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Exam 14: Analyzing Financial Statements

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Question 31

Multiple Choice

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Which of the following transactions will increase a current ratio which is currently 2.5?

A) Receiving cash from signing a 6-month note payable.
B) Accruing an expense.
C) Using cash to pay an account payable.
D) Collecting an account receivable.

E) B) and C)
F) A) and D)

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Question 32

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The records of Marshall Company include the following: $\begin{array} { l r } \text { Average total assets } & \$ 3,500,000 \\\text { Average total liabilities } & 1,220,000 \\\text { Total revenue } & 4,580,000 \\\text { Total expense (including income tax) } & 4,100,000 \\\text { Interest expense (included in total expenses) } & 90,000 \\\text { Income tax rate } 40 \% &\end{array}$ The return on equity is (round to the nearest tenth of a percent)

A) 21.1%.
B) 10.2%.
C) 16.4%.
D) 17.1%.

E) All of the above
F) None of the above

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Question 33

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A company with a high amount of inventory will have a much lower fixed asset turnover ratio when compared to its total asset turnover ratio.

The cash coverage ratio measures a firm's ability to pay its current liabilities with its cash flows from operating activities.

Which of the following statements is correct?

The records of Washington Company showed the following: $\begin{array}{lr}\text { Average Assets } & \$ 230,000& \text { Revenues } & \$ 100,000 \\\text { Average Liabilities } & 130,000 & \text { Expenses** } & (81,000) \\\text { Average Stockholders } & 100,000 & \text { Interest expense } & (2,000)\\\text { equity* } &\\&&\text { Net income } & (\$ 17,000)\end{array}$ *10,000 shares outstanding; current market price,$30 **Including income tax; income tax rate,30% Calculate each of the following ratios: A.Return on assets B.Return on equity C.Financial leverage percentage D.Is the financial leverage percentage positive or negative?

Finding comparable companies in order to compare performance is often difficult since no two companies have identical products,markets and operating strategies.

The following data were available for Holiday Company: Sales revenue,$225,000 (including $75,000 cash sales) Cost of goods sold,$175,000 Average balance in inventory,$20,000 Average balance in accounts receivable,$20,000 Assume 365 days in the year Calculate each of the following ratios:

Wildlife Co.reported net income of $8.3 million,interest expense of $.5 million and they are in a 30% tax rate bracket.Their average total assets are $65.8 million and average stockholders' equity is $48.6 million.What is Wildlife's financial leverage percentage?

Which of the following statements is false?

Trenton Company has provided the following information: Net income,$240,000; Preferred shares issued,6,000; Average common shares issued,24,000; Common cash dividends declared and paid,$30,000; Market price per share,$36 Average treasury shares of common stock,4,000. What were Trenton's earnings per share?

A very high current ratio and low quick ratio may indicate the company is not collecting its accounts receivables in a timely manner.

The following data were reported for Favre Company: $\begin{array} { l l } \text { Net income } & \$ 275,000 \\\text { Total dividends declared and paid on common stock } & \$ 0.60 \text { per share } \\\text { Common stock, par } \$ 10 & \$ 1,750,000 \\\text { Market price } & \$ 20.00 \text { per } \\& \text { share } \\\text { Cash flows from operating activities } & \$ 280,000\end{array}$ Calculate each of the following ratios: A.Dividend yield B.Price/earnings ratio C.Quality of income

Return on equity (ROE)is a function of three ratios: net profit margin,return on assets,and financial leverage.

Which of the following statements is correct?

During 2010,Home Style's cost of goods sold percentage was 68.2% and selling and store operating costs was 19.3% of sales.During 2009,their cost of goods sold percentage was 68.9% while selling and store operating costs was 19.2% of sales.What effect would the change in these percentages have on 2010's gross margin percentage and profit margin percentage?

Lucas Company has provided the following information: Cash flow from operating activities,$360,000; Net income,$306,000; Interest expense,$30,000; Interest cash payments,$20,000; Income tax payments,$240,000; Income tax expense,$246,000. What was Lucas' times interest earned ratio?

There are several fundamental purposes decision makers consider when they use financial data.Which of the following statements is not one of those fundamental purposes?

The base amount in preparing a common-size income statement is usually which of the following?

Which of the accounting ratios considers the importance of cash flows relating to required interest payments?