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The relationship of $325,000 to $125,000, expressed as a ratio, is

28/10/2020 Client: papadok01 Deadline: 7 Days

CSB 6610 Homework Assignment # 1

Professor: Dr. Siriyama K. Herath

Due Date: February 6th by 4.00pm

Chapter 12—Financial Statement Analysis (10 points)

MULTIPLE CHOICE

1. The relationship of $325,000 to $125,000, expressed as a ratio, is

a.

2.0 to 1

b.

2.6 to 1

c.

2.5 to 1

d.

0.45 to 1

2. In a common size income statement, the 100% figure is:

a.

net cost of goods sold.

b.

net income.

c.

gross profit.

d.

net sales.

3. Based on the following data for the current year, what is the number of days' sales in accounts receivable?

Net sales on account during year

$584,000

Cost of merchandise sold during year

300,000

Accounts receivable, beginning of year

45,000

Accounts receivable, end of year

35,000

Inventory, beginning of year

90,000

Inventory, end of year

110,000

a.

7.3

b.

2.5

c.

14.6

d.

25

4. Based on the following data for the current year, what is the number of days' sales in inventory?

Net sales on account during year

$1,204,500

Cost of merchandise sold during year

657,000

Accounts receivable, beginning of year

75,000

Accounts receivable, end of year

85,000

Inventory, beginning of year

85,600

Inventory, end of year

98,600

a.

51.2

b.

44.4

c.

6.5

d.

7.5

5. The number of times interest expense is earned is computed as

a.

net income plus interest expense, divided by interest expense

b.

income before income tax plus interest expense, divided by interest expense

c.

net income divided by interest expense

d.

income before income tax divided by interest expense

6. The current ratio is

a.

used to evaluate a company's liquidity and short-term debt paying ability.

b.

is a solvency measure that indicated the margin of safety of a noteholder or bondholder.

c.

calculated by dividing current liabilities by current assets.

d.

calculated by subtracting current liabilities from current assets.

7 A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will

a.

both decrease.

b.

both increase.

c.

increase and remain the same, respectively.

d.

remain the same and decrease, respectively.

8. Hsu Company reported the following on its income statement:

Income before income taxes

$420,000

Income tax expense

120,000

Net income

$300,000

An analysis of the income statement revealed that interest expense was $80,000. Hsu Company's times interest earned was

a.

8 times.

b.

6.25 times.

c.

5.25 times.

d.

e.

5 times.

None of the above

9. The following information pertains to Brock Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.

Assets

Cash and short-term investments

$ 40,000

Accounts receivable (net)

30,000

Inventory

25,000

Property, plant and equipment

215,000

Total Assets

$310,000

Liabilities and Stockholders’ Equity

Current liabilities

$ 60,000

Long-term liabilities

95,000

Stockholders’ equity-common

155,000

Total Liabilities and stockholders’ equity

$310,000

Income Statement

Sales

$ 90,000

Cost of goods sold

45,000

Gross margin

45,000

Operating expenses

20,000

Net income

$ 25,000

Number of shares of common stock

6,000

Market price of common stock

$20

What is the current ratio for this company?

a.

1.42

b.

0.78

c.

1.58

d.

e

0.67

None of the above

11. Based on the above data, what is the amount of quick assets?

a.

$168,000

b.

$96,000

c.

$60,000

d.

e

$61,000

None of the above

12. Based on the above data, what is the amount of working capital?

a.

$213,000

b.

$113,000

c.

$153,000

d.

e

$39,000

None of the above

13. The tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is sometimes referred to as

a.

leverage

b.

solvency

c.

yield

d.

quick assets

The balance sheets at the end of each of the first two years of operations indicate the following:

2012

2011

Total current assets

$600,000

$560,000

Total investments

60,000

40,000

Total property, plant, and equipment

900,000

700,000

Total current liabilities

125,000

65,000

Total long-term liabilities

350,000

250,000

Preferred 9% stock, $100 par

100,000

100,000

Common stock, $10 par

600,000

600,000

Paid-in capital in excess of par-common stock

75,000

75,000

Retained earnings

310,000

210,000

14. If net income is $115,000 and interest expense is $30,000 for 2012 what is the rate earned on total assets for 2012 (round percent to one decimal point)?

a.

9.3%

b.

10.1%

c.

8.0%

d.

e.

7.4%

None of the above

15. If net income is $115,000 and interest expense is $30,000 for 2012, what is the rate earned on stockholders' equity for 2012 (round percent to one decimal point)?

a.

10.6%

b.

11.1%

c.

12.4%

d.

e.

14.0%

None of the above

16. If net income is $115,000 and interest expense is $30,000 for 2012, what are the earnings per share on common stock for 2012, (round to two decimal places)?

a.

$2.07

b.

$1.92

c.

$1.77

d.

e.

$1.64

None of the above

17. The particular analytical measures chosen to analyze a company may be influenced by all of the following except:

a.

industry type

b.

capital structure

c.

diversity of business operations

d.

product quality or service effectiveness

18. In 2012 Robert Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000. They had 50,000 shares of common stock outstanding during the entire year. Robert Corporation's common stock is selling for $50 per share on the New York Stock Exchange.

Robert Corporation's price-earnings ratio is

a.

10 times.

b.

5 times.

c.

2 times.

d.

e.

8 times.

None of the above

19. Leveraging implies that a company

a.

contains debt financing.

b.

contains equity financing.

c.

has a high current ratio.

d.

has a high earnings per share.

20. Percentage analyses, ratios, turnovers, and other measures of financial position and operating results are

a.

a substitute for sound judgment.

b.

useful analytical measures.

c.

enough information for analysis, industry information is not needed.

d.

unnecessary for analysis, but reaction is better.

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