ACC 100 Chapter Notes - Chapter 10: Walmart, Current Liability, Melvins
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Chapter 12âFinancial Statement Analysis (10points)
MUMULTIPLECHOICE
1. 1. The relationship of $325,000to $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 thecurrent year, what is the number of days' sales in accountsreceivable?
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 thecurrent 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 expenseis earned is computed as
a. | net income plus interest expense, divided by interestexpense |
b. | income before income tax plus interest expense, divided byinterest 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 debtpaying ability. |
b. | is a solvency measure that indicated the margin of safety of anoteholder or bondholder. |
c. | calculated by dividing current liabilities by currentassets. |
d. | calculated by subtracting current liabilities from currentassets. |
7. A company with $70,000 in current assets and $50,000 incurrent liabilities pays a $1,000 current liability. As a result ofthis 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 onits 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 interestexpense 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 toBrock Company. Assume that all balance sheet amounts represent bothaverage and ending balance figures. Assume that all sales were oncredit.
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 Stockholdersâ Equity
Current liabilities | $ 60,000 | ||
Long-term liabilities | 95,000 | ||
Stockholdersâ equity-common | 155,000 | ||
Total Liabilities and stockholdersâ 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 thiscompany?
a. | 1.42 |
b. | 0.78 |
c. | 1.58 |
d. e | 0.67 None of the above |
11. Basedon 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. Basedon 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. Thetendency of the rate earned on stockholders' equity to varydisproportionately from the rate earned on total assets issometimes 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 ofoperations 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. Ifnet income is $115,000 and interest expense is $30,000 for 2012what is the rate earned on total assets for 2012 (round percent toone decimal point)?
a. | 9.3% |
b. | 10.1% |
c. | 8.0% |
d. e. | 7.4% None of the above |
15. Ifnet income is $115,000 and interest expense is $30,000 for 2012,what is the rate earned on stockholders' equity for 2012 (roundpercent to one decimal point)?
a. | 10.6% |
b. | 11.1% |
c. | 12.4% |
d. e. | 14.0% None of the above |
16. Ifnet income is $115,000 and interest expense is $30,000 for 2012,what are the earnings per share on common stock for 2012, (round totwo decimal places)?
a. | $2.07 |
b. | $1.92 |
c. | $1.77 |
d. e. | $1.64 None of the above |
17. Theparticular analytical measures chosen to analyze a company may beinfluenced by all of the following except:
a. | industry type |
b. | capital structure |
c. | diversity of business operations |
d. | product quality or service effectiveness |
18. In2012 Robert Corporation had net income of $250,000 and paiddividends to common stockholders of $50,000. They had 50,000 sharesof common stock outstanding during the entire year. RobertCorporation's common stock is selling for $50 per share on the NewYork 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 offinancial position and operating results are
a. | a substitute for sound judgment. |
b. | useful analytical measures. |
c. | enough information for analysis, industry information is notneeded. |
d. | unnecessary for analysis, but reaction is better. |
Use the following to answer questions 53-56:
The financial statements of Wines, Inc., provide the followinginformation for the current year:
Dec.31 | Jan.1 | |
Accountsreceivable...................................................................... | $210,000 | $180,000 |
Inventory...................................................................... | 200,000 | 190,000 |
Prepaidexpenses....................................................................... | 14,000 | 10,000 |
Accounts payable (formerchandise)................................................................. | 176,000 | 161,000 |
Accrued expensespayable......................................................................... | 13,000 | 19,000 |
Netsales.............................................................................. | 2,900,000 | |
Cost of goodssold............................................................................... | 1,500,000 | |
Operating expenses (including depreciation of$40,000)...................................................................................... | 300,000 |
53. Refer to the above data.Compute the amount of cash received from customers during thecurrent year.
A) $2,900,000.
B) $2,690,000.
C) $2,870,000.
D) Some other amount.
54. Refer to the above data.Compute the amount of Wine's cash payments for purchases ofmerchandise during the current year.
A) $1,500,000.
B) $1,495,000.
C) $1,505,000.
D) Some other amount.
55. Refer to the above data. Compute the amount of Wine's cash paymentsfor operating expenses.
A) $260,000.
B) $270,000.
C) $250,000.
D) Some other amount.
56. Refer to the above data.Wine's net cash flow from operating activities for the current yearis:
A) $1,105,000.
B) $1,375,000.
C) $1,495,000.
D) Some other amount.
57. Alpine Company reported anincrease of $190,000 in its accounts receivable during the year2005. The company's statement of cash flows for 2005 reported $1million of cash received from customers. What amount of net salesmust Alpine have recorded in 2005?
A) $ 810,000.
B) $1,190,000.
C) $1,000,000.
D) $ 190,000
58. When there is an allowancefor doubtful accounts in use, the writing-off of an uncollectibleaccounts receivable will:
A) Reduce income.
B) Reduce an expense.
C) Not change income nor total assets.
D) Increase total assets.
59. The aging of the accountsreceivable approach to estimating uncollectible accounts doesnot:
A) Take into consideration the existing balance in the Allowancefor Doubtful Accounts.
B) Utilize a percentage of probable uncollectibleaccounts for each age group of accounts receivable.
C) Stress the relationship between uncollectibleaccounts expense and net sales.
D) Tend to give a reliable estimate of uncollectible accountsbecause of the consideration given to the collectability ofspecific accounts receivable.
60. Juliet Inc. had accounts receivable of $300,000 and an allowancefor doubtful accounts of $18,500 just before writing off asworthless an account receivable from Arrow Company of $1,200. Thenet realizable values of the accounts receivable before and afterthe write-off were:
A) $281,500 before and $280,300 after.
B) $281,500 before and $281,500 after.
C) $300,000 before and $298,800 after.
D) $318,500 before and $317,300 after.
61. Romeo Inc. had accountsreceivable of $250,000 and an allowance for doubtful accounts of$9,700 just before writing off as worthless an account receivablefrom Juliet Company of $1,500. After writing off this receivablewhat would be the balance in Romeo's Allowance for DoubtfulAccounts?
A) $9,700 credit balance.
B) $10,900 credit balance.
C) $8,200 credit balance.
D) $8,200 debit balance.
62. Sandy Company uses thebalance sheet approach in estimating uncollectible accountsexpense. It has just completed an aging analysis of accountsreceivable at December 31, 2006. This analysis disclosed thefollowing information:
Age | Percentage | |
Group | Considered | |
Total | Uncollectible | |
Not yet due | $51,000 | 1% |
1-30 days past due | $29,000 | 2% |
31-60 past due | $12,000 | 8% |
What is the appropriate balance for Sandy's Allowance for DoubtfulAccounts at December 31, 2006?
A) $92,000.
B) 2% of credit sales in 2006.
C) $1,540.
D) $2,050.
63. At the start of the currentyear, Utopia Corporation had a credit balance in the Allowance forDoubtful Accounts of $1,400. During the year, a monthly provisionof 2% of sales was made for uncollectible accounts. Sales for theyear were $300,000, and $5,200 of accounts receivable were writtenoff as worthless. No recoveries of accounts previously written offwere made during the year. The year-end financial statements shouldshow:
A) Uncollectible accounts expense of $11,200.
B) Allowance for Doubtful Accounts with a creditbalance of $2,200.
C) Allowance for Doubtful Accounts with a creditbalance of $6,600.
D) Uncollectible accounts expense of $5,200.