EXAM 3 - CHAPTER 12 PRACTICE (50 Concepts)

*** Stockup, Inc. has a P/E ratio of 20 and a stock price of $50. What is Stockup's earnings per share? Multiple choice question. $100 $0.40 $10 $1 $2.50

$2.50 (Reason: 20=$50/x. Solve for x. $50/20=x=$2.50.)

If Currants & Jams, Inc.'s current ratio equals 2.0, current liabilities are $10,000, and long-term liabilities are $30,000, then its current assets equal: Multiple choice question. $80,000 $20,000 $5,000 $30,000 $60,000

$20,000

You are analyzing the following four companies based on their debt to equity ratio. Which company has the highest risk of insolvency? Company A 2.5 Company B 1.0 Company C 0.9 Company D 3.0 Multiple choice question. Company B Company C Company D Company A

Company D

What is the formula for the inventory turnover ratio? Multiple choice question. Cost of goods sold divided by average inventory. Average inventory multiplied by cost of goods sold. Cost of goods sold divided by net sales. 365 divided by average inventory.

Cost of goods sold divided by average inventory.

Select all that apply Which of the following ratios are used to evaluate a company's ability to pay long-term debts? Multiple select question. Debt to equity ratio Cash flow per share ratio Current ratio Times interest earned ratio

Debt to equity ratio Times interest earned ratio

True or false: The debt to equity ratio is calculated as total liabilities divided by common stock.

False (Reason: The debt to equity ratio is total liabilities divided by total owners' equity.)

True or false: The times interest earned formula is net income divided by interest expense.

False (Reason: The times interest earned formula is calculated as earnings before interest and taxes divided by interest expense.)

Which of the following industries do you expect to have the lowest inventory turnover? Multiple choice question. HIgh-priced jewelry stores Gas stations Discount grocery stores

HIgh-priced jewelry stores

Net sales revenue minus the cost of goods sold, divided by net sales revenue equals the ______. Multiple choice question. gross profit inventory turnover gross profit ratio net profit margin

gross profit ratio

Milken Inc. currently has a current ratio of 1.5. If Milken pays off an accounts payable balance, its current ratio will __________.

increase

The times interest earned formula is calculated as earnings before interest and taxes divided by ________ _________.

interest; expense

Average days in inventory is calculated as 365 days divided by the Multiple choice question. inventory turnover ratio. average total assets. average cost of goods sold. average accounts receivable.

inventory turnover ratio.

The profit margin ratio is defined as _______ _______ divided by net sales.

net; income

*** The profit margin measures the income earned Multiple choice question. per share of common stock on total sales on each dollar of sales. on credit sales

on each dollar of sales.

A discontinued operation is a business, or a component of business, that the organization Multiple select question. plans to discontinue has already discontinued is considering to discontinue

plans to discontinue has already discontinued

Gross margin is a synonym for gross _______.

profit

*** The group of ratios that measure the earnings or operating effectiveness of a company are referred to as ______ ratios.

profitability

***________ of _______ refers to the ability of reported earnings to reflect a company's true earnings, as well as the usefulness of reported earnings to predict future earnings.

quality; earnings

The average collection period equals 365 days divided by ______. Multiple choice question. payables turnover inventory turnover net sales revenue receivables turnover average net receivables

receivables turnover

P/E ratio equals ______. Multiple choice question. earnings per share divided by stock price stock price divided by net income stock price divided by earnings per share stock price divided by shareholders' equity

stock price divided by earnings per share

The price of a single share of stock divided by earnings per share is: Multiple choice question. EPS average days in inventory quality of income the P/E ratio return on equity

the P/E ratio

The debt to equity ratio is calculated as Multiple choice question. current liabilities divided by total stockholders' equity. total liabilities divided by total stockholders' equity. noncurrent liabilities divided by current liabilities + stockholders' equity. long-term debt divided by total stockholders' equity.

total liabilities divided by total stockholders' equity.

Puffin Pastry, Inc. had Sales of $90,000 and Net income of $10,000 during 2016. At December 31, 2015, its total assets were $100,000, and its net fixed assets were $40,000. At December 31, 2016, its total assets were $200,000, and its fixed assets were $80,000. Puffin's asset turnover ratio equals: Multiple choice question. 0.45 0.13 1.50 0.60

0.60

Recipes, Inc. had Sales of $120,000 and Cost of goods sold of $80,000 for the year. All sales were credit sales. 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 receivables turnover equals: Multiple choice question. 8.6 10.0 12.0 4.0 6.7

10.0

Compute the return on equity ratio using the following information: Net sales is $200,000 for the year, cost of goods sold are $40,000, net income is $60,000, last year's total assets were $900,000, and this year's total assets are $1,100,000. Shareholders' equity changed from $300,000 last year to $400,000 this year. Multiple choice question. 5.4% 15% 40% 17.1%

17.1% (Reason: Return on equity is net income divided by average total equity. $60,000/[($300,000 + $400,000)/2] = 17.1%.)

Compute the inventory turnover ratio using the following information: Net sales is $100,000 for the year, costs of goods sold are $40,000, last year's assets in place were $900,000, and this year's assets in place are $1,100,000. Receivables for both years are $50,000. Inventory changed from $30,000 last year to $10,000 this year. Multiple choice question. 0.4 2 1 4

2

GPS, Inc.'s sales were $200,000, cost of goods sold was $150,000 and net income was $20,000. Its average inventory was $25,000. The gross profit ratio equals ______. Multiple choice question. 25% 10% 75% 33%

25% (Reason: Gross profit ratio=($200,000-$150,000)/$200,000=0.25, or 25%)

What is the formula to compute the average days in inventory? Multiple choice question. Inventory turnover ratio/365 days 365 days/inventory turnover ratio 365 days/receivables turnover ratio

365 days/inventory turnover ratio

Green Company has net credit sales of $100,000, an asset turnover ratio of 4, and a receivables turnover ratio of 9. What is the average collection period? Multiple choice question. 40.6 days 36 days 25 days 11.1 days

40.6 days

Receipts, Inc.'s Sales were $200,000 while its Accounts receivable was $23,000 at the beginning of the year and $27,000 at the end. All sales were credit sales. Receipts' receivables turnover equals: Multiple choice question. 8.7 7.4 8.0 0.125

8.0 (Reason: receivables turnover=$200,000/(($23,000+$27,000)/2)=8.0)

Compute the average days in inventory ratio using the following information: Net sales is $200,000 for the year, cost of goods sold are $80,000, last year's total assets were $900,000, and this year's total assets are $1,100,000. Receivables for both years are $40,000. Inventory changed from $30,000 last year to $10,000 this year. Multiple choice question. 20 days 73 days 45.63 days 91.25 days

91.25 days Reason: Average days in inventory is 365/inventory turnover ratio = 365/4. Inventory turnover is calculated as cost of goods sold/average inventory = $80,000/[($30,000 + 10,000)/2] = 4.

Select all that apply Which statements about the inventory turnover ratio are correct? Multiple select question. It indicates how quickly inventory is sold. It shows the number of times the average inventory balance is sold during a reporting period. A high ratio suggests a high inventory level. The lower the ratio, the quicker a company sells its inventory.

It indicates how quickly inventory is sold. It shows the number of times the average inventory balance is sold during a reporting period.

Select all that apply Which information regarding the receivables turnover ratio is true? Multiple select question. It provides an indication of a company's efficiency in collecting receivables. It shows the number of days it takes to collect accounts receivable. The lower the ratio, the better the company is performing. It shows the number of times during a period that the average accounts receivable balance is collected.

It provides an indication of a company's efficiency in collecting receivables. It shows the number of times during a period that the average accounts receivable balance is collected.

Which term best describes a company having a suitable amount of cash or easily-convertible assets to pay incurred current liabilities? Multiple choice question. Profitability Liquidity Solvency Risk-free

Liquidity

What is the formula for the receivables turnover ratio? Multiple choice question. Net credit sales divided by average total assets. Net credit sales divided by average accounts receivable (net). Average accounts receivable (net) divided by net credit sales. Average accounts receivable divided by average total assets.

Net credit sales divided by average accounts receivable (net).

What is the formula for the profit margin ratio? Multiple choice question. Gross profit divided by sales. Net income divided by average total assets. Net income divided by net sales. Net income divided by average shareholders' equity.

Net income divided by net sales.

What is the formula for the asset turnover ratio? Multiple choice question. Net sales divided by average accounts receivable. Net sales divided by average total assets. Average assets divided by net sales.

Net sales divided by average total assets.

If a company has a current ratio of 1.2, which of the following is true? Multiple choice question. The company has $1.20 in current assets for each dollar of equity. The company has 1.2 times more current assets than its competitors. The company has $1.20 in current liabilities greater than its current assets. The company has $1.20 in current assets for each dollar of current liabilities.

The company has $1.20 in current assets for each dollar of current liabilities.

Which ratio indicates the portion of each sales dollar above its cost of goods sold? Multiple choice question. The profit ratio The cost ratio The gross profit ratio

The gross profit ratio

Which of the following is/are common terms used for horizontal analysis? Select all that apply Probability analysis Time-series analysis Trend analysis Common-size analysis

Time-series analysis Trend analysis

______ analysis is a technique that expresses each financial statement amount as a percentage of another amount on the same financial statement. Multiple choice question. Vertical Horizontal Ratio

Vertical

What type of entry may be most frequently used to manipulate earnings? Multiple choice question. Journal entries during the year Beginning-of-year entries Closing entries Year-end adjustments

Year-end adjustments

The formula to compute the receivables turnover ratio is net credit sales divided by Multiple choice question. cost of goods sold. average total assets. the receivable turnover ratio. average accounts receivable.

average accounts receivable.

Return on assets is calculated as net income divided by Multiple choice question. average current assets. average net assets. average total assets. average inventory.

average total assets.

Vertical analysis is also commonly known as _______-size analysis.

common

The current ratio equals: Multiple choice question. total assets minus current liabilities current assets divided by current liabilities current liabilities divided by current assets current assets minus current liabilities current assets divided by total liabilities

current assets divided by current liabilities

An item that requires separate disclosure on the income statement after income from continuing operations is Multiple choice question. discontinued operations. restructuring costs. research and development costs. interest expense.

discontinued operations.