ACCT 2401 Chapter 3: CHAPTER 3 (1) - Copy
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1. Starlight Company had the following data taken from its most recent financial statements:
Sales | $3,200,000 |
Interest expense | 56,000 |
Net income | 500,000 |
Total assets | 4,000,000 |
Total liabilities | 2,400,000 |
Total stockholders’ equity | 1,600,000 |
Based on these data, calculate Starlight Company’s return on total assets.
8%
12.5%
27.8%
None of these choices are correct.
b
2. Starlight Company had the following data taken from its most recent financial statements:
Sales | $3,200,000 |
Interest expense | 56,000 |
Net income | 500,000 |
Total assets | 4,000,000 |
Total liabilities | 2,400,000 |
Total stockholders’ equity | 1,600,000 |
Based on these data, calculate Starlight Company’s return on stockholders’ equity.
2%
32.3%
62.5%
None of these choices are correct.
3. Johnston & Myers Inc. had the following balance sheet data for a recent year:
Current assets | $720,000 |
Property, plant, and equipment (net) | 1,110,000 |
Current liabilities | 230,000 |
Long-term liabilities | 450,000 |
Common stock, $10 par | 250,000 |
Retained earnings | 1,000,000 |
What is Johnston & Myers Inc.’s ratio of liabilities to stockholders’ equity?
0.5
0.7
0.9
None of these choices are correct.
4. Patton Corporation had the following items on its financial statements for two recent years:
Year 2 | Year 1 | |||
Sales | $2,500,000 | $2,000,000 | ||
Cost of goods sold | 1,975,000 | 1,600,000 | ||
Cash | 500,000 | 475,000 | ||
Temporary investments | 150,000 | 150,000 | ||
Accounts receivable (net) | 200,000 | 175,000 | ||
Inventory | 325,000 | 300,000 | ||
Accounts payable | 450,000 | 400,000 |
Based on these data, calculate Patton Corporation’s working capital for Year 2.
$725,000
$1,625,000
$2,050,000
None of these choices are correct.
5. Patton Corporation had the following items on its financial statements for two recent years:
Year 2 | Year 1 | |||
Sales | $2,500,000 | $2,000,000 | ||
Cost of goods sold | 1,975,000 | 1,600,000 | ||
Cash | 500,000 | 475,000 | ||
Temporary investments | 150,000 | 150,000 | ||
Accounts receivable (net) | 200,000 | 175,000 | ||
Inventory | 325,000 | 300,000 | ||
Accounts payable | 450,000 | 400,000 |
Based on these data, calculate Patton Corporation’s accounts receivable turnover for Year 2.
6.7
12.5
14.3
None of these choices are correct.
6. Patton Corporation had the following items on its financial statements for two recent years:
Year 2 | Year 1 | |||
Sales | $2,500,000 | $2,000,000 | ||
Cost of goods sold | 1,975,000 | 1,600,000 | ||
Cash | 500,000 | 475,000 | ||
Temporary investments | 150,000 | 150,000 | ||
Accounts receivable (net) | 200,000 | 175,000 | ||
Inventory | 325,000 | 300,000 | ||
Accounts payable | 450,000 | 400,000 |
Based on these data, calculate Patton Corporation’s number of days’ sales in inventory for Year 2.
3.2
57.8
5.7
6.3
Measures of liquidity, solvency, and profitability
The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.60 on December 31, 20Y2.
Marshall Inc. | ||
Comparative Retained Earnings Statement | ||
For the Years Ended December 31, 20Y2 and 20Y1 | ||
 | 20Y2 | 20Y1 |
Retained earnings, January 1 | $3,704,000 | $3,264,000 |
Net income | $ 600,000 | $ 550,000 |
Dividends: | Â | Â |
On preferred stock | (10,000) | (10,000) |
On common stock | (100,000) | (100,000) |
Increase in retained earnings | $ 490,000 | $ 440,000 |
Retained earnings, December 31 | $4,194,000 | $3,704,000 |
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Marshall Inc. | ||
Comparative Income Statement | ||
For the Years Ended December 31, 20Y2 and 20Y1 | ||
 | 20Y2 | 20Y1 |
Sales | $ 10,850,000 | $10,000,000 |
Cost of goods sold | (6,000,000) | (5,450,000) |
Gross profit | $ 4,850,000 | $ 4,550,000 |
Selling expenses | $ (2,170,000) | $ (2,000,000) |
Administrative expenses | (1,627,500) | (1,500,000) |
Total operating expenses | $(3,797,500) | $ (3,500,000) |
Operating income | $ 1,052,500 | $ 1,050,000 |
Other revenue and expense: | Â | Â |
Other revenue | 99,500 | 20,000 |
Other expense (interest) | (132,000) | (120,000) |
Income before income tax expense | $ 1,020,000 | $ 950,000 |
Income tax expense | (420,000) | (400,000) |
Net income | $ 600,000 | $ 550,000 |
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 Â
Marshall Inc. | ||
Comparative Balance Sheet | ||
December 31, 20Y2 and 20Y1 | ||
 | 20Y2 | 20Y1 |
Assets | Â | |
Current assets: | Â | Â |
Cash | $1,050,000 | $ 950,000 |
Marketable securities | 301,000 | 420,000 |
Accounts receivable (net) | 585,000 | 500,000 |
Inventories | 420,000 | 380,000 |
Prepaid expenses | 108,000 | 20,000 |
Total current assets | $ 2,464,000 | $2,270,000 |
Long-term investments | 800,000 | 800,000 |
Property, plant, and equipment (net) | 5,760,000 | 5,184,000 |
Total assets | $ 9,024,000 | $8,254,000 |
Liabilities | Â | |
Current liabilities | $ 880,000 | $ 800,000 |
Long-term liabilities: | Â | Â |
Mortgage note payable, 6% | $ 200,000 | $ 0 |
Bonds payable, 4% | 3,000,000 | 3,000,000 |
Total long-term liabilities | $ 3,200,000 | $3,000,000 |
Total liabilities | $ 4,080,000 | $3,800,000 |
Stockholders’ Equity |  | |
Preferred 4% stock, $5 par | $ 250,000 | $ 250,000 |
Common stock, $5 par | 500,000 | 500,000 |
Retained earnings | 4,194,000 | 3,704,000 |
Total stockholders’ equity | $ 4,944,000 | $4,454,000 |
Total liabilities and stockholders’ equity | $ 9,024,000 | $8,254,000 |
Determine the following measures for 20Y2. Round to one decimal place, including percentages, except for per-share amounts, which should be rounded to the nearest cent.
1. Working Capital | $ | Â |
2. Current ratio | Â | |
3. Quick ratio | Â | |
4. Accounts receivable turnover | Â | |
5. Number of days’ sales in receivables |  | |
6. Inventory turnover | Â | |
7. Number of days’ sales in inventory |  | |
8. Ratio of fixed assets to long-term liabilities | Â | |
9. Ratio of liabilities to stockholders’ equity |  | |
10. Times interest earned | Â | |
11. Asset turnover | Â | |
12. Return on total assets | % | |
13. Return on stockholders’ equity | % | |
14. Return on common stockholders’ equity | % | |
15. Earnings per share on common stock | $ | Â |
16. Price-earnings ratio | Â | |
17. Dividends per share of common stock | $ | Â |
18. Dividend yield |