Financial Accounting Chapter 14

A company had $200,000 of net income during the year. Its dividend requirements for preferred stock were $25,000. Outstanding numbers for common stock were 200,000 at the beginning of the year, which increased to 250,000 at the end of the year as a result of selling additional stock at the halfway point during the year. What was the amount of the company's earnings per share (on common stock) for the year, rounded to the nearest whole cent?

$0.78

A company had sales of $400,000; gross profit of $250,000; operating income of 150,000; and net income of $75,000. Dividends on preferred stock were $10,000. Throughout the year, 10,000 shares of common stock were outstanding and 1,000 shares of preferred stock were outstanding. What was the earnings per share for the year?

$7.50

A company has cash of $4,000; accounts receivable of $8,000; inventory of $12,000; and accounts payable of $15,000. What is the amount of the company's working capital?

$9,000

The most common approaches used for financial analysis compare information about a company in a single accounting period with:

-information about the same company in different accounting periods. -information about other companies in the same industry.

A company has cash of $5,000; accounts receivable of $25,000; inventories of $35,000; accounts payable of $35,000; and retained earnings of $30,000. What is the company's current ratio, rounded to the nearest hundredth?

1.86

A company had gross profit of $500,000; operating income of $200,000; and net income of $100,000 during the year. Its statement of financial position (balance sheet) shows that its stockholders' equity began the year at $1 million and during the year was reduced to $950,000 by the purchase of treasury stock. What was the return on equity for the year, rounded to the nearest whole percentage?

10%

A company had an accounts receivables turnover rate of 5 times and an inventory turnover rate of 10 times. How many days are in the company's operating cycle, rounded to the nearest whole day?

110 days

A company had operating income (income before income taxes and interest) of $200,000 and net income of $185,000. Annual interest expense was $50,000. The interest coverage ratio was ____ times.

4

A company had sales of $900,000 and a cost of goods sold of $700,000 for the year. Its beginning inventory was $150,000, and its ending inventory was $130,000. What was the company's inventory turnover rate?

5 times

A company had interest expense of $12,400 during a year. In the previous year, interest expense was $11,800. What was the percentage increase rounded to the nearest 1/10 percent?

5.1%

A company has total assets of $100,000; total liabilities of $65,000; and total stockholders' equity of $35,000. What is the amount of company's debt ratio?

65%

A company has cash of $20,000; accounts receivable of $45,000; inventory of $60,000; plant assets (net of depreciation) of $100,000; and accounts payable of $55,000. The amount of the company's working capital is $

70,000

A company had operating income of $450,000 and net income of $230,000 for the year. Its beginning total asset balance was $500,000, and its ending total asset balance was $600,000. What was the return on assets for the year, rounded to the nearest whole percentage?

82%

A company had sales of $90,000 in Year 1, the base year; $95,000 in Year 2; and $78,000 in Year 3. What is the trend percentage for Year 3? Round the answer to two decimal places.

86.7%

The financial statement ratio that measures how rapidly accounts receivable are collected is called the

Accounts receivable turnover ratio

Which of the following best describes the meaning of leverage?

Earning more on debt than the cost of debt, enhancing the investment of common stockholders.

True or false: Annual reports of companies are made available only to that company's creditors and stockholders.

False

True or false: Notes to the financial statements are rare and usually include information that is not considered important in financial statement analysis.

False

True or false: Ratios compare only amounts within a single financial statement, such as an income statement or a statement of financial position (balance sheet).

False

True or false: The single-step income statement and the multiple-step income statement for the same company for the same year will result in different net income figures.

False

Which of the following do(es) not accurately describe the price-earnings ratio?

It reflects a company's rate of inventory turnover and It reflects a company's liquidity.

True or false: Public opinion polls show that people generally overstate the amount of profit earned by companies.

True

The debt ratio is calculated as follows:

total liabilities divided by total assets.

Changes in a company's revenues, expenses, operating income, and net income are referred to as ____ in earnings

trends

Taking steps to artificially or temporarily improve the appearance of a company's financial statements is referred to as

window dressing

The general formula for calculating earnings per share is:

net income divided by the number of shares of common stock outstanding.

The best number to use for the numerator in the calculation of return on equity is:

net income.

The section of a company's statement of cash flows that is most directly related to its ability to produce a continuing, dependable cash flow for ongoing activities is the:

operating activities section.

The length of time required to invest cash in inventory, sell the inventory, and collect the receivable is referred to as the company's

operating cycle

Which of the following are measures of different levels of profitability?

operating income, net income, and gross profit

The subtotal that follows operating expenses in a multiple-step income statement is called:

operating income.

Gross profit minus operating expenses is called:

operating profit.

Judging the impact on earnings of the specific accounting methods a company chooses is sometimes referred to as the ____ of earnings.

quality

The balance sheet ratio that measures liquidity by excluding inventory as an asset is called the ____ ratio.

quick

The relationship of one number to another related number is called a

ratio

The return on investment is calculated as follows:

return divided by average amount invested during the period.

Two common applications of the Return on investment concept include:

return on equity and return on assets.

The income statement format that groups all revenues together, less all expenses grouped together, with no intermediate subtotals in arriving at a net income amount is the ____-step income statement.

single

The basis or denominator for computing a percentage change from Year 1 to Year 2 is:

the Year 1 amount.

Which of the following is not a factor in judging a company's liquidity?

the depreciation of plant assets

Factors helpful in judging the quality of working capital include all of the following except:

the dividend yield.

Quality of earnings is a term used to describe:

the impact on earnings and assets of the accounting methods selected by a company.

Primary factors in evaluating the quality of working capital include:

the nature of the current assets and the length of a company's operating cycle.

Which of the following is not a goal of financial accounting information?

to demonstrate a company's compliance with income tax law

A company had sales of $300,000 and a cost of goods sold of $140,000 for the most recent year. Inventory for the year began at $50,000 and ended at $70,000. What was the average number of days to sell inventory, rounded to the nearest whole day?

156 days

If a company had sales of $500,000; gross profit of $360,000; interest expense of $10,000; and net income of $125,000, the component percentage for interest expense, is

2%

A company's assets include cash of $6,000; accounts receivable of $10,000; inventories of $56,000; and plant assets of $28,000, totaling $100,000. Its liabilities include accounts payable of $25,000 and bonds payable of $45,000, totaling $70,000. Its stockholders' equity includes $10,000 of capital stock and $20,000 of retained earnings, totaling $30,000. What is the company's current ratio?

2.88

A company has net income of $500,000, interest expense of $35,000 and income taxes of $150,000. What is the interest coverage ratio, rounded to the nearest whole number?

20 times

A company has total assets of $1.5 million; sales of $4 million; and plant and equipment, net of depreciation, of $300,000. What is the component percentage for plant and equipment?

20%

Smith Company has total liabilities of $150,000, total assets of $500,000 and total equity of $350,000. The debt ratio is

30

A company's sales for the year were $650,000. Its accounts receivable was $50,000 at the beginning of the year and $60,000 at the end of the year. What were the average number of days to collect accounts receivable, rounded to the nearest whole day?

31 days

The basis or denominator for calculating a trend percentage is:

a base-year amount.

A statement of financial position, or balance sheet, that groups similar items together is called:

a classified statement.

Which of the following would you expect to find in notes to a company's financial statements?

accounting policies and methods used in FS, assets pledged to secure specific liabilities, significant commitments and contingencies

Reconciling a company's net income to its net cash from operating activities includes subtractions for which of the following?

an increase in accounts receivable, a decrease in accrued liabilities

The base number (denominator) in the calculation of the return on assets is the:

average total assets.

Which of the following is not a current asset?

buildings

Which of the following is/are included in calculating the quick ratio?

cash, accounts receivable, and accounts payable

Consolidated financial statements present which of the following?

combined financial statements of parent and subsidiary companies

A company paid interest of 5% on bonds and used the funds to earn a return of 8%. The primary beneficiaries of this outcome are the:

common stockholders.

Standards of comparison commonly used in the financial analysis include all of the following except:

comparisons with other companies in close geographic proximity.

If a business fails, the claims of ____ take priority over those of the owners.

creditors

Assets that are relatively liquid and are expected to become cash in the relatively near future are called _____ assets.

current

Which of the following is not a section you would find in a classified income statement?

current assets

Which of the following is/are particularly relevant to a company's common stockholders if they are interested in receiving regular cash income?

dividend yield, earnings per share, price-earnings ratio

The price-earnings ratio is calculated by dividing the current market price by:

earnings per share.

The difference between net sales and the cost of goods sold is called

gross profit

Comparing amounts for a company over time in successive accounting periods is called:

horizontal analysis.

Trends in earnings refer to:

how a company's earnings increase or decrease over time.

The ratio that indicates the length of time required to sell inventory is called the

inventory turnover rate

The efficient use of debt to earn a return for common stockholders' equity is called

leverage

A company's ability to meet its obligations on an ongoing basis is generally referred to as the company's:

liquidity.