Accounting II Exam 3 Study Guide

Duke Company has short-term liabilities of $40,400, long-term liabilities of $22,000, common stockholders' equity of $95,000, and total stockholders' equity of $120,000 (including the common). Duke's ratio of liabilities to stockholders' equity is a.65.7%. b.52%. c.34%. d.18%.

b.52%. Ratio of Liabilities to Stockholders' Equity = Total Liabilities ÷ Total Stockholders' Equity = ($40,400 + $22,000) ÷ $120,000 = 52%

What type of analysis is indicated by the following? Increase (Decrease) Year 2 Year 1 Amount Percent Current assets $380,000 $400,000 $(20,000) (5)% Fixed assets 1,680,000 1,500,000 180,000 12% a.Liquidity analysis b.Horizontal analysis c.Vertical analysis d.Common-sized analysis

b.Horizontal analysis

Which two reports on internal control are sometimes combined into a single report on internal control? a.The MD&A and the Report of Independent Registered Public Accounting Firm b.One report by management and one report by a public accounting firm regarding the adequacy of internal controls c.The income statement and the balance sheet d.The unqualified audit opinion report and the qualified audit opinion report

b.One report by management and one report by a public accounting firm regarding the adequacy of internal controls

The formula used to compute accounts receivable turnover is a.Average Accounts Receivable ÷ Average Daily Sales. b.Sales ÷ Average Accounts Receivable. c.Average Accounts Receivable ÷ Sales. d.Accounts Receivable (beginning of period) ÷ Sales.

b.Sales ÷ Average Accounts Receivable.

Long-term creditors such as bondholders are interested in a company's a.liquidity. b.solvency. c.total liabilities. d.profitability.

b.solvency.

Dividends per share measures a.the extent to which earnings are being reinvested in the company. b.the extent to which earnings are being distributed to common shareholders. c.the extent to which earnings are being distributed to preferred shareholders. d.how high the company's earnings per share are.

b.the extent to which earnings are being distributed to common shareholders.

Assume the following sales data for a company: Year 2 $850,000 Year 1 680,000 What is the percentage increase in sales from Year 1 to Year 2 (rounded to the nearest percent)? a.20% b.125% c.25% d.80%

c.25% ($850,000 - $680,000) ÷ $680,000 = 0.25, or 25%

Solvency analysis evaluates a company's ability to a.repay the face amount of debt at maturity. b.make periodic interest payments. c.both repay the face amount of debt at maturity and make periodic interest payments. d.neither repay the face amount of debt at maturity nor make periodic interest payments.

c.both repay the face amount of debt at maturity and make periodic interest payments.

The asset turnover ratio measures a.how effectively a company safeguards its assets. b.the degree to which a company is leveraged. c.how effectively a company uses its assets. d.how a company's assets turn over into earnings per share.

c.how effectively a company uses its assets.

The balance sheets at the end of each of the first 2 years of operations indicate the following: Year 2 Year 1 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 150,000 80,000 Total long-term liabilities 350,000 250,000 Preferred 9% stock, $100 par 100,000 100,000 Common stock, $10 par 603,000 603,000 Paid-in capital in excess of par—common stock 62,000 62,000 Retained earnings 327,000 211,000 If net income is $126,000 and preferred dividends are $9,500 for Year 2, what is the earnings per share on common stock for Year 2? (Round to two decimal places.) a.$1.76 b.$2.09 c.$0.19 d.$1.93

d.$1.93 Earnings per Share on Common Stock = (Net Income - Preferred Dividends) ÷ Shares of Common Stock Outstanding = ($126,000 - $9,500) ÷ ($603,000 ÷ $10) = $1.93

When analyzing a company, which of the following factors should be considered? a.General economic conditions b.Trends in the industry c.Analytical measures d.All of these choices are correct.

d.All of these choices are correct.

The ratio of liabilities to stockholders' equity is computed as a.(Short-Term Liabilities - Long-Term Liabilities) ÷ Total Stockholders' Equity. b.Total Liabilities ÷ Common Stockholders' Equity. c.Total Liabilities + Total Stockholders' Equity. d.Total Liabilities ÷ Total Stockholders' Equity.

d.Total Liabilities ÷ Total Stockholders' Equity.

Investors such as stockholders are interested in a company's a.liquidity. b.solvency. c.total liabilities. d.profitability.

d.profitability.

A company's ability to convert assets into cash is called _____. objectivity solvency profitability liquidity

liquidity

Users typically evaluate financial statement information along all of the following dimensions except _____. objectivity solvency profitability liquidity

objectivity

Which of the following analytical methods involve the analysis of increases and decreases in the amount and percentage of comparative financial statement items? Horizontal analysis Vertical analysis Common-sized statements None of these are correct.

Horizontal analysis

Based on the following data for the current year, what is the accounts receivable turnover? Sales on account during year $520,700 Cost of merchandise sold during year 402,000 Accounts receivable, beginning of year 46,000 Accounts receivable, end of year 36,000 Merchandise inventory, beginning of year 91,000 Merchandise inventory, end of year 111,000 a.12.7 b.10.9 c.14.0 d.9.8

a.12.7 Accounts Receivable Turnover = Sales ÷ Average Accounts Receivable = $520,700 ÷ [($46,000 + $36,000) ÷ 2] = 12.7

The formula used to compute number of days' sales in receivables is a.Average Accounts Receivable ÷ Average Daily Sales. b.Sales ÷ Average Accounts Receivable. c.Average Accounts Receivable ÷ Sales. d.Accounts Receivable (beginning of period) ÷ Sales.

a.Average Accounts Receivable ÷ Average Daily Sales.

An annual report includes all of the following EXCEPT a.résumés of all key executives. b.management discussion and analysis section. c.notes to the financial statements. d.an auditor's report.

a.résumés of all key executives.