ID FINANCE
Please refer to Oscar's financial statements above. Sales are projected to increase by 3 percent next year. The profit margin and the dividend payout ratio are projected to remain constant. What is the projected addition to retained earnings for next year? A. $1,309.19 B. $1,421.40 C. $1,884.90 D. $2,667.78 E. $3,001.40 F. None of the above.
B. $1,421.40
An advantage of the percent-of-sales approach to financial forecasting is that effective forecasts can be prepared without consulting historical financial statements. (True/False)
False
An annual financial forecast for 2017 showing no external funding required assures a company that no cash shortfalls are likely to occur during 2017. (True/False)
False
An inventory turnover ratio of 10 means that, on average, items are held in inventory for 10 days. (True/False)
False
Depreciation expense a. increases net fixed assets as shown on the balance sheet b. is noncash item that increases net income c. reduces both taxes and net income d. decreases current assets, net income, and operation cash flows
c. reduces both taxes and net income
Please refer to Oscar's financial statements above. All of Oscar's costs and current asset accounts vary directly with sales. Sales are projected to increase by 10 percent. What is the pro forma accounts receivable balance for next year? A. $949 B. $1,034 C. $1,113 D. $1,730 E. $2,670 F. None of the above.
B. $1,034
Please refer to Oscar's financial statements above. What was Oscar's increase in retained earnings during 2014? A. $450 B. $1,380 C. $1,830 D. $2,280 E. None of the above.
B. $1,380
Sequoia Furniture Company documents the following sales over the course of three months, half of which are in cash. March ($432,000)--April ($682,000)--May ($552,000) Assume that Sequoia's collection period is 60 days. What would its cash receipts be in May? What would be its accounts receivable balance at the end of May?
Cash receipts: 492K AR: 617K
Sequoia Furniture Company documents the following sales over the course of three months, half of which are in cash. March ($432,000)--April ($682,000)--May ($552,000) Assume that Sequoia's collection period is 45 days. What would its cash receipts be in May? What would be its accounts receivable balance at the end of May?
Cash receipts: 554.5K AR: 446.5K
Parker Products Inc, a manufacturer, reported $123 million in sales and a loss of $18 million in its annual report to shareholders. According to a CVP analysis prepared for management, the company's break-even point is $115 million in sales.Required:Assuming that the CVP analysis is correct, is it likely that the company's inventory level increased, decreased, or remained unchanged during the year? Increased Decreased Remained unchanged
Decreased
Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Classify as a differential cost, sunk cost, opportunity cost, or none. Cost of X-ray film used in the old machine
Differential Cost
Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Classify as a differential cost, sunk cost, opportunity cost, or none. Cost of the old X-ray machine
Sunk cost
The forecast for retained earnings on the 2019 balance sheet can be determined as 2018 retained earnings plus projected 2019 after-tax earnings less projected 2019 dividends. (True/False)
True
The times-interest-earned ratio always equals or exceeds the times-burden-covered ratio. (True/False)
True
Predict the Cost Behavior:Apples processed and canned by Del Monte
Variable cost
Predict the Cost Behavior:Commissions paid to automobile salespersons
Variable cost
Predict the Cost Behavior:Hamburger buns in a Wendy's restaurant
Variable cost
Predict the Cost Behavior:Shipping canned apples from a Del Monte plant to customers
Variable cost
Predict the Cost Behavior:Steering wheels installed in BMWs
Variable cost
JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. What is JM Case's price per share? a. $10 b. None of the options are correct c. $5 d. $25 e. $50 f. $3.50
a. $10
At the end of 2017, Stacky Corp. had $500,000 in liabilities and a debt-to-assets ratio of 0.5. For 2017, Stacky had an asset turnover of 3.0. What were annual sales for Stacky in 2017? a. $3,000,000 b. $1,800,000 c. $333,333 d. $120,000
a. $3,000,000
JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. What is JM Case's book value per share? a. $5 b. $3.50 c. $25 d. $50 e. $10 f. none of the options are correct
a. $5
Which of these ratios, or levers of performance, are the determinants of ROE? I. profit margin II. financial leverage III. times interest earned IV. asset turnover a. I, II, and IV only b. I, II, III, and IV c. I, III, and IV only d. I and IV only e. I, II, and III only f. II and IV only
a. I, II, and IV only
Which one of the following statements does NOT describe a problem with using ROE as a performance measure? a. ROE is forward-looking, one-period measure, while business decisions span the past and present b. all of these describe problems with ROE c. none of these describe problems with ROE d. ROE measures return on accounting book value, and this problem is not solved by using market value e. ROE measures only return, while financial decisions involve balancing risk against return
a. ROE is forward-looking, one-period measure, while business decisions span the past and present
Madison Seniors Care Center is a nonprofit organization that provides a variety of health services to the elderly. The center is organized into a number of departments, one of which is the Meals-On-Wheels program that delivers hot meals to seniors in their homes on a daily basis. REQUIRED: A number of costs of the center and the Meals-On-Wheels program are listed below. For each cost listed below, indicate whether it is a direct or indirect cost of the Meals-On-Wheels program, whether it is a direct or indirect cost of particular seniors served by the program, and whether it is variable or fixed with respect to the number of seniors served.
a. The cost of groceries used in meal preparationDirect, Direct, Variable b. The cost of leasing the Meals-On-Wheels vanDirect, Indirect, Fixed c. The cost of incidental supplies such as salt, pepper, napkins, and so onDirect, Direct or Indirect, Variable d. The cost of gasoline consumed by the Meals-On-Wheels vanDirect, Indirect, Variable e. The rent on the facility that houses Madison Seniors Care Center, including the Meals-On-Wheels programIndirect, Direct (potentially wrong), Fixed f. The salary of the part-time manager of the Meals-On-Wheels programDirect, Indirect, Fixed g. Depreciation on the kitchen equipment used in the Meals-On-Wheels programDirect, Indirect, Fixed h. The hourly wages of the caregiver who drives the van and delivers the mealsDirect, Indirect (direct was wrong), Variable i. The costs of complying with health safety regulations in the kitchenDirect, Indirect, Fixed j. The costs of mailing letters soliciting donations to the Meals-On-Wheels programDirect, Indirect, Fixed
Manufacturing costs include all of the following categories except ________. a. administrative costs b. direct labor c. direct material d manufacturing overhead
a. administrative costs
A balance sheet reports the value of a firm's assets, liabilities, and equity a. at any point in time b. at the end of the year c. over an annual period d. over any period of time
a. at any point in time
Which one of the following is the financial statement that shows a financial snapshot, taken at a point in time, of all the assets the company owns and all the claims against those assets? a. balance sheet b. sources and uses statement c. cash flow statement d. creditor's statement e. income statement
a. balance sheet
Which of the following would NOT be considered a use of cash? a. depreciation b. a decrease in accounts payable c. dividends paid d. an increase in the cash and marketable securities account
a. depreciation
________ is sometimes called "touch labor." a. direct labor b. indirect labor c. overhead labor
a. direct labor
In comparison to industry averages, Okra Corp. has a low inventory turnover, a high current ratio, and an average quick ratio. Which of the following would be the most reasonable inference about Okra Corp.? a. its inventory level is too high b. its cash and securities balance is too low c. its cost of goods sold is too low d. it current liabilities are too low e.
a. its inventory level is too high
Suppose an acquiring firm pays $100 million for a target firm, and the target's assets have a book value of $70 million and an estimated replacement value of $80 million. What amount would be allocated to the acquiring firm's goodwill account? a. $80 million b. $0 milion c. $20 million d. $70 million e. none of the options are correct f. $30 million
c. $20 million
Return on assets can be calculated as profit margin times asset turnover. (True/False)
True
You are estimating your company's external financing needs for the next year. At the end of the year you expect that owners' equity will be $80 million, total assets will amount to $170 million, and total liabilities will be $70 million. How much will your firm need to borrow, or otherwise acquire, from outside sources during the year? A. $20 million B. $70 million C. $150 million D. $160 million E. $180 million F. None of the above.
A. $20 million
Please refer to the pro forma financial statements for Royal Corporation above. If Royal Corporation plans to issue $100 in new equity in 2014, what should be the projection for shareholders' equity for 2014? A. $5,349 B. $5,436 C. $5,451 D. $5,536
A. $5,349
In the above financial statements, Royal Corporation has prepared (incomplete) pro forma financial statements for 2014, based on actual financial statements for 2013. Royal Corp. used the percent-of-sales method assuming a sales growth rate of 10% for 2014. If capital expenditures are planned to be $1,615 in 2014, then what would be the appropriate projection for net fixed assets in 2014? A. $4,453 B. $4,563 C. $4,663 D. $5,663
B. $4,563
You are preparing pro forma financial statements for 2014 using the percent-of-sales method. Sales were $100,000 in 2013 and are projected to be $120,000 in 2014. Net income was $5,000 in 2013 and is projected to be $6,000 in 2014. Equity was $45,000 at year-end 2012 and $50,000 at year-end 2013. Assuming that this company never issues new equity, never repurchases equity, and never changes its dividend payout ratio, what would be projected for equity at year-end 2014?A. $55,000 B. $56,000 C. $60,000 D. Insufficient information is provided to project equity in 2014.
B. $56,000 All of net income was added to equity in 2013, so all of net income will be added to equity in 2014. $50,000 + $6,000 = $56,000.
Please refer to Oscar's financial statements above. Assume a constant profit margin and dividend payout ratio, and further assume all of Oscar's assets and current liabilities vary directly with sales. Assume long-term debt and common stock remain unchanged. Sales are projected to increase by 10 percent. What is Oscar's external financing need for next year? A. -$410 B. -$260 C. $235 D. $1,320 E. $7,240 F. None of the above.
B. -$260
Please refer to Oscar's financial statements above. Assume a constant debt-equity ratio, net profit margin and dividend payout ratio, and further assume all of Oscar's expenses, assets and current liabilities vary directly with sales. What is the pro forma net fixed asset value for next year if sales are projected to increase by 7.5 percent? A. $10,857.50 B. $10,931.38 C. $11,663.75 D. $15,587.50 E. $18,987.50 F. None of the above.
C. $11,663.75
The most common approach to developing pro forma financial statements is called the: A. cash budget method. B. financial planning method. C. seasonality approach. D. percent-of-sales method. E. market-oriented approach. F. None of the above.
D. percent-of-sales method.
The Limited collects 25 percent of sales in the month of sale, 60 percent of sales in the month following the month of sale, and 15 percent of sales in the second month following the month of sale. During the month of April, the firm will collect: A. 60 percent of February sales. B. 15 percent of April sales. C. 60 percent of March sales. D. 15 percent of March sales. E. 25 percent of February sales.
C. 60 percent of March sales.
Which of the following statements is correct if a firm's pro forma financial statements project net income of $12,000 and external financing required of $5,000? A. Total assets cannot grow by more than $10,000. B. Dividends cannot exceed $10,000. C. Retained earnings cannot grow by more than $12,000. D. Long-term debt cannot grow by more than $5,000.
C. Retained earnings cannot grow by more than $12,000.
Please refer to the pro forma financial statements for Royal Corporation above. Assume that net fixed assets are projected to be 5,000 for 2014 and that shareholders' equity is projected to be 5,500 for 2014. If long-term debt is the plug figure, what should be the projection for long-term debt for Royal Corporation in 2014? A. $2,206 B. $2,363 C. $2,455 D. $2,847
D. $2,847
Which one of the following statements is correct concerning the cash balance of a firm? A. Most firms attempt to maintain a zero cash balance at all times. B. The cumulative cash surplus shown on a cash budget is equal to the ending cash balance plus the minimum desired cash balance. C. Most firms attempt to maximize the cash balance at all times. D. A cumulative cash deficit on a cash budget indicates the need to acquire additional funds. E. The ending cash balance must equal the minimum desired cash balance. D. A cumulative cash deficit on a cash budget indicates the need to acquire additional funds.
D. A cumulative cash deficit on a cash budget indicates the need to acquire additional funds.
You are developing a financial plan for a corporation. Which of the following questions will be considered as you develop this plan? I. How much will our sales grow? II. Will additional fixed assets be required? III. Will dividends be paid to shareholders? IV. How much new debt must be obtained? A. I and IV only B. II and III only C. I, III, and IV only D. II, III, and IV only E. I, II, III, and IV
E. I, II, III, and IV
A company's price-to-earnings ratio is always equal to one minus its earnings yield. (True/False)
False
A company's return on assets will always equal or exceed its profit margin. (True/False)
False
Accounting rules require U.S. companies to depreciate research and development (R&D) expenditures using the straight-line method. (True/False)
False
All else equal, an increase in a company's asset turnover will decrease its ROE. (True/False)
False
Preparing Financial Statements:Advertising by a dental office
Period cost
Which of the following is always an irrelevant cost? a. Differential cost b. Sunk cost c. Opportunity cost
b. Sunk cost
Which one of the following statements does NOT describe a problem with using ROE as a performance measure? a. all of these describe problems with ROE b. ROE measures only return, while financial decisions involve balancing risk against return c. ROE measures return on accounting book value, and this problem is not solved by using market value d. ROE is a forward-looking, one-period measure, while business decisions span past and present e. none of these describe problems with ROE
d. ROE is a forward-looking, one-period measure, while business decisions span past and present
Given the same assumptions, cash flow forecasts and pro forma projections will yield the same need for external funding. (True/False)
True
The percent-of-sales approach to financial forecasting works well for forecasting the income statement but is not useful for forecasting the balance sheet. (True/False)
False
You can construct a sources and uses statement for 2017 if you have a company's year-end balance sheets for 2017 and 2018. (True/False)
False
Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Classify as a differential cost, sunk cost, opportunity cost, or none. Cost of electricity to run the X-ray machines
Differential cost
Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Classify as a differential cost, sunk cost, opportunity cost, or none. Cost of the new color laser printer
Differential cost
Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Classify as a differential cost, sunk cost, opportunity cost, or none. The cost of maintaining the old machine
Differential cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics.For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- Lab Test by Outside Contractor 2. A Particular Department
Direct Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics.For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- Lab Test by Outside Contractor 2. Cost Object- A Particular Patient
Direct Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics.For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- Prescription Drugs 2. Cost Object- A Particular Patient
Direct Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics.For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- The Salary of the Head of Pediatrics 2. Cost Object- The Pediatric Department
Direct Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics.For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- The Wages of Pediatric Nurses 2. Cost Object- The Pediatric Department
Direct Cost
All else equal, increasing the assumed collection period in a financial forecast will decrease external funding required. (True/False)
False
If a firm increases its accounts payable period, other things equal, it increases the cash conversion cycle. (True/False)
False
One advantage of ROE is that it is a risk-adjusted measure of performance. (True/False)
False
The accrual principle requires that revenue not be recognized until payment from a sale is received. (True/False)
False
The cost of equity is usually reported on the income statement right below interest expense. (True/False)
False
Preparing Financial Statements:Hamburger buns in a Wendy's restaurant
Product cost
Predict the Cost Behavior:Advertising by a dental office
Fixed cost
Predict the Cost Behavior:Depreciation of factory lunchroom facilities at a General Electric plant
Fixed cost
Predict the Cost Behavior:Insurance on a Bausch and Lomb factory producing contact lenses
Fixed cost
Predict the Cost Behavior:Salary of a supervisor overseeing production of printers at Hewlett-Packard
Fixed cost
Preparing Financial Statements:Insurance on a Bausch and Lomb factory producing contact lenses
Product cost
Preparing Financial Statements:Salary of a supervisor overseeing production of printers at Hewlett-Packard
Product cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics.For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- Heating The Hospital 2. Cost Object- The Pediatric Department
Indirect Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics.For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- Hospital Champlain Salary 2. Cost Object- A Particular Patient
Indirect Cost
Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics.For each of the following cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. 1. Cost- The Salary of the Head of Pediatrics 2. Cost Object- A Particular Pediatric Patient
Indirect Cost
Preparing Financial Statements:Steering wheels installed in BMWs
Product cost
Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Classify as a differential cost, sunk cost, opportunity cost, or none. Rent on the space occupied by Radiology
None
Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Classify as a differential cost, sunk cost, opportunity cost, or none. The salary of the head of the Radiology Department
None
Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Classify as a differential cost, sunk cost, opportunity cost, or none. Benefits from a new DNA analyzer
Opportunity cost
Preparing Financial Statements:Commissions paid to automobile salespersons
Period cost
Preparing Financial Statements:Insurance on IBM's corporate headquarters
Period cost
Preparing Financial Statements:Shipping canned apples from a Del Monte plant to customers
Period cost
Preparing Financial Statements:Apples processed and canned by Del Monte
Product cost
Preparing Financial Statements:Depreciation of factory lunchroom facilities at a General Electric plant
Product cost
A cash flow statement places each source or use of cash into one of three broad categories: operating activities, investing activities, or financing activities. (True/False)
True
A reduction in long-term debt is a use of cash. (True/False)
True
Across companies, ROA and financial leverage tend to be inversely related. (True/False)
True
All else equal, a firm would prefer to have a higher gross margin. (True/False)
True
All else equal, increasing the assumed payables period in a financial forecast will decrease external funding required. (True/False)
True
Current liabilities are defined as liabilities with a maturity of less than one year. (True/False)
True
Which of the following formulas describes the calculation of cash flow from operating activities? a. net income + noncash items +/- changes in current assets and liabilities b. net income - capital expenditures - dividends paid c. net income +/- changes in current assets and liabilities - dividends paid d. net income + capital expenditures - dividends paid e. net income + noncash items - capital expenditures
a. net income + noncash items +/- changes in current assets and liabilities
How should the wages of a sheet metal worker in a fabrication plant be classified? a. product cost b. period cost c. nonmanufacturing cost d. administrative cost
a. product cost
The most popular yardstick of financial performance among investors and senior managers is the a. return on equity b. times-burden-covered ratio c. none of the options are correct d. return on assets e. profit margin f. earnings yield
a. return on equity
On May 1, Vaya Corp. had a beginning cash balance of $175. Vaya's sales for April were $430, and May sales were $480. During May, the firm had cash expenses of $110 and made payments on accounts payable of $290. Vaya's accounts receivable period is 30 days. What is the firm's beginning cash balance on June 1? a. $155 b. $205 c. $265 d. $145 e. $215
b. $205
Please refer to the income statement for VGA Associates below. Assuming that cost of goods sold are variable and operating expenses are fixed, what was VGA Associates' breakeven sales volume in 2017? VGA Associates Income statement for 2017 Sales$200,000 Cost of goods sold 150,000 Gross profit 50,000 Operating expenses 20,000 Operating income 30,000 Interest expense 5,000 Pre-tax income 25,000 Taxes 5,000 Net income$20,000 a. $20,000 b. $80,000 c. $150,000 d. $180,000 e. None of the options are correct
b. $80,000
Which of the following statements about opportunity costs is not correct? a. An opportunity cost is the potential benefit that is given up when one alternative is selected over another. b. An opportunity cost cannot be changed by any decision made now or in the future. c. Opportunity costs are not usually found in accounting records. d. Opportunity costs are costs that must be explicitly considered in every decision a manager makes.
b. An opportunity cost cannot be changed by any decision made now or in the future.
Which of these ratios, or levers of performance, are the determinants of ROE? I. profit margin II. financial leverage III. times interest earned IV. asset turnover a. I and IV only b. I, II, and IV only c. I, III, and IV only d. II and IV only e. I, II, III, and IV
b. I, II, and IV only
Which one of the following is the financial statement that summarizes changes in the company's cash balance over a period of time? a. shareholders' equity statement b. cash flow statement c. market value statement d. income statement e. balance sheet
b. cash flow statement
Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product are called ________. a. raw materials b. direct materials c. indirect materials
b. direct materials
Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? a. sources and uses statement b. income statement c. cash flow statement d. market value statement e. balance sheet
b. income statement
Differential costs are always ________. a. irrelevant in making business decisions b. relevant in making business decisions c. a sunk cost
b. relevant in making business decisions
Ptarmigan Travelers had sales of $420,000 in 2016 and $480,000 in 2017. The firm's current asset accounts remained constant. Given this information, which one of the following statements must be true? a. the fixed asset turnover decreased b. the collection period decreased c. the inventory turnover rate increased d. the days' sales in receivables increased e. the total asset turnover rate increased
b. the collection period decreased
Assume you are a banker who has loaned money to a firm, but that firm is now facing increased competition and reduced cash flows. Which one of the following ratios would you most closely monitor to evaluate the firm's ability to repay its loan? a. current ratio b. times-burden-covered-ratio c. none of the options are correct d. debt-to-equity ratio e. times-interest-earned ratio
b. times-burden-covered-ratio
Ellsbury Corporation has a goal to reduce its cash conversion cycle. Which of the following actions, holding all else equal, is likely to accomplish this goal? a. Ellsbury increases its cash/assets ratio from 12% to 15% b. Ellsbury changes the credit terms it offers to customers, allowing them to pay in 45 days instead of 30 days c. Ellsbury increase the efficiency of its production process, reducing by 10% the average time it takes to convert raw materials to finished products d. Ellsbury starts paying off all outstanding invoices to suppliers twice a month instead of once a month e.
c. Ellsbury increase the efficiency of its production process, reducing by 10% the average time it takes to convert raw materials to finished products
Which one of the following ratios identifies the amount of sales a firm generates for every $1 in assets? a. retention b. debt-to-equity c. asset turnover d. return on assets e. current ratio
c. asset turnover
Which of the following is NOT a major category on the cash flow statement? a. cash flows from operating activities b. cash flows from investing activities c. cash flows from selling activities d. cash flows from financing activities
c. cash flows from selling activities
A company sells used equipment with a book value of $100,000 for $250,000 cash. How would this transaction affect the company's balance sheet? a. cash rises $250,000, net plant equipment falls $250,000 b. cash rises $250,000, accounts receivable falls $100,000, goodwill rises $150,000 c. cash rises $250,000, net plant and equipment falls $100,000, equity rises $150,000 d. equity rises $250,000, net plant and equipment falls $250,000
c. cash rises $250,000, net plant and equipment falls $100,000, equity rises $150,000
Which one of the following is a source of cash? a. decrease in accounts payable b. decrease in long-term debt c. decrease in accounts receivable d. increase in inventory e. decrease in common stock
c. decrease in accounts receivable
Which one of the following is a source of cash? a. decrease in common stock b. increase in inventory c. increase in accounts payable d. decrease in notes payable e. increase in accounts receivable
c. increase in accounts payable
Which one of the following is a use of cash? a. increase in notes payable b. increase in long-term debt c. increase in inventory d. decrease in accounts receivable e. increase in common stock
c. increase in inventory
Breakers Bay Inc. has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. All else held constant, how will this accomplishment be reflected in the firm's financial ratios? a. decrease in the financial leverage ratio b. decrease in the total asset turnover rate c. increase in the inventory turnover rate d. increase in the days' sales in inventory e. decrease in the fixed asset turnover rate
c. increase in the inventory turnover rate
The ________ requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized. a. materiality concept b. consistency concept c. matching principle d. going concern assumption
c. matching principle
Which one of the following statements is correct? a. to realize the best risk and reward profile, financial leverage should be maximized b. none of the options are correct c. the assets-to-equity ratio can be computed as 1 plus the debt-to-equity ratio d. long-term creditors would prefer the times-interest-earned ratio be 1.4 rather than 1.5 e. if the debt-to-assets ratio is greater than 0.50, then the debt-to-equity ratio must be less than 1.0
c. the assets-to-equity ratio can be computed as 1 plus the debt-to-equity ratio
Which of the following statements concerning the cash flow production cycle is true? a. a profitable company will always have sufficiency cash to meet its obligations b. the profits reported in a given time period equal the cash flows generated c. the movement of cash to inventory, to accounts receivable, and back to cash is known as the firm's working capital cycle d. financial statements have nothing to do with reality e. a company's operations and finances are independent of one another
c. the movement of cash to inventory, to accounts receivable, and back to cash is known as the firm's working capital cycle
A ___________ is a cost that is incurred to support a number of cost objects but cannot be traced to them individually.
common cost
Which of the following is common to both prime cost and conversion cost? a. Manufacturing overhead b. Direct materials c. Nonmanufacturing costs d. Direct labor
d. Direct labor
Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios. a. profitability b. financial leverage c. coverage d. asset turnover and control e. none of the options are correct
d. asset turnover and control
Breakers Bay Inc. has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. All else held constant, how will this accomplishment be reflected in the firm's financial ratios? a. decrease in the financial leverage ratio b. decrease in the total asset turnover rate c. decrease in the fixed asset turnover rate d. increase in the inventory turnover rate e. increase in the days' sales in inventory
d. increase in the inventory turnover rate
In comparison to industry averages, Okra Corp. has a low inventory turnover, a high current ratio, and an average quick ratio. Which of the following would be the most reasonable inference about Okra Corp.? a. its cost of goods sold is too low b. its current liabilities are too low c. its cash and securities balance is too low d. its inventory level is too high
d. its inventory level is too high
You are estimating your company's external financing needs for the next year. Your first-pass pro forma financial statements showed a large financing deficit for next year. Which of the following changes to your company's operating plan would reduce the financing deficit if incorporated in revised pro forma financial statements? a. increase cost of goods sold as a percentage of sales b. none of the options are correct c. increase the sales growth rate d. reduce the collection period e. increase the dividend payout ratio
d. reduce the collection period
On a common-size balance sheet, all accounts are expressed as a percentage of a. none of these options are correct b. profits c. equity d. total assets e. sales
d. total assets
Adventure Holiday sells thousands of tour packages each month thought its various branches. A branch manager's salary would be a(n) _________ of the branch.
direct cost
What is the length of the cash conversion cycle for a firm with $3 million in inventory, $1.5 million in accounts payable, a collection period of 40 days, and an annual cost of goods sold of $18 million? a. 131.2 days b. 51.2 days c. 34.0 days d. none of the options are correct e. 70.4 days
e. 70.4 days
Which of the following are viable techniques to cope with the uncertainty inherent in realistic financial projections? I. Simulation II. Ad hoc adjustments III. Scenario analysis IV. Sensitivity analysis a. I, II, III, and IV b. II and IV only c. III and IV only d. II, III, and IV only e. I, III, and IV only f. I, II, and III only
e. I, III, and IV only
The book value of a firm is a. generally greater than the market value when fixed assets are included b. equivalent to the firm's market value provided that the firm has some fixed assets c. adjusted to the market value whenever the market value exceeds the stated book value d. more of a financial than an accounting valuation e. based on historical cost
e. based on historical cost
The sources and uses of cash over a stated period of time are reflected in the a. balance sheet b. statement of operating position c. income statement d. shareholders' equity statement e. cash flow statement
e. cash flow statement
On a common-size balance sheet, all accounts are expressed as a percentage of a. equity b. profits c. sales d. none of options are correct e. total assets
e. total assets
The most popular yardstick of financial performance among investors and senior managers is the a. return on assets b. none of the options are correct c. times-burden-covered ratio d. earnings yield e. profit margin f. return on equity
f. return on equity
Adventure Holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a(n) _________ of selling a tour package.
indirect cost
