Ch. 3 Finance Test 2
69) Sunshine Corporation had a retained earnings balance of $850,000 at the beginning of 2015. By the end of 2015, the company's retained earnings balance stood at $950,000. During 2015, the company earned $245,000 as net profits after paying its taxes. The company was then able to pay its preferred stockholders a sum of $45,000. Compute the common stock dividend per share in 2015 assuming 10,000 shares of common stock outstanding.
$10
SV-3060 acrec-500 intexp-126 totopexp-600 Accpay-240 COGS-1800 prefstckdiv-18 taxrt-40% shrscomm-1000 1)The firm's earnings available to common shareholders for 2014 is ________. 2)The firm's earnings per share for 2014 is ________. 3)The firm's net profit after taxes for 2014 is ________.
1)302.40 2).3024 3)320.40
14) Inventory for CEE in 2013 was ________ 15) Notes payable for CEE in 2013 was _______ 16) Accounts receivable for CEE in 2013 was ________. 17) Net fixed assets for CEE in 2013 were ________. 18) Total assets for CEE in 2013 were ________. 19) Long-term debt for CEE in 2013 was ________.
14)27500 15)10609 16)19861 17)45481 18)97345 19)30763
66) Colonial Furniture's net profits before taxes for 2015 totaled $354,000. The company's total retained earnings were $338,000 for 2014 year-end and $389,000 for 2015 year-end. Colonial is subject to a 26 percent tax rate. What was the cash dividend declared by Colonial Furniture in 2015?
210960
68) Ag Silver Mining, Inc. has $500,000 of earnings before interest and taxes at the year end. Interest expenses for the year were $10,000. The firm expects to distribute $100,000 in dividends. Calculate the earnings after taxes for the firm assuming a 40 percent tax on ordinary income.
294000
16) P/E ratio measures the ________. A) market value of the stock to earnings per share B) intrinsic value of the stock to earnings per share C) book value of the stock to earnings per share D) market price of the stock to retained earnings
A
17) Book value per share is the ratio of ________. A) common stock equity to number of outstanding common shares B) retained earnings to number of outstanding common shares C) fixed assets to number of outstanding common shares D) total liabilities to number of outstanding common shares
A
19) Present and prospective shareholders are mainly concerned with a firm's ________. A) risk and return B) profitability C) leverage D) liquidity
A
19) ________ ratios are a measure of the speed with which various accounts are converted into sales or cash. A) Activity B) Liquidity C) Debt D) Profitability
A
26) Time-series analysis is often used to ________. A) assess developing trends B) correct errors of judgment C) evaluate the value of a firm or its assets D) standardize results
A
29) An analyst should be careful when conducting ratio analysis to ensure that ________. A) the overall performance of a firm is not judged on a single ratio B) the role of inflation is ignored C) ratios being compared should be calculated using financial statements dated at different points in time during the year D) different accounting procedures are used
A
29) Using the modified DuPont formula allows the analyst to break Dana Dairy Products return on equity into 3 components: the net profit margin, the total asset turnover, and a measure of leverage (the financial leverage multiplier). Which of the following mathematical expressions represents the modified DuPont formula relative to Dana Dairy Products' 2013 performance? (See Table 3.2) A) 5.6(ROE) = 2.5(ROA) × 2.22(Financial leverage multiplier) B) 5.6(ROE) = 3.3(ROA) × 1.70(Financial leverage multiplier) C) 4.0(ROE) = 2.5(ROA) × 2.00(Financial leverage multiplier) D) 2.5(ROE) = 5.6(ROA) × 2.22(Financial leverage multiplier)
A
31) Inflation can distort ________. A) book value of inventory costs B) market value of revenue C) market value of sales D) book value of revenue
A
34) The Public Company Accounting Oversight Board (PCAOB) ________. A) is a not-for-profit corporation that oversees auditors of public corporations B) is a not-for-profit corporation that oversees managers of public corporations C) is a for-profit corporation that oversees auditors of public corporations D) is a for-profit corporation that oversees managers of public corporations
A
45) Which of the following is a fixed asset? A) land B) accounts payable C) accruals D) notes payable
A Diff: 1
10) Other things being equal, a decrease in total asset turnover will result in ________ in the return on total assets. A) an increase B) a decrease C) no change D) an undetermined change
B
12) The ________ of a business firm is measured by its ability to satisfy its short-term obligations as they come due. A) activity B) liquidity C) debt D) profitability
B
28) The return on equity for Dana Dairy Products for 2013 was ________. (See Table 3.2) A) 0.6 percent B) 5.6 percent C) 0.9 percent D) 50 percent
B
9) A firm with a low net profit margin can improve its return on total assets by ________. A) increasing its debt ratio B) increasing its total asset turnover C) decreasing its fixed asset turnover D) decreasing its total asset turnover
B
57) Candy Corporation had pretax profits of $1.2 million, an average tax rate of 34 percent, and it paid preferred stock dividends of $50,000. There were 100,000 shares outstanding and no interest expense. What was Candy Corporation's earnings per share? A) $3.91 B) $4.52 C) $7.42 D) $7.59
C Diff: 2
11) ________ ratio indicates that a firm will be able to meet interest obligations due on outstanding debt. A) Debt-to-equity B) Interest turnover C) Total assets turnover D) Times interest earned
D
9) ________ ratio measures the proportion of total assets financed by the firm's creditors. A) Total asset turnover B) Inventory turnover C) Current D) Debt
D
35) The stockholder's report includes ________. A) an estimated interest cost report B) an estimated dividend report C) a break-even sales report D) a statement of retained earnings
D Diff: 1
31) In an effort to analyze Clockwork Company finances, Jim realized that he was missing the company's net profits after taxes for the current year. Find the company's net profits after taxes using the following information. Return on total assets = 2% Total asset turnover = 0.5 Cost of goods sold = $105,000 Gross profit margin = 0.30
Sales = Cost of goods sold/(1 - Gross profit margin) = 105,000/(1 - 0.30) = $150,000 Total assets = Sales/(Total asset turnover) = 150,000/0.50 = $300,000 Net profits after taxes = (ROA) × (Total assets) = (0.02) × (300,000) = $6,000
36) Total assets less net fixed assets equals ________. A) gross assets B) current assets C) depreciation D) liabilities and equity
B
41) Operating profit is known as ________. A) earnings after interest and taxes B) earnings before interest and taxes C) earnings before depreciation and taxes D) earnings after tax
B
42) Earnings available for common stockholders is calculated as net profits ________. A) before taxes minus preferred dividends B) after taxes minus preferred dividends C) after taxes minus common dividends D) before taxes minus common dividends
B
48) The ________ represents a summary statement of a firm's financial position at a given point in time. A) income statement B) balance sheet C) statement of cash flows D) statement of retained earnings
B
5) The ________ is used by financial managers as a structure for dissecting a firm's financial statements to assess its financial condition. A) statement of cash flows B) DuPont system of analysis C) break-even analysis D) technical analysis
B
55) Paid-in capital in excess of par represents the amount of proceeds ________. A) in deficit of the par value from the original sale of common stock B) in excess of the par value from the original sale of common stock C) in excess of the par value from the current value of common stock D) in excess of the par value from the intrinsic value of common stock
B
59) A firm's year-end retained earnings balances are $320,000 and $400,000, for 2014 and 2015 respectively. The firm reported net profits after taxes of $100,000 in 2015. The firm's dividend payment for 2015 is ________. A) $0 B) $20,000 C) $80,000 D) $100,000
B
9) ________ measures the percentage of profit earned on each sales dollar before interest and taxes but after all costs and expenses. A) Net profit margin B) Operating profit margin C) Gross profit margin D) Earnings available to common shareholders
B
11) ________ measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends, have been deducted. A) Net profit margin B) Operating profit margin C) Gross profit margin D) Earnings available to common shareholders
A
15) Using the DuPont system of analysis, holding other factors constant, an increase in financial leverage will result in ________. A) an increase in the return on equity B) a decrease in the gross profit margin C) an increase in the gross profit margin D) an increase in retained earnings
A
37) A(n) ________ provides a financial summary of a firm's operating results during a specified period. A) income statement B) balance sheet C) statement of cash flows D) statement of retained earnings
A
61) A firm's year-end retained earnings balance are $670,000 and $560,000 for 2014 and 2015, respectively. The firm reported net profits after taxes of $100,000 in 2015. The firm paid dividends of ________ in 2015. A) $10,000 B) $100,000 C) $110,000 D) $210,000
D
32) Given the following balance sheet, income statement, historical ratios and industry averages, calculate the Pulp, Paper, and Paperboard, Inc. financial ratios for the most recent year. Analyze its overall financial situation for the most recent year. Analyze its overall financial situation from both a cross-sectional and time-series viewpoint. Break your analysis into an evaluation of the firm's liquidity, activity, debt, and profitability.
LIQUIDITY: The liquidity of the firm is on target with the industry standard in 2013 and is stable. ACTIVITY: Inventory and accounts receivable management has deteriorated since 2012 and is inferior when compared to the industry standard. The low inventory turnover may be caused by overstocking and/or obsolete inventories. The high average collection period may have resulted from poor collections procedures or from relaxed credit terms. Further investigation is necessary to determine the cause of the variances. DEBT: The firm has less debt than the industry average. The trend since 2011 has been toward reducing the debt ratio. The firm, therefore, is subject to less financial risk than any other firm in the industry. PROFITABILITY: Although the gross profit margin is inferior to the industry average, the operating and net profit margin far exceed the standards, boosting return on total assets and return on equity. The trend in the gross profit margin is unfavorable and may either be caused by a slide in product prices or an escalation in cost of sales. The cause of the poor gross profit margin should be investigated. Overall, the firm needs to focus attention on inventory and accounts receivable management and the cause of the poor gross profit margin. In general, the firm is in good financial condition. 2013: 1.67,.96,7.0,42,2.1,53%,5.5,18.3%,5.1%,2.5,%,5.21%,11.2%
16) The current ratio for Dana Dairy Products in 2013 was ________. 17) Since 2012, the liquidity of Dana Dairy Products ________. 18) The net working capital for Dana Dairy Products in 2013 was ________. 19) The inventory turnover for Dana Dairy Products in 2013 was ________. 20) The inventory management at Dana Dairy Products ________ since 2012 21) The average collection period for Dana Dairy Products in 2013 was ________.
16).91 17)has deteriorated 18)-1425 19)20 20)has improved slightly 21)32.5
67) On December 31, 2014, Bradshaw Corporation had $485,000 as an ending balance for its retained earnings account. During 2015, the corporation declared a $3.50/share dividend to its stockholders. The company has 35,000 shares of common stock outstanding. When the books were closed for 2015 year end, the corporation had a final retained earnings balance of $565,000. What was the net profit earned by Bradshaw Corporation during 2015?
565000
10) A firm with a gross profit margin which meets industry standard and a net profit margin which is below industry standard must have excessive ________. A) general and administrative expenses B) cost of goods sold C) dividend payments D) principal payments
A
10) ________ ratio measures a firm's ability to pay contractual interest payments. A) Times interest earned B) Fixed-payment coverage C) Debt D) Average payment period
A
11) A firm with a low return on total assets can improve its return on equity, all else remaining the same, by ________. A) increasing its debt ratio B) increasing its total asset turnover C) decreasing its debt ratio D) decreasing its total asset turnover
A
39) Operating profit is ________. A) gross profit minus operating expenses B) sales revenue minus cost of goods sold C) earnings before depreciation and taxes D) sales revenue minus depreciation expense
A
58) A firm's year-end retained earnings balances are $670,000 and $560,000, for 2014 and 2015 respectively. The firm paid $10,000 in dividends in 2015. The firm's net profit after taxes in 2015 was ________. A) -$100,000 B) -$110,000 C) $100,000 D) $110,000
A
60) A firm has a year-end retained earnings balance of $220,000 for 2014. The firm reported net profits after taxes of $50,000 and paid dividends of $30,000 in 2015. The firm's retained earnings balance at 2015 year end is ________. A) $240,000 B) $250,000 C) $270,000 D) $300,000
A
12) The higher, the value of ________ ratio, the better able a firm is to fulfill its interest obligations. A) dividend payout B) average collection period C) times interest earned D) average payment period
C
16) If the only information you are given about Ryan Corporation, a large public company in business for many years, is that it has a current ratio of 2.9, what could you infer from this? A) It can meet the short-term obligations without any difficulty. B) You could determine that Ryan has a liquidity problem because Ryan's current ratio is greater than 2 which is the rule of thumb for the current ratio. C) Nothing, you would also need the current ratio's from the last few years of the S&P 500 Index. D) You could determine that Ryan has an activity problem because Ryan's current ratio is greater than 2 which is the rule of thumb for the current ratio.
A
22) If Dana Dairy Products has credit terms which specify that accounts receivable should be paid in 25 days, the average collection period ________ since 2012. (See Table 3.2) A) has deteriorated B) has remained the same C) has improved D) cannot be determined
A
22) ________ analysis involves comparison of current to past performance and the evaluation of developing trends. A) Time-series B) Cross-sectional C) Marginal D) Break-even
A
23) Which of the following is used to analyze a firm's financial performance over different years? A) time-series analysis B) break-even analysis C) gap analysis D) marginal analysis
A
26) The gross profit margin and net profit margin for Dana Dairy Products in 2013 were ________. (See Table 3.2) A) 13 percent and 0.9 percent, respectively B) 13 percent and 1.5 percent, respectively C) 2 percent and 0.9 percent, respectively D) 2 percent and 1.5 percent, respectively
A
31) A firm's total asset turnover increased from 0.75 to 0.90. Which of the following is true about the given data? A) Its assets have been efficiently used to derive the optimum level of sales. B) Its assets have been efficiently used to derive the optimum level of net income. C) Its assets have been efficiently used to derive the minimum level of net income. D) Its assets have been efficiently used to derive the minimum level of gross profit.
A
32) A firm with a total asset turnover that is lower than industry standard but with a current ratio that meets industry standard must have excessive ________. A) fixed assets B) inventory C) accounts receivable D) debt
A
62) Information on the accounting policies, procedures, calculations, and transactions underlying entries in the financial statements can be found on ________. A) the notes to the financial statements B) the statement of retained earnings C) the proxy statement D) the management discussion and analysis (MD&A)
A
7) The modified DuPont formula relates the firm's return on total assets (ROA) to its ________. A) return on equity (ROE) B) operating leverage multiplier C) net profit margin D) total asset turnover
A
8) ________ is a term used to describe the magnification of risk and return introduced through the use of fixed-cost financing, such as preferred stock and debt. A) Financial leverage B) Operating leverage C) Fixed-payment coverage D) Benchmarking
A
14) Financial leverage multiplier is the ratio of ________. A) current assets to common stockholders' equity B) total assets to common stockholders' equity C) total assets to total debt D) current assets to current liabilities
B
20) Nico Corporation has cost of goods sold of $300,000 and inventory of $30,000, then the inventory turnover is ________ and the average age of inventory is ________. A) 36.5: 10 B) 10: 36.5 C) 36.0: 10 D) 30: 36.0
B
21) ________ analysis involves the comparison of different firms' financial ratios at the same point in time. A) Time-series B) Cross-sectional C) Marginal D) Technical
B
21) ________ may indicate a firm is experiencing stockouts and lost sales. A) Average payment period B) Inventory turnover ratio C) Average collection period D) Quick
B
23) Dana Dairy Products had a ________ degree of financial leverage than the industry standard, resulting in ________. (See Table 3.2) A) lower: lower return on total assets B) lower: lower return on equity C) higher: higher return on equity D) higher: higher return on total assets
B
23) The ________ measures the activity, or liquidity, of a firm's stock of goods. A) average collection period B) inventory turnover ratio C) average payment period D) total asset turnover ratio
B
24) Which of the following is true of benchmarking? A) It is an analysis in which a firm's ratio values are analyzed to project the fundamental values of the assets for upcoming years or business cycle. B) It is an analysis in which a firm's ratio values are compared with those of a key competitor or with a group of competitors that it wishes to emulate. C) It is an analysis in which a firm's financial performance over time is evaluated using financial ratio analysis. D) It is a financial statement analysis technique which combines cross-sectional and time-series analyses.
B
25) Dana Dairy Products' gross profit margin was inferior to the industry standard. This may have resulted from ________. (See Table 3.2) A) a high sales price B) the high cost of goods sold C) excessive selling and administrative expenses D) excessive interest expense
B
27) A firm's annual stockholders' report ________. A) is only accessible to the shareholders of the firm B) summarizes and documents the firm's financial activities during the past year C) documents the list of all investors who bought the firm's shares during the past year D) summarizes and documents the firm's financial plan and budgets during the past year
B
27) In ratio analysis, a comparison to a standard industry ratio is made to isolate ________ deviations from the norm. A) greater than average B) negative C) marginal D) standard
B
27) Which of the following ratios is difficult for the creditors of a firm to analyze from the published financial statements? A) debt equity ratio B) average payment period C) quick ratio D) total asset turnover
B
28) The rule-setting body, which authorizes generally accepted accounting principles is the ________. A) IFRS B) FASB C) SEC D) Federal Reserve System
B
28) Which of the following is a limitation of ratio analysis? A) Financial ratios cannot reveal certain specific aspects of a firm's financial position. B) Ratios that reveal large deviations from the norm merely indicate the possibility of a problem. C) It is difficult to access audited financial statements for ratio analysis. D) Ratio analysis assumes that inflation has no effect on a firm's business.
B
30) The ________ ratio indicates the efficiency with which a firm uses its assets to generate sales. A) inventory turnover B) total asset turnover C) quick D) current asset turnover
B
30) The analyst should be careful when analyzing ratios that ________. A) pre-audited statements are used B) right interpretation of the ratio value is made C) financial data being compared need not be uniform D) inflation will not affect while comparing older to newer firms
B
31) The stockholders' annual report must include ________. A) common-size financial statements B) an income statement C) an advance tax statement D) the margin of safety report
B
32) Without adjustment, inflation may tend to cause ________ firms to appear more efficient and profitable than ________ firms. A) larger: smaller B) older: newer C) smaller: larger D) newer: older
B
14) The two basic measures of liquidity are ________. A) inventory turnover and current ratio B) current ratio and quick ratio C) gross profit margin and ROE D) current ratio and total asset turnover
B Diff: 1
15) A ________ ratio is commonly used to assess owners' appraisal of the share value. A) debt B) price/earnings C) return on equity D) return on total assets
B Diff: 1
22) If an inventory turnover is divided into 365, it becomes a measure of ________. A) financial efficiency B) the average age of the inventory C) sales turnover D) the average collection period
B Diff: 1
32) The 2002 Sarbanes-Oxley Act was designed to ________. A) limit the compensation that could be paid to corporate CEOs B) eliminate the many disclosure and conflict-of-interest problems of corporations C) provide uniform international accounting standards D) provide the guidelines to minimize the tax
B Diff: 1
56) Firm ABC had operating profits of $100,000, taxes of $17,000, interest expense of $34,000, and preferred dividends of $5,000. What was the firm's net profit after taxes? A) $66,000 B) $49,000 C) $44,000 D) $83,000
B Diff: 2
63) FASB Standard No. 52 mandates that U.S.-based companies must translate their foreign-currency-denominated assets and liabilities into dollars using the ________. A) historical rate B) current rate C) average rate D) rate prescribed by the SEC
B Question Status: Revised
12) The three basic ratios used in the DuPont system of analysis are ________. A) net profit margin, total asset turnover, and return on investment B) net profit margin, total asset turnover, and return on equity C) net profit margin, total asset turnover, and equity multiplier D) net profit margin, financial leverage multiplier, and return on equity
C
13) The financial leverage multiplier is an indicator of how much ________ a corporation is utilizing. A) operating leverage B) long-term debt C) total debt D) total assets
C
13) ________ measures the return earned on the common stockholders' investment in the firm. A) Net profit margin B) Price/earnings ratio C) Return on equity D) Return on total assets
C
15) A firm has a current ratio of 1: in order to improve its liquidity ratios, this firm might ________. A) improve its collection practices by providing extended credit policy B) improve its collection practices and pay accounts payable, thereby decreasing current liabilities and decreasing the current and quick ratios C) decrease current liabilities by utilizing more long-term debt, thereby increasing the current and quick ratios D) increase inventory, thereby increasing current assets and the current and quick ratios
C
18) Ratios provide a ________ measure of a company's performance and condition. A) definitive B) gross C) relative D) absolute
C
20) The primary concern of creditors when assessing the strength of a firm is its ________. A) profitability B) leverage C) short-term liquidity D) share price
C
24) A(n) ________ is useful in evaluating credit policies. A) average payment period B) current ratio C) average collection period D) inventory turnover ratio
C
24) The debt ratio for Dana Dairy Products in 2013 was ________.(See Table 3.2) A) 50 percent B) 11 percent C) 55 percent D) 44 percent
C
25) The ________ ratio may indicate poor collections procedures or a relaxed credit policy. A) average payment period B) inventory turnover C) average collection period D) quick
C
28) Nico Corporation has annual purchases of $300,000 and accounts payable of $30,000, then average purchases per day are ________ and the average payment period is ________. A) 36.5: 821.9 B) 36.0: 833.3 C) 821.9: 36.5 D) 833.3: 36.0
C
29) Accounting practices and procedures used to prepare financial statements are called ________. A) SEC B) IFRS C) GAAP D) IRB
C
29) ________ are especially interested in the average payment period, since it provides them with a sense of the bill-paying patterns of the firm. A) Employees B) Stockholders C) Lenders and suppliers D) Auditors
C
30) As the financial leverage multiplier increases, this may result in ________. A) an increase in the net profit margin and return on investment, due to the decrease in interest expense as debt decreases B) an increase in the net profit margin and return on investment, due to the increase in interest expense as debt increases C) a decrease in the net profit margin and return on investment, due to the increase in interest expense as debt increases D) a decrease in the net profit margin and return on investment, due to the decrease in interest expense as debt decreases
C
33) A firm with a total asset turnover lower than industry standard may have ________. A) excessive debt B) excessive interest costs C) insufficient sales D) insufficient fixed assets
C
33) Which of the following groups of ratios primarily measure risk? A) liquidity, activity, and profitability B) liquidity, profitability, and market C) liquidity, activity, and debt D) activity, debt, and profitability
C
4) The DuPont system merges the income statement and balance sheet into two summary measures of profitability, ________. A) net profit margin, and return on total assets B) net profit margin, and return on equity C) return on total assets, and return on common equity D) net profit margin, and price/earning ratio
C
43) Which of the following is a current liability? A) accounts receivable B) cash C) notes payable D) inventory
C
44) Which of the following represents a current asset? A) automobiles B) buildings C) marketable securities D) equipment
C
46) The net value of fixed assets is also called its ________. A) market value B) par value C) book value D) intrinsic value
C
49) The statement of cash flows ________. A) shows the financial position of a firm at a given point of time B) summarizes all the purchase and sale of fixed assets and raw materials C) provides insight into a firm's operating, investment, and financing cash flows D) classifies a firm's cash flows as operating, investing, financing, and other activities
C
54) On the balance sheet, net fixed assets represent ________. A) gross fixed assets at cost minus depreciation expense B) gross fixed assets at market value minus depreciation expense C) gross fixed assets at cost minus accumulated depreciation D) gross fixed assets at market value minus accumulated deprecation
C
7) The ________ is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as a percent of sales. A) retained earnings statement B) common-size balance sheet C) common-size income statement D) profit and loss statement
C
8) In the DuPont system of analysis, the return on equity is equal to ________. A) (net profit margin) × (total asset turnover) B) (stockholders' equity) × (financial leverage multiplier) C) (return on total assets) × (financial leverage multiplier) D) (return on total assets) × (total asset turnover)
C
8) ________ indicates the percentage of each sales dollar remaining after the firm has paid for its goods. A) Net profit margin B) Operating profit margin C) Gross profit margin D) Earnings available to common shareholders
C
12) ________ measures the overall effectiveness of management in generating profits with its available assets. A) Total asset turnover B) Price/earnings ratio C) Return on equity D) Return on total assets
D
13) The two categories of ratios that should be utilized to assess a firm's true liquidity are the ________. A) liquidity and market ratios B) liquidity and profitability ratios C) market and debt ratios D) liquidity and activity ratios
D
14) A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and common stockholders' investment of $750,000 has a return on equity of ________. A) 20 percent B) 15 percent C) 3 percent D) 4 percent
D
17) Which of the following is true of current ratio? A) The more predictable a firm's cash flows, the higher the acceptable current ratio. B) A higher current ratio indicates a higher return on equity. C) The more predictable a firm's current ratio, the higher the current liabilities. D) A higher current ratio indicates a greater degree of liquidity.
D
18) Which of the following is excluded when calculating quick ratio? A) accounts receivable B) accounts payable C) cash D) inventory
D
25) Cross-sectional ratio analysis is used to ________. A) correct expected problems in operations B) isolate the causes of problems C) provide conclusive evidence of the existence of a problem D) measure relative performance of a firm with its peers
D
26) ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was ________. A) 30 days B) 36 days C) 44 days D) 57 days
D
27) The return on total assets for Dana Dairy Products for 2013 was ________. (See Table 3.2) A) 0.9 percent B) 5.5 percent C) 25 percent D) 2.5 percent
D
30) The federal regulatory body governing the sale and listing of securities is called the ________. A) IRS B) FASB C) GAAP D) SEC
D
33) The 2002 law that established the Public Company Accounting Oversight Board (PCAOB) was called ________. A) the McCain-Feingold Act B) the Harkins-Oxley Act C) the Sarbanes-Harkins Act D) the Sarbanes-Oxley Act
D
34) The ________ ratios are primarily used as measures of return. A) liquidity B) activity C) debt D) profitability
D
38) Gross profit is ________. A) operating profits minus depreciation B) operating profits minus cost of goods sold C) sales revenue minus operating expenses D) sales revenue minus cost of goods sold
D
40) Net profit after taxes is ________. A) gross profits minus operating expenses B) sales revenue minus cost of goods sold C) EBITDA minus interest D) EBIT minus interest and taxes
D
47) Retained earnings on the balance sheet represents the ________. A) net profit after taxes B) amount of proceeds in excess of the par value received from the original sale of common stock C) net profit after taxes minus preferred dividends D) cumulative total of all earnings reinvested in the firm
D
50) When preparing the retained earnings statement, ________ is(are) subtracted in order to derive at the ending balance of retained earnings. A) net profits after taxes B) interest expense C) depreciation D) dividends
D
6) In the DuPont system of analysis, the return on total assets (asset) is equal to ________. A) (return on equity) × (financial leverage multiplier) B) (return on equity) × (total asset turnover) C) (net profit margin) × (fixed asset turnover) D) (net profit margin) × (total asset turnover)
D
6) Two frequently cited ratios of profitability that can be read directly from the common-size income statement are ________. A) the earnings per share and the return on total assets B) the gross profit margin and the earnings per share C) the gross profit margin and the return on total assets D) the gross profit margin and the net profit margin
D
