ACC-240 Unit 2

Menchforce Manufacturing's net income was %580,000 on sales of $18 million. Average assets for the year were $12 million. Find the ROI for the year.

580,000/12,000,000 = 4.8%

Menchforce Manufacturing's net income was $580,000 on sales of $18 million, Average assets for the year were $12 million. Find the margin for the year.

580,000/18,000,000 = 3.2%

Calculate working capital, assuming that cash = $6,000, land = $105,000, accounts receivable = $19,000, merchandise inventory = $20,000, accounts payable = $15,000, long-term debt = $80,000, and retained earnings = $55,000.

6,000+19,000+20,000-15,000 = $30,000

Yellowday Energy's margin was 5% and turnover was 5.0 on sales of $80 million for the year. Find average assets for the year.

80,000,000/5.0 = 16,000,000

What are the reasons why a well-managed company sometimes attempts to reduce its current ratio?

A high current ratio may be a sign that the company has not made the most productive use of its assets Assets like accounts receivable and merchandise inventory do not earn a high ROI Funds freed up by reducing the current ratio can be invested in new production equipment or making efforts

Which of the following statements are true regarding the working capital calculations?

Accounts payable are included in current liabilities Accounts receivable are included in current assets Merchandise inventory is part of current assets

Which of following accounting methods accomplishes much of the matching of revenues and expenses?

Accrual accounting

Which of the following would represent a correct calculation earned on a six month $100 investment?

$100 principle*10% rate*6/12 = $5 interest

Calculate working capital, assuming that cash + accounts receivable = $50,000, merchandise inventory = $10,000, noncurrent assets = $40,000, current liabilities = $20,000, noncurrent liabilities = $50,000, and stockholders' equity = $30,000

$40,000

The annual rate of return on a six-month investment of $1,000 that earns a return of $100 is _____.

(100/1,000)/(6/12) = 20%

The annual rate of return on a two-year investment of $1,000 that earns a total return of $100 is ______.

(100/1,000)/2 = 5%

Calculate the current ratio, assuming that cash + accounts receivable = $50,000, merchandise inventory = $10,000, noncurrent assets = $40,000, current liabilities = $20,000, noncurrent liabilities = $50,000, and stockholders' equity = $30,000

(50,000+10,000)/20,000 = 3.0

Better Plastics, Incorporated had an ROI of 16%, margin of 5%, and sales of $40 million for the year. Find the turnover.

16%/5% x=3.2

Menchforce Manufacturing's net income was $580,000 on sales of $18 million, Average assets for the year were $12 million. Find the turnover for the year.

18,000,000/12,000,000 = 1.5

Johnny Unamath's net income for the year was $450,00. Average assets totaled $3 million and average liabilities totaled $500,000. Find ROE.

3,000,000-500,000 = 2,500,000 450,000/2,500,000 = 18%

Gavin Raven's net income for the year was $480,000. Average liabilities totaled $1 million and average stockholders' equity totaled $3 million. Return on investment was?

480,000/(1,000,000+3,000,000) = 12%

Yellowday Energy's margin was 5% and turnover was 5.0 on sales of $80 million for the year. Find ROI for the year.

5%*5.0 = 25%

Yellowday Energy's margin was 5% and turnover was 6.0 on sales of $70 million for the year. Find net income for the year.

5%=x/70,000,000 x = $3,500,000

Calculate the acid-test ratio, assuming that cash + accounts receivable = $50,000, merchandise inventory = $10,000, noncurrent assets = $40,000, current liabilities = $20,000, noncurrent liabilities = $50,000, and stockholders' equity = $30,000

50,000/20,000 = 2.5

Circle Square, Incorporated had an ROI of 9%, turnover of 3.0, and sales of $4 million for the year. Find the margin for the year.

9%=(x/4,000,000)*(3.0) x=120,000 120,000/4,000,000 = 3%

Matching revenues and expenses are due to

Accurately reflecting the results of operations for a fiscal year

The principle of full disclosure means that the reporting company must fully disclose

All necessary information to prevent a reasonably astute user or financial statements from being misled

Many well-managed companies attempt to reduce their current ratio because

An overly high current ratio sometimes can be a sign that the company is not making the most productive use of its assets

If net income = $10,000, ROE = 20 percent, and stockholders' equity at the end of the year = $55,000, then which of the following is true?

Average stockholders' equity = $50,000 (10,000/20%) and S/E at the beginning of the year = $45,000 (50,000*2=100,000-55,000)

Which of the following statements are true regarding the current ratio and the acid-test ratio?

Both the current ratio and acid-test ratio use current liabilities as the denominator The acid-test ratio is a more conservative measure of a firm's liquidity The acid-test ratio demonstrates the extent to which a firm can meet its current obligations even if non of its inventory can be sold For any given company, the current ratio will generally be higher than the acid-test ratio

Which of the following is not usually considered a measure of an equity's liquidity?

Cash ratio

Working capital refers to the excess of a firm's

Current assets over its current liabilities

Which of the following is not a way to measure a company's liquidity?

Debt/equity ratio

A current ratio of 8.5 is usually an indication that the firm

Has not made the most productive use of its assets

With a semilogarithmic graph, the _____ scale is arithmetic.

Horizontal

Which of the following statements are true regarding a semilogarithmic graph?

If the data increases at a constant rate over the period of time shown on the horizontal scale, the plot will be a straight line Semilogarithmic graphs are frequently used to plot data that is expected to change significantly over time, such as a company's sales data

Return on investment is calculated by dividing net _____ by the average total _____ for the year.

Income, assets

Which of the following are normally included in a credit application?

Information about other credit relationships Information about liabilities Information about bank accounts Information about employment Information about salary

Trend analysis of ratios _____.

Is a meaningful comparison despite the use of different financial accounting alternatives to develop the data used in the ratios

Which statement about trend analysis is correct?

It generally leads to a more meaningful analysis when conducted over several years than does the observation of a single year's ratio result.

Which statements correctly describe liquidity?

It is a firm's ability to meet its current obligations as they become due It is measured by relating current assets and current liabilities as reported on the balance sheet

Which statements about turnover are correct?

It is calculated by dividing sales by average total assets It relates to the efficiency with which a firm's assets are used in the revenue-generating process

What statements about a firm's return on equity are correct?

It is normally calculated using average stockholders' equity in the denominator It expresses profits earned by the firm as a rate of return on the equity provided by stockholders

Which statements correctly describe return on invetsment?

It is sometimes referred to as return on assets It is normally calculated using average total assets as the measure of the investment It is normally calculated using net income as the measure of return

Which statements about working capital are correct?

It is the excess of a firm's current assets over its current liabilities It is expressed as a dollar amount, rather than as a financial ratio

A firm's liquidity refers to

Its ability to meet its current obligations as they become due

Slink Rollers reported net income or $400,000 on sales of $20 million for the year. Average assets for the year were $8 million. For the year:

Margin was 2%, turnover was 2.5, and ROI was 5%

Which of the following accounts is part of working capital?

Merchandise inventory

Which of the following statements are true regarding the current ratio?

Merchandise inventory is included in the numerator The current ratio is calculated as current assets divided by current liabilities Rent payable is included in the denominator

Flyaway Toys had a margin of 3% and turnover of 5.0 on sales of $50 million for the year. On the basis on this information:

Net income for the year was $1,500,00, average assets were $0 million, and ROI was 15%

Common expressions or return on investment calculation include which if the following?

Net income/average total assets Operating income/average operating assets

Another term for return on equity is

None of the above (return on assets, ROI, return on retained earnings)

A concept or principle that relates to transactions is

Original cost

Return on equity

Relates net income and average total stockholders' equity

When comparing company financial ratios with industry ratios

Relative values at a single point in time may not be significant

What do you need to calculate the amount of interest earned on an investment?

The interest rate per year The length of time the funds are invested The principle amount invested

True or false: The distance between values shown on the vertical axis will always be uniform with arithmetic vertical scale.

True

If a company had a current ratio of 2.0 and a short-term bank loan was to be repaid just before the balance sheet date, its ______.

Working capital would not change, but the current ratio would increase

Assume that current assets = $300,000 and the current liabilities = $100,000. If an account payable of $50,000 were paid off, what would be the impact on the firm's working capital and current ratio?

Working capital would remain $200,000, but the current ratio would increase from 3.0 to 5.0

An advantage of the DuPont model for calculating ROI is

it focuses on asset utilization as well as net income

If margin = 5%, net income = $100,000, and turnover = 4.0, then ______.

ROI = 20% (5%*4.0), average total assets = %500,000 (100,000/5%), and sales = $2,000,000 (2,000,000/4)

Another term for return on investment is

Return on assets

Which of the following is a universally accepted measure of profitability?

Return on investment

In general, the higher the expected ______ on an investment, the greater the ______ associated with the investment.

Return, risk

Which of the following statements are true regarding the acid-test ratio?

The acid-test ratio uses the same denominator as does the current ratio The acid-test ratio is a more conservative measure of liquidity than is the current ratio The acid-test ratio excludes merchandise inventory from the numerator The acid-test ratio is sometimes called the quick ratio

Which of the following statements are true regarding arithmetic vertical scales?

It may be helpful to truncate the non relevant portion of the vertical scale to highlight the key data ranges being depicted The distance between values shown on the vertical axis will always be uniform