Chapter 16

Cash dividends are considered a current liability to a corporation when:

declared by the board of directors.

Fixed assets are shown on the balance sheet at their original cost less ____________________

depreciation.

The current ratio is found by:

dividing the current assets by the current liabilities.

The debt-to-equity ratio is found by:

dividing the dollar amount of debt (bonds) by the dollar amount of shareholder equity (common stock + paid-in capital + retained earnings).

EBIT may be found by subtracting the operating expenses from the sales or revenue of a company, and the operating profit margin is found by:

dividing the sales by the operating expenses.

The amount of interest paid on the company's bonds outstanding (interest expense) is found in a company's:

income statement.

When total assets remains the same and stockholders' equity declines, then total liabilities must:

increase

As it relates to the payment of a dividend, the funds being paid out come from the corporation's cash (a current asset). It is important to distinguish the difference in the treatment of a dividend being declared compared to a dividend being paid. When a company declares a cash dividend, dividends payable (a current liability) will be ____________________ and the retained earnings (part of shareholders' equity) will be reduced.

increased by the amount of the announced dividend

If a company repurchases its own shares in the market, its EPS will:

normally increase.

Earnings per share is equal to net income minus the preferred dividend divided by the number of common shares outstanding. ($6,000,000 net income - $100,000 preferred dividend) divided by 500,000 shares outstanding = ___________________.

$11.80 earnings per share.

The price/earnings ratio is found by dividing the market price of $48 by the annual earnings per share. The annual EPS is $1.10 x 4 = $4.40., The price/earnings ratio is _________________.

10.9 ($48 / $4.40 = 10.9).

The price/earnings ratio is found by dividing the current market price of $24 by the earnings per share of 19 cents. This equals a price/earnings ratio of:

126.3 ($24 / $.19).

The price/earnings ratio is computed by dividing the market price of $56 by the earnings per share of $4. This equals a price/earnings ratio of:

14 to 1 ($56 divided by $4 equals 14).

Prospectuses must be delivered for ______ days after the effective date in the case of issuers with publicly traded securities already outstanding, or ________ days for IPOs.

40 90

To find the dividend payout ratio, divide the yearly dividend on the common stock ($2.00) by the earnings per share on the common stock ($5.00). This equals a dividend payout ratio of _______________.

40%.

The price-earnings ratio is the market price ($56) of the stock divided by the earnings per share ($7), which equals:

8 times.

What term is used when a company sells stock to the public above par value?

Capital surplus

The interest payment is deducted from:

EBIT

____________________ is calculated by subtracting preferred dividends from net income (net revenue) and then dividing by the number of common shares outstanding.

Earnings per share (EPS)

Wireless Communications is offering 2,000,000 common shares (par value $.10) at $15. The company will receive cash from the sale of the stock, so liquidity will: The common stock account and the paid-in capital account, which are part of stockholders' equity, will:

Increase. increase. The long-term debt ratio will fall as the equity capital rises and, since the company is raising cash, current assets will increase. Finally, fixed assets will be unchanged.

the formula for earnings per share:

Net income less preferred dividends Divided by Number of shares of common stock outstanding

An offering of stock that's sold above par value is recorded on the balance sheet as Capital Surplus. A more common term for this excess is:

Paid-in Capital.

When examining an earnings report for National Corporation, a registered representative sees that earnings per share is reported on both a primary and fully diluted basis. This indicates that:

The company has convertible bonds or convertible preferred stock outstanding Earnings per share is calculated using current shares outstanding and also assuming that all convertible securities were converted

______________________ is a comparison of current assets to current liabilities for a one-year period and is used as an indicator of a company's ability to pay those liabilities.

The current ratio

The correct formula for a balance sheet is:

Total Assets = Total Liabilities + Stockholders' Equity

a cash dividend becomes _________________ when it is declared.

a current liability

Cash flow (net income or loss plus depreciation expense) is found by using:

an income statement.

In a period of rising prices, the FIFO method, because of the lower cost basis, results in:

an increase in inventory profits.

The entry of dividends payable is found on a company's:

balance sheet.

The exercise of _________________ doesn't result in the creation of additional shares of common stock.

call options

The earnings multiple is also called the:

price-earnings ratio.

When purchasing machinery with cash, current assets (cash) are ____________ and fixed assets (machinery) are _________________. Overall, total assets ____________. Working capital (current assets minus current liabilities) is:

reduced increased by the same amount do not change reduced since current assets are reduced.

If a company declares a cash dividend, dividends payable (a current liability) will increase by the amount of the announced dividend and the retained earnings (part of shareholders' equity) will be:

reduced.

The effect of the redemption will be to reduce the company's outstanding debt, thereby also:

reducing the interest expense.

The income statement of a company includes its:

sales (revenues), less its operating expenses, less interest paid on its debt, which equals earnings before taxes.

The price of a stock divided by its price-to-earnings ratio equals the:

stock's earnings per share.

___________________ excludes the company's inventories and is usually for a one- to three-month period.

the acid-test (quick asset) ratio

A company's assets (inventory), liabilities (debt or bonds), and shareholders' equity (treasury stock), are found on:

the balance sheet.

The annual interest payments are found on:

the income statement

The operating profit margin and the bond coverage ratio can be calculated by examining:

the income statement