1 
D)  16 to 1

Question 6

Rauh Corporation had a current ratio of 2.0 at the end of 2010. Current assets and current liabilities increased by equal amounts during 2011. The effects on net working capital and on the current ratio, respectively, were

Accepted Answer

A)  no effect; increase. 
B)  no effect; decrease. 
C)  increase; increase. 
D)  decrease; decrease.

Question 7

The inventory turnover ratio

Accepted Answer

A)  measures management's ability to productively employ all of its resources. 
B)  measures the efficient use of assets held for resale. 
C)  is a stringent measure of liquidity. 
D)  provides a measure of the strength of the sales mix the company currently employs.

Question 8

Selected information from the accounting records of Thorne Company is as follows:

Thorne's inventory turnover for 2011 is

Accepted Answer

A)  5.36 times. 
B)  3.85 times. 
C)  3.67 times. 
D)  3.57 times.

Question 9

All other things held constant, which of the following ratios would not be improved if a company structures a leasing transaction as an operating lease rather than a capital lease?

Accepted Answer

A)  Debt to equity ratio 
B)  Return on investment 
C)  Price-earnings ratio 
D)  Quick ratio

Question 10

The following information has been collected regarding Collins Company:
  
Estimate a price per share for Collins' stock using the following equity valuation models:

Accepted Answer

The answer of The following information has been collected regarding...

Question 11

From the standpoint of the stockholders of a company, the ratio that measures the overall performance of a company would be calculated using which of the following?

Accepted Answer

A)  Average total assets and net income 
B)  Average stockholders' equity and net sales 
C)  Average stockholders' equity and net income 
D)  Net sales and average total assets

Question 12

A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do?

Accepted Answer

A)  Evaluate financial statements of companies within a given industry of approximately the same value. 
B)  Determine which companies in the same industry are at approximately the same stage of development. 
C)  Ascertain the relative potential of companies of similar size in different industries. 
D)  Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry without respect to relative size.

Question 13

During the year, The Grap Company purchased $1,920,000 of inventory. The cost of goods sold for the year was $1,800,000 and the ending inventory at December 31 was $360,000. What was the inventory turnover for the year?

Accepted Answer

A)  5.0 
B)  5.3 
C)  6.0 
D)  6.4

Question 14

Which of the following ratios measures short-term solvency?

Accepted Answer

A)  Current ratio 
B)  Creditors' equity to total assets 
C)  Return on investment 
D)  Total asset turnover

Question 15

Selected information from the 2011 and 2010 financial statements of SCL Corporation is presented below:

Refer to the SCL Corporation information above. SCL's current ratio as of December 31, 2011, is

Accepted Answer

A)  2.84 to 1. 
B)  3.37 to 1. 
C)  2.91 to 1. 
D)  3.33 to 1.

Question 16

The following 3 ratios have been computed using the financial statements for the year ended December 31, 2011, for James Company:
  
The following additional information has been assembled:
  
Show how the values for the 3 ratios computed above differ if James had used FIFO, depreciated the asset over 8 years, and recognized only 5% of its environmental cleanup obligation. Compute how the financial statements would differ if the alternative accounting methods had been used. Do not treat the use of these alternative methods as accounting changes. Ignore any income tax effects.

Accepted Answer

The answer of The following 3 ratios have been computed...

Question 17

Waldo Company is expected to pay a $0.50 per share dividend at the end of the year. The required rate of return on the stock is 15 percent.
Required:
What is the value per share of the company's stock?

Accepted Answer

The answer of Waldo Company is expected to pay a...

Exam 23: Analysis of Financial Statements

On December 31, 2010 and 2011, Taft Corporation had 100,000 shares of common stock and 50,000 shares of noncumulative and nonconvertible preferred stock issued and outstanding. Additional information: The price-earnings ratio on common stock at December 31, 2011, was

In comparing the current ratios of two companies, why is it invalid to assume that the company with the higher current ratio is the better company?

The following information has been collected for Gordon Company: Required: Estimate the price per share for Gordon Company's common stock using the discounted free cash flow model.

The following information has been collected regarding Benjamin Company: Estimate a price per share for the stock of Benjamin using the following equity valuation models:

Rauh Corporation had a current ratio of 2.0 at the end of 2010. Current assets and current liabilities increased by equal amounts during 2011. The effects on net working capital and on the current ratio, respectively, were

The inventory turnover ratio

Selected information from the accounting records of Thorne Company is as follows: Thorne's inventory turnover for 2011 is

All other things held constant, which of the following ratios would not be improved if a company structures a leasing transaction as an operating lease rather than a capital lease?

The following information has been collected regarding Collins Company: Estimate a price per share for Collins' stock using the following equity valuation models:

From the standpoint of the stockholders of a company, the ratio that measures the overall performance of a company would be calculated using which of the following?

A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do?

During the year, The Grap Company purchased $1,920,000 of inventory. The cost of goods sold for the year was $1,800,000 and the ending inventory at December 31 was $360,000. What was the inventory turnover for the year?

Which of the following ratios measures short-term solvency?

Selected information from the 2011 and 2010 financial statements of SCL Corporation is presented below: Refer to the SCL Corporation information above. SCL's current ratio as of December 31, 2011, is

Waldo Company is expected to pay a $0.50 per share dividend at the end of the year. The required rate of return on the stock is 15 percent. Required: What is the value per share of the company's stock?