Question 1

A company has inventory at cost of $ 176,255 in its balance sheet on 31 March 20X4. The inventory level at this date is 20% higher than it was at the beginning of the year. Cost of sales for the year ending 31 March 20X4 was $ 1,396,400. What is the inventory turnover in days?

Accepted Answer

A)   33.8 days
B)   37.9 days
C)   41.5 days
D)   42.2 days D

Question 2

Scholtes Corp. has current assets of € 90,000 and current liabilities of € 180,000. Which of the following transactions would improve their current ratio?

Accepted Answer

A)   Paying  € 20,000 of accounts payable.
B)   Purchasing € 50,000 of inventory in credit (account payable) 
C)   Collecting €10,000 of accounts receivable
D)   Refinancing a € 30,000 long-term mortgage with a short-term (current)  loan. B

Question 3

On 1 January, the equity of a business was $ 25,000. On 31 December of that year it had increased to $ 32,000. During the year the owner both introduced additional equity of $10,000 and took out $7,000 in dividends. Calculate the retained profit for the year.

Accepted Answer

A)   $ 4,000
B)   $ 7,000
C)   $ 10,000
D)   $ 12,000 A

Question 4

A balance sheet shows the following balances (all in local currency): Advance deposits 3,000; Inventory 6,000; Accounts payable 2,000; Bank 3,000; Equity 5,000; Current maturities of long-term debt 30,000; Accounts receivable x. What is x?

Accepted Answer

A)   6000
B)   14000
C)   21000
D)   31000

Question 5

Oogles Ltd. has listed the following amounts in its balance sheet: Cash 35,000; Buildings 75,000; Inventories 60,000; Tax payable 15,000; Accounts receivable 55,000; Equipment 55,000; Accounts payable 25,000; Dividend payable 10,000. What is the current ratio?

Accepted Answer

A)   0.3333
B)   1.5
C)   2.6
D)   3

Question 6

Current assets are $ 5,288. The current ratio is 1.26. How much is net working capital?

Accepted Answer

A)   $ 1,091
B)   $ 1,145
C)   $ 1,231
D)   $ 1382

Question 7

The bank lending money to ACME requires that company to have a debt-equity ratio of no more than 3.5 to 1. Another bank may calculate this type of ratio differently, e.g. as: debt / (debt + equity) * 100%. If done that way, the ratio would be:

Accepted Answer

A)   48%.
B)   71%.
C)   78%.
D)   0.54

Question 8

'Advance Deposits' may be considered as debts to whom?

Accepted Answer

A)   Owners
B)   Clients
C)   Suppliers
D)   Tax authorities

Question 9

A business depreciates its real estate in an accounting period. What impact does this have on the Income Statement and on the Balance Sheet?

Accepted Answer

A)   This decreases the balance sheet total & decreases profit for the period on the income statement
B)   This decreases the balance sheet total but does not impact the income statement for the period
C)   This decreases profit for the period on the income statement, but does not impact the balance sheet total

Question 10

Sibelicious Corp. buys a new photocopier for €9,000. Included in this amount is a maintenance contract for the first half year, for €300. How will this be recorded on the balance sheet?

Accepted Answer

A)   € 8,700 is added to Equipment, the € 300 is not recorded on the balance sheet
B)   € 9,000 is added to Equipment, and € 300 to Pre-paid Expenses
C)   € 9,000 is added to Equipment, the € 300 is not recorded on the balance sheet
D)   € 8,700 is added to Equipment, 300 to Pre-paid Expenses

Question 11

If TD = Total Debt, and TA = Total Assets, which of the following combinations represents a situation of LOW solvency?

Accepted Answer

A)   High TD to EBITDA; High TA/TD
B)   High TD to EBITDA; Low TA/TD
C)   Low TD to EBITDA ; Low TA/TD
D)   Low TD to EBITDA; High TA/TD

Question 12

If a balance sheet is ordered fixed assets - current assets, then the order on the other side should be what?

Accepted Answer

A)   Equity - long-term liabilities - short-term liabilities
B)   Long-term liabilities - short-term liabilities - equity
C)   Short-term liabilities - long-term liabilities - equity

Question 13

The Klinesbury hotel sold 5,250 rooms last April, at an average daily rate of $ 200. The property has 250 rooms. What was their RevPAR?

Accepted Answer

A)   $ 125
B)   $ 140
C)   $ 160
D)   $ 210

Question 14

A restaurant owner wants to expand and has offered 1.3 million Canadian to buy another restaurant. To find out what she would be paying for goodwill, should the bid be accepted, she must know:

Accepted Answer

A)   The total asset value
B)   The value of owner's equity
C)   The solvency ratio
D)   Total long-term liabilities

Question 15

At LOW levels of leverage, what can be said of equity versus debt levels?

Accepted Answer

A)   Equity can be either high or low relative to debt
B)   Equity will be low relative to debt
C)   Equity will be high relative to debt

Exam 2: Balance Sheet and Ratios