ACC1100 chapter 3
Working capital refers to the excess of a firm's ______.
current assets over its current liabilities
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 of the following would represent a correct calculation of interest earned on a six month, $100 investment?
$100 principal x 10% rate x 6/12 = $5 interest
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.
$30,000
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 current ratio is calculated as current assets ________ (+ - x /) current liabilities.
/
Calculate the acid-test ratio, 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. (Round your answer to one decimal place, if necessary.)
1.7
If margin is 9 percent and turnover is 2.0 times per year, then ROI _________ is percent.
18
If margin is 9 percent and turnover is 2.0 times per year, then ROI is
18
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. (Round your answer to one decimal place, if necessary.)
2.5
The annual rate of return on a six-month investment of $1,000 that earns a return of $100 is ______.
20%
If net income = $20,000 and average stockholders' equity = $80,000, then ROE =
25
If margin is 4 percent and ROI is 12 percent, then turnover is ________ times per year.
3
If margin is 4 percent and ROI is 12 percent, then turnover is __________ times per year.
3
Calculate the current ratio 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. (Round your answer to one decimal place, if necessary.)
3.0
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. (Round your answer to one decimal place, if necessary.)
3.0
The annual rate of return on a two-year investment of $1,000 that earns a total return of $100 is ______.
5%
If turnover is 1.5 times per year and ROI is 9 percent, then the margin is _________ percent.
6
Which of the following statements are true regarding the current ratio? (Choose every correct answer.)
> Accounts payable are included in the denominator. > Cash is included in the numerator.
What are the reasons why a well-managed company sometimes attempts to reduce its current ratio? (Choose every correct answer.)
> Funds freed up by reducing the current ratio can be invested in new production equipment or marketing efforts. > 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.
What are reasons why a well-managed company sometimes attempts to reduce its current ratio? (Choose every correct answer.)
> Funds freed up by reducing the current ratio can be invested in new production equipment or marketing efforts. > Assets like accounts receivable and merchandise inventory do not earn a high ROI. > A high current ratio may be a sign that the company has not made the most productive use of its assets.
Which of the following are normally included in a credit application? (Choose every correct answer.)
> Information about bank accounts > Information about employment > Information about salary
Which of the following are normally included in a credit application?
> Information about liabilities > Information about other credit relationships > Information about bank accounts
Which statements about margin are correct? (Choose every correct answer.)
> It emphasizes that for a firm to be profitable, some portion of every sales dollar must work its way to the bottom line (net income). > It is calculated by dividing net income by sales. > In the context of the DuPont model of ROI, it refers to the firm's net profit margin, not its gross margin.
Which statements about a firm's return on equity (ROE) are correct? (Choose every correct answer.)
> It expresses profits earned by the firm as a rate of return on the equity provided by stockholders. > It is normally calculated using average stockholders' equity in the denominator.
Which statements about turnover are correct? (Choose every correct answer.)
> 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.
Which statements correctly describe liquidity?
> It is measured by relating current assets and current liabilities as reported on the balance sheet. > It is a firm's ability to meet its current obligations as they become due.
Which statements about a firm's return on equity (ROE) are correct? (Choose every correct answer.)
> 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 investment (ROI)? (Choose every correct answer.)
> It is normally calculated using average total assets as the measure of the investment. > It is sometimes referred to as return on assets (ROA). > It is normally calculated using net income as the measure of the return.
The numerator of the acid-test ratio includes most current assets but specifically excludes
> 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.
Which statements about working capital are correct? (Choose every correct answer.)
> 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.
Which of the following statements are true regarding arithmetic vertical scales? (Choose every correct answer.)
> 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.
Which of the following statements are true regarding the working capital calculation? (Choose every correct answer.)
> Merchandise inventory is part of current assets. > Cash is part of current assets.
Which of the following statements are true regarding the current ratio? (Choose every correct answer.)
> Rent payable is included in the denominator. > The current ratio is calculated as current assets divided by current liabilities. > Merchandise inventory is included in the numerator.
Which of the following statements are true regarding the acid-test ratio? (Choose every correct answer.)
> Temporary cash investments are included in the numerator of the acid-test ratio. > The acid-test ratio can be calculated as (Cash (including temporary cash investments) + accounts receivable) divided by current liabilities. > The acid-test ratio is sometimes called the quick ratio.
Which of the following statements are true regarding the relationship between the current ratio and the acid-test ratio? (Choose every correct answer.)
> The acid-test ratio demonstrates the extent to which a firm can meet its current obligations even if none 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 statements are true regarding the acid-test ratio? (Choose every correct answer.)
> The acid-test ratio is a more conservative measure of liquidity than the current ratio. > The acid-test ratio uses the same denominator as does the current ratio. > The acid-test ratio excludes merchandise inventory from the numerator.
Which of the following statements are generally true regarding the risk-return relationship? (Choose every correct answer.)
>The wider the possible range of outcomes, the greater the risk. > Market prices for products and commodities, as well as stock prices, reflect the basic risk-reward relationship. > The higher the expected return on an investment, the greater the associated risk.
________ stockholders' equity for the year is normally calculated by adding the beginning stockholders' equity and the ending stockholders' equity and dividing the total by 2.
Average
Working capital is calculated as current assets _________ (+ - x /) current liabilities.
Blank 1: -, minus, or -
Return on equity (ROE) is defined as net _________ divided by __________ stockholders' equity.
Blank 1: income Blank 2: average
Return on equity (ROE) is defined as net ___________ divided by ____________ stockholders' equity.
Blank 1: income Blank 2: average
Return on investment (ROI) is calculated by dividing net __________ by the average total ___________ for the year.
Blank 1: income, profit, profits, earning, or earnings Blank 2: assets
Fill in the blank: The numerator of the acid-test ratio includes most current assets but specifically excludes
Blank 1: merchandise Blank 2: inventory or inventories
In general, the higher the expected ______________ on an investment, the greater the _______________ associated with the investment.
Blank 1: return Blank 2: risk
In the DuPont model for analyzing ROI, turnover is calculated as ___________ divided by average total ___________.
Blank 1: sales Blank 2: assets
Common expressions of return on investment (ROI) calculation include which of the following? (Choose every correct answer.)
Operating income / Average operating assets Net income / Average total assets
How is the amount of interest earned on an investment calculated?
Principal ($) x Rate (%) x Time (in years)
If margin = 5 percent, net income = $100,000, and turnover = 4.0, then ______.
ROI = 20%, average total assets = $500,000, and sales = $2,000,000
If sales = $500,000, turnover = 1.5, and net income = $75,000, then ______.
ROI = 22.5% and margin = 15%
Return on investment (ROI) is commonly expressed in each of the following ways, except ______.
ROI = Net income / Average stockholders' equity
What do you need to know to calculate the amount of interest earned on an investment? (Choose every correct answer.)
The principal amount invested The interest rate per year The length of time the funds are invested
True or false: The distance between values shown on the vertical axis will always be uniform with arithmetic vertical scale.
True
Assume that current assets = $300,000 and that 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.
If stockholders' equity at the beginning of the year = $480,000, stockholders' equity at the end of the year = $520,000, and net income = $80,000, then ______.
average stockholders' equity = $500,000, and ROE = 16%
If stockholders' equity at the beginning of the year = $50,000, stockholders' equity at the end of the year = $70,000, and ROE = 25 percent, then ______.
average stockholders' equity = $60,000 and net income = $15,000
If the rate of return on an investment was 10 percent ______.
and $500 was invested for one year, then the return on the investment would have been $50
With a semilogarithmic graph, the __________ scale is arithmetic.
horizontal
Trend analysis of ratios ______.
is a meaningful comparison despite the use of different financial accounting alternatives to develop the data used in the ratios
Return on investment (ROI) ______.
is normally calculated using net income as the measure of the return
A firm's liquidity refers to ______.
its ability to meet its current obligations as they become due
The DuPont model for ROI expresses ______.
margin as net income / sales
If margin = 5 percent, average total assets = $600,000, and ROI = 25 percent, then ______.
net income = $150,000, turnover = 5.0, and sales = $3,000,000
If sales = $100,000, turnover = 2.0, and ROI = 10 percent, then ______.
net income = $5,000 and margin = 5%
Return on equity (ROE) is normally calculated using ______.
net income in the numerator and average stockholders' equity in the denominator
The wider the range of possible outcomes for an investment, the greater the
risk
With a semilogarithmic graph, the _________ scale is logarithmic.
vertical
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, it's ______.
working capital would not change, but the current ratio would increase
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
