chapter 18
Martin Corporation's net income for 2011 was $84,000. The market price of Martin's common stock was $15 on January 1 of 2011 and $17 on December 31 of 2011. 95,000 shares of common stock were outstanding on January 1, 2011 and 10,000 additional shared were issued on July 1, 2011. Common shares outstanding on December 31, 2011 were 105,000. Martin's earnings per share for 2011 was:
$0.84
Oxford Company has the following account balances: Cash, $40,000; Accounts Receivable, $28,000; Inventory, $12,000; Land, $110,000; Building, $100,000; Accounts Payable, $30,000; Short-term Notes Payable, $10,000; Bonds Payable, $80,000; Common Stock, $170,000; Sales, $120,000; Salaries Expense, $40,000; Utilities Expense, $15,000; and Interest Expense, $5,000. The current ratio for Oxford Company is
2:1
Comparisons can be made on all of the following bases except:
All of these options are bases for comparison.
Pro forma income usually excludes items that the company thinks are unusual or nonrecurring.
T
A ratio that is a measure of a company's immediate short-term liquidity is the:
acid-test ratio.
inventory turnover=
cost of goods sold / average inventory
current ratio =
current assets / current liabilities = current ratio
All of the following are solvency ratios except the:
current ratio.
balance sheet percentages=
each item on balance sheet / total assets = %
return on common stockholders' equity=
net income / average common stockholders' equity
The purpose of horizontal analysis is:
to determine the increase or decrease that has taken place.
Horizontal analysis is also called:
trend analysis.
Maxwell Corporation had net income of $200,000 and paid cash dividends of $50,000 to its common stockholders for the current year. The weighted average number of common shares outstanding at year-end was 50,000. Maxwell's $10, par value common stock is currently selling for $50 per share on the New York Stock Exchange. The price-earnings ratio for Maxwell Corporation is
12.50 times
Clover Department Store had a balance in its Accounts Receivable account of $730,000 at the beginning of the year and a balance of $770,000 at the end of the year. Net credit sales amounted to $6,375,000 and cost of goods sold amounted to $2,800,000. The receivables turnover for the year is
8.5 times
A ratio can be expressed in terms of a:
All of these options.
Which of the following includes all changes in stockholders' equity during a period except those resulting from investments by stockholders and distributions to stockholders?
Comprehensive income
Extraordinary items are events and transactions that are unusual in nature or infrequent in occurrence.
F
Solvency ratios measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.
F
The inventory turnover ratio and the profit margin ratio are profitability ratios.
F
Vertical analysis is a technique for evaluating a series of financial statement data over a period of time.
F
Vertical analysis is also called trend analysis.
False
A long-term creditor looks to measures of solvency that indicate the company's ability to survive over a long period of time.
T
Earning power is net income adjusted for irregular items.
T
The acid-test ratio is a measure of a company's immediate short-term liquidity.
T
The asset turnover ratio measures how efficiently a company uses its assets to generate sales.
T
Which of the following is a solvency ratio?
Times interest earned
The purpose of horizontal analysis is to determine the increase or decrease that has taken place, expressed as an amount or a percentage.
True
Liquidity ratios include all of the following except:
asset turnover.
acid-test ration=
cash + short-term investments + accouts receivable(net) / current liabilities = acid-test ration
On January 1, 2011 Starr Co had $20,000 of current assets and current liabilities of $10,000. Quick assets on January 1 were $10,000.There were no changes in the composition of Starr's current assets or current liabilities during 2011, except that notes payable decreased by $1,000 and cash decreased by $1,000. As of December 31, 2011, Starr's:
current ratio has increased and the acid test (quick) ratio has remained unchanged.
One type of non-typical item reported on corporation income statements is:
discontinued operations.
The disposal of an identifiable reporting or operating segment of a business is referred to as:
discontinued operations.
income statement percentages=
each item on income statement / net sales = %
Rieger Company had $300,000 of current assets and $180,000 of current liabilities before borrowing $70,000 from the bank with a 5-month note payable. What effect did the borrowing transaction have on the working capital of Rieger Company?
had no effect on working capital
A technique for evaluating a series of financial statement data over a period of time is:
horizontal analysis.
Times interest earned is computed by dividing interest expense into:
income before income taxes and interest expense
The interest coverage ratio is calculated by dividing interest expense into:
income before income taxes and interest expense.
Horizontal analysis is used mainly for which of the following types of comparisons:
intracompany
Limitations of financial statement analysis include all of the following except:
investing activities.
Ratios that measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash are:
liquidity ratios.
Ratios that measure the short-term ability of the company to pay its maturing obligations are:
liquidity ratios.
A short-term creditor, such as a bank, is primarily interested in the borrower's:
liquidity.
accepting receivable turnover=
net credit sales / average net accounts receivable
Return on asset=
net income / average total assets
profit margin=
net income / net sales
When a company has preferred stock, the return on common stockholders' equity is computed by dividing:
net income less preferred dividends by average common stockholders' equity.
asset turnover=
net sales / average total assets
In vertical analysis, the base amount for each income statement item is:
net sales.
In vertical analysis, the base for each income statement item is:
net sales.
A technique for evaluating financial statements that expresses the relationship among selected financial statement data is:
ratio analysis.
A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data is:
ratio analysis.
An overall measure of profitability of assets is the:
return on assets ratio.
An overall measure of profitability is the:
return on assets.
To evaluate financial relationships it is best to make comparisons:
with industry averages, on an intercompany basis, on an intracompany basis (ALL OF THESE OPTIONS ARE BASES FOR COMPARISON.)
Extraordinary items include each of the following except the:
write-down of inventories.
