Chapter 12—Financial Statement Analysis (10 points) MUMULTIPLE CHOICE 1. 1. The
ID: 2423259 • Letter: C
Question
Chapter 12—Financial Statement Analysis (10 points)
MUMULTIPLE CHOICE
1. 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.
a.
2.0 to 1
b.
2.6 to 1
c.
2.5 to 1
d.
0.45 to 1
Explanation / Answer
1 b. 2.6 to 1 2 b. net income. 3 a. 7.3 4 c. 6.5 5 b. income before income tax plus interest expense, divided by interest expense 6 b. is a solvency measure that indicated the margin of safety of a noteholder or bondholder. 7 c. increase and remain the same, respectively. 8 c. 5.25 times. 9 c. 1.58 11 b. $96,000 12 b. $113,000 13 b. solvency 14 d. 7.40% 15 a. 10.60% 16 c. $1.77 17 b. capital structure 18 a. 10 times. 19 a. contains debt financing. 20 d. unnecessary for analysis, but reaction is better.
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