Accounting 2302 Questions

Calculating the proportion of each individual asset balance sheet to total assets is an example of ______ analysis.

vertical

This year, X-It Company had Net Income of $10,000, which was an increase of $2,000 over last year. Last year 80,000 shares of common stock were outstanding, and in the current year 20,000 additional shares were outstanding. There are no preferred stock. Earnings per share (EPS) for this year equals ______.

$0.11 per share Reason: Divide this year's Net Income by the average number of shares outstanding to get $0.11 (=$10,000 ÷ ((80,000 + 100,000) ÷ 2)).

This year, Canco had Net Income of $20,000 and 100,000 shares of common stock outstanding. Last year, Canco had Net Income of $24,000 and 90,000 shares of common stock outstanding and no preferred stock. Earnings per Share (EPS) for this year is ______ (rounded to the nearest cent).

$0.21 per share Reason: Divide this year's Net Income of $20,000 by the average number of shares outstanding of 95,000 shares (= (100,000 + 90,000) ÷ 2).

Stockup, Inc. has a P/E ratio of 20 and a stock price of $50. What is Stockup's earnings per share?

$2.50 Reason: 20 = $50 ÷ x. Solve for x. $50 ÷ 20 = x = $2.50.

Return on equity (ROE) equals ______.

((Net Income - Preferred Dividends) ÷ Average Common Stockholders' Equity) × 100

Gross profit percentage equals ______.

((Net Sales - Cost of Goods Sold) ÷ Net Sales) × 100

This year Acme, Inc. had Net Fixed Assets of $110,000, which was an increase of $20,000 over last year. This year's Net Revenue was $30,000. The fixed asset turnover for this year is ______.

0.30

Recipes, Inc. had Sales of $120,000 and Cost of Goods Sold of $80,000 for the year. Accounts Receivable was $10,000 at the beginning of the year and $14,000 at the end. Inventory was $18,000 at the beginning of the year and $22,000 at the end. Recipes' accounts receivable turnover equals ______.

10.0 Reason: Accounts receivable = $120,000 ÷ (($10,000 + $14,000) ÷ 2) = 10.0

Squid Roe, Inc. had Sales of $200,000, Net Income of $15,000, and Net Cash from Operating Activities of $14,000 during the year. At December 31, its Average Common Stockholders' Equity was $62,500, and its average shares outstanding was 50,000 shares. It has no preferred stock. Its return on equity equals ______.

24% Reason: Return on equity = ($15,000 ÷ $62,500) × 100 = 0.24 or 24%

GPS, Inc.'s Net Sales Revenue was $200,000, Cost of Goods Sold was $150,000 and Net Income was $20,000. Its Average Inventory was $25,000. The gross profit percentage equals ______.

25%

Ace Electronics had sales of $1,000,000 in 2018 and sales of $1,040,000 in 2019. The percentage increase in sales was ______.

4% 40% Reason: Percentage increase = (($1,040,000 - 1,000,000) ÷ $1,000,000) × 100 = 4%

Acme, Inc. had net income of $120,000 in 2018 and net income of $126,000 in 2019. The percentage increase in net income was ______.

5%

Inventors, Inc. had Cost of Goods Sold of $1,800,000 for the year. Inventory was $280,000 at the beginning of the year and $320,000 at the end. Inventors' inventory turnover equals ______ times.

6.00 Reason: The inventory turnover equals 6.0 or Cost of Goods Sold of $1,800,000 divided by the Average Inventory of $300,000 (=($280,000 + 320,000) ÷ 2), not ending inventory.

On-a-Roll Bakery has $20,000 in current liabilities, $100,000 in long-term liabilities, and $80,000 in stockholders' equity at December 31. Its debt-to-assets ratio equals ______.

60% Reason: Assets = liabilities plus stockholders' equity or ($20,000 + $100,000) + $80,000 = $200,000; Debt-to-assets ratio = ($20,000 + $100,000) ÷ $200,000 = 60%

Inventors, Inc. had Sales of $120,000 and Cost of Goods Sold of $80,000 for the year. Accounts Receivable was $10,000 at the beginning of the year and $14,000 at the end. Inventory was $18,000 at the beginning of the year and $22,000 at the end. Calculate the days to sell given 365 days in a year.

91.25 days Reason: Days to sell = 365 ÷ ($80,000 ÷ (($18,000 + $22,000) ÷ 2)) = 91.25 days

Given the following asset balances, match the results of vertical analysis with the appropriate balance sheet line items: Cash $20,000; Accounts Receivable $40,000; Inventory $60,000; Property, Plant, and Equipment $80,000.

Cash - 10% Accounts Receivable - 20% Inventory - 30% Total Current Assets - 60% Property, Plant, and Equipment - 40%

Which of these are liquidity ratios?

Days to collect Receivables turnover Current ratio Inventory turnover Days to sell

Which of the following would directly cause a drop in the net profit margin?

Decrease in sales relative to expenses

What effect will issuing additional shares of common stock have on the return on equity?

Decrease it

Which of these are profitability ratios? (Check all that apply.)

Earnings per share Fixed asset turnover Return on equity

Which of the following is calculated by dividing Net Revenue by the Average Net Fixed Assets?

Fixed Asset Turnover

Financial statement analyses consist of horizontal, vertical, and ratio analyses. Match each with the appropriate description.

Horizontal analysis - Compares individual financial statement line items from one period to the next Vertical analysis - Compares the relative contribution made by each financial statement line item by expressing line items as a percentage of another total, such as total assets, or line item, such as sales Ratio analysis - Compares relationships among various financial statement line items within the same period and over multiple periods

Which of the following would directly improve the net profit margin? (Check all that apply.)

Increase in sales relative to expenses Decrease in expenses relative to sales

What effect will repurchasing stock have on the return on equity?

Increase it

What effect would an increase in Cost of Goods Sold have on the gross profit percentage?

It would decrease it.

What effect would increasing the sales price of a company's products most likely have on the gross profit percentage?

It would increase it.

Net profit margin equals ______.

Net Income divided by Revenues

Which of these are profitability ratios? (Check all that apply.)

Net profit margin Price/earnings ratio Gross profit percentage

If investors are less optimistic about the company's future than previously, which of the following would most likely have decreased?

P/E Ratio

Puffin Turnovers, Inc.'s fixed asset turnover was 0.9, while Muffin Tops, Inc.'s fixed asset turnover was 0.6. Which of the following is true about Puffin compared with Muffin?

Puffin generated more sales per dollar of fixed assets.

Indigo, Inc.'s stock price was $60 last year and is now $70. Given that Indigo's earnings per share was $3 last year and is now $4, which of the following are true? (Check all that apply.)

The PE ratio was higher last year. The stock price is more attractive now.

______ analysis identifies the relative contribution made by each financial statement line item.

Vertical

Current assets divided by current liabilities equals ______. (Check all that apply.)

a liquidity ratio the current ratio

To be useful, ratios must be ______. (Check all that apply.)

analyzed interpreted

Analysts may want to compare Dell, Inc.'s ratio analysis results with ______. (Check all that apply.)

benchmarks, such as the averages for others in the computer industry benchmarks, such as prior-years' results

Ratio analyses must be ______.

compared to benchmarks, such as prior-years' results and industry averages, to properly interpret the results

Ratio analysis is useful for ______.

comparing two companies of different size in the same industry comparing a company's performance with itself over time evaluating a company's performance given the level of its other resources

Which of the following is a possible explanation for an increase in the fixed asset turnover from one year to the next? A significant ______ during the year.

decrease in fixed assets during the year

Financial statement analysis is useful for ______.

evaluating a company's success in meeting challenges

Often loan agreements require the borrower to comply with certain requirements, such as maintaining a particular current ratio or limiting future borrowing. To decide if a company has complied with its loan covenants, a creditor would look at the company's:

financial statements.

Vertical analysis ______.

identifies the relative contribution made by each financial statement line item

Receivable turnover equals ______.

net sales revenue divided by average net receivables

_______ analyses compare amounts for one or more line items to the amount for other line items in the same year to assess a

ratio

Net sales revenue divided by average net receivables equals the _____ turnover.

receivables

Which of the following will cause an increase in a company's return on equity ratio? (Check all that apply.)

repurchasing of treasury stock an increase in net income

The price of a single share of stock divided by earnings per share is ______.

the P/E ratio

Total liabilities divided by total assets equals ______.

the debt-to-assets ratio