Question 1

Russell's Deli has cash of $136,accounts receivable of $95,accounts payable of $210,and inventory of $409.What is the value of the quick ratio?

Accepted Answer

A) 0.31 
B) 0.53 
C) 0.71 
D) 1.10 
E) 1.07

Question 2

On a common-base year financial statement,accounts receivables will be expressed relative to which one of the following?

Accepted Answer

A) current year sales 
B) current year total assets 
C) base-year sales 
D) base-year total assets 
E) base-year accounts receivables

Question 3

A firm has a debt-equity ratio of 0.42.What is the total debt ratio?

Accepted Answer

A) 0.30 
B) 0.36 
C) 0.44 
D) 1.58 
E) 2.38

Question 4

A firm uses 2011 as the base year for its financial statements.The common-size,base-year statement for 2012 has an inventory value of 1.08.This is interpreted to mean that the 2012 inventory is equal to 108 percent of which one of the following?

Accepted Answer

A) 2011 inventory 
B) 2011 total assets 
C) 2012 total assets 
D) 2011 inventory expressed as a percent of 2011 total assets 
E) 2012 inventory expressed as a percent of 2012 total assets

Question 5

On the Statement of Cash Flows,which of the following are considered operating activities?
I.costs of goods sold
II.decrease in accounts payable
III.interest paid
IV.dividends paid

Accepted Answer

A) I and III only 
B) III and IV only 
C) I, II, and III only 
D) I, III, and IV only 
E) I, II, III, and IV

Question 6

BL Industries has ending inventory of $300,000,and cost of goods sold for the year just ended was $1,410,000.On average,how long does a unit of inventory sit on the shelf before it is sold?

Accepted Answer

A) 17.16 days 
B) 21.43 days 
C) 77.66 days 
D) 78.29 days 
E) 83.13 days

Question 7

Relationships determined from a firm's financial information and used for comparison purposes are known as:

Accepted Answer

A) financial ratios. 
B) identities. 
C) dimensional analysis. 
D) scenario analysis. 
E) solvency analysis.

Question 8

Dee's has a fixed asset turnover rate of 1.12 and a total asset turnover rate of 0.91.Sam's has a fixed asset turnover rate of 1.15 and a total asset turnover rate of 0.88.Both companies have similar operations.Based on this information,Dee's must be doing which one of the following?

Accepted Answer

A) utilizing its fixed assets more efficiently than Sam's 
B) utilizing its total assets more efficiently than Sam's 
C) generating $1 in sales for every $1.12 in net fixed assets 
D) generating $1.12 in net income for every $1 in net fixed assets 
E) maintaining the same level of current assets as Sam's

Question 9

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.

Accepted Answer

A) asset management 
B) long-term solvency 
C) short-term solvency 
D) profitability 
E) turnover

Question 10

BL Lumber has earnings per share of $1.21.The firm's earnings have been increasing at an average rate of 3.1 percent annually and are expected to continue doing so.The firm has 21,500 shares of stock outstanding at a price per share of $15.60.What is the firm's PEG ratio?

Accepted Answer

A) 0.48 
B) 1.24 
C) 2.85 
D) 3.97 
E) 4.16

Question 11

Wise's Corner Grocer had the following current account values.What effect did the change in net working capital have on the firm's cash flows for 2012?

Accepted Answer

A) net use of cash of $37 
B) net use of cash of $83 
C) net source of cash of $83 
D) net source of cash of $132 
E) net source of cash of $135

Question 12

It is easier to evaluate a firm using financial statements when the firm:

Accepted Answer

A) is a conglomerate. 
B) has recently merged with its largest competitor. 
C) uses the same accounting procedures as other firms in the industry. 
D) has a different fiscal year than other firms in the industry. 
E) tends to have many one-time events such as asset sales and property acquisitions.

Question 13

Which one of the following statements is correct?

Accepted Answer

A) If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0. 
B) Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5. 
C) The debt-equity ratio can be computed as 1 plus the equity multiplier. 
D) An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity. 
E) An increase in the depreciation expense will not affect the cash coverage ratio.

Question 14

A firm has total assets of $310,100 and net fixed assets of $168,500.The average daily operating costs are $2,980.What is the value of the interval measure?

Accepted Answer

A) 31.47 days 
B) 47.52 days 
C) 56.22 days 
D) 68.05 days 
E) 104.62 days

Question 15

During the year,Kitchen Supply increased its accounts receivable by $130,decreased its inventory by $75,and decreased its accounts payable by $40.How did these three accounts affect the firm's cash flows for the year?

Accepted Answer

A) $245 use of cash 
B) $165 use of cash 
C) $95 use of cash 
D) $95 source of cash 
E) $165 source of cash

Question 16

Which one of the following accurately describes the three parts of the Du Pont identity?

Accepted Answer

A) operating efficiency, equity multiplier, and profitability ratio 
B) financial leverage, operating efficiency, and profitability ratio 
C) equity multiplier, profit margin, and total asset turnover 
D) debt-equity ratio, capital intensity ratio, and profit margin 
E) return on assets, profit margin, and equity multiplier

Question 17

Which of the following ratios are measures of a firm's liquidity?
I.cash coverage ratio
II.interval measure
III.debt-equity ratio
IV.quick ratio

Accepted Answer

A) I and III only 
B) II and IV only 
C) I, III, and IV only 
D) I, II, and III only 
E) I, II, III, and IV

Question 18

The Burger Hut has sales of $29 million,total assets of $43 million,and total debt of $13 million.The profit margin is 11 percent.What is the return on equity?

Accepted Answer

A) 7.42 percent 
B) 10.63 percent 
C) 11.08 percent 
D) 13.31 percent 
E) 14.28 percent

Question 19

The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level.Assume that both the cost per unit and the selling price per unit also remained constant.This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?

Accepted Answer

A) decrease in the inventory turnover rate 
B) decrease in the net working capital turnover rate 
C) no change in the fixed asset turnover rate 
D) decrease in the day's sales in inventory 
E) no change in the total asset turnover rate

Question 20

Activities of a firm which require the spending of cash are known as:

Accepted Answer

A) sources of cash. 
B) uses of cash. 
C) cash collections. 
D) cash receipts. 
E) cash on hand.

Exam 3: Working With Financial Statements