QUESTION 1 Determine the cost of sales for a firm with the following financial r
ID: 2653165 • Letter: Q
Question
QUESTION 1
Determine the cost of sales for a firm with the following financial ratios and data:
Current ratio = 3.0; Quick ratio = 2.0; Current liabilities $1,000,000; Inventory turnover 6 times
$6,000,000
$3,000,000
$2,000,000
$1,000,000
8.3 points
QUESTION 2
What would be the times interest earned of a company, if its total interest charges are $20,000, sales are $220,000, and its net profit margin is 6 percent? Assume a tax rate of 40 percent.
2.65
2.1
1.1
1.2
8.3 points
QUESTION 3
A firm's current ratio is 1.5 and its quick ratio is 1.0. If its current liabilities are $10,000, what are its inventories?
$20,000
$ 5,000
$10,000
$15,000
8.3 points
QUESTION 4
If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must
increase its equity multiplier
increase sales and increase assets
decrease its equity multiplier
reduce sales and increase assets
8.3 points
QUESTION 5
The sales-to-inventory ratio:
is technically inferior to other commonly used ratios.
is superior to the inventory turnover ratio.
as a determination of financial performance, is good comparison tool.
was developed by the Dupont Corporation and is satisfactory when used to make comparisons between the firm and the industry as a whole.
8.5 points
QUESTION 6
Primary sources of comparative financial data include
Dun and Bradstreet
Richard Moore, Inc.
Framingham Financial Library
New York Times
8.3 points
QUESTION 7
____ indicate the ability of the firm to meet its short-term financial obligations
Leverage ratios
Profitability ratios
Activity ratios
Liquidity ratios
8.3 points
QUESTION 8
If a firm’s common size income statement shows that the earnings after tax percentage is too low, the firm may have spent too much money:
on total assets as a percentage of long-term liabilities.
on cost of goods sold as a percentage of sales.
on taxes paid as a percentage of stockholders’ equity.
on expenses as a percentage of current assets.
8.3 points
QUESTION 9
The ____ ratio indicates the percentage of a firm's earnings that are distributed as dividends.
payout
earnings
return on earnings
dividend yield
8.3 points
QUESTION 10
The work of the external independent auditor includes a letter that states that the financial information represents fairly the financial position of the company and that these statements were:
based on the company's accounting information system (AIS)
constructed in conformity with generally accepted accounting principles
developed using management's choice of accounting enhancement techniques
an accurate picture of the company's market position
8.3 points
QUESTION 11
The greater the amount of financial leverage used by a firm, the greater its ____, all other things being equal.
liquidity
profitability
size
risk
8.3 points
QUESTION 12
The type of ratio that indicates the firm’s ability to provide adequate returns in the form of dividends and share price appreciation is:
Profitability ratios
Asset management ratios
Financial leverage management ratios
Liquidity ratios
8.5 points
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a.$6,000,000
b.$3,000,000
c.$2,000,000
d.$1,000,000
Explanation / Answer
Answer:
Given that Current ratio = 3.0
And Current Liabilities = $1000000
Current Assets = Current Liabilities * Current Ratio
=1,000,000*3 = $3,000,000
Further Given that Quick ratio = 2.0
Quick Assets = Current Liabilities * Quick Ratio
=1,000,000 * 2
=$2,000,000
Now Inventories = Current Assets – Quick Assets
=$3,000,000 -$2,000,000
=$1,000,000
Given that Inventory turnover = 6 times
Now Cost of Sales = Average inventory * Inventory turnover ratio
= $1,000,000 * 6 = $6,000,000
Hence Cost of Sales is $6,000,000
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