FIN 5353 CH 8

A firm has a total debt ratio of 0.30 times. This means the firm has Blank______ in total debt for every $1 in total assets. $0.30 $0.70 $0.03 $0.07

$0.30

If a firm needs $500 million in new assets and has projected retained earnings of $200 million, what is the external financing needed? $700 million $500 million $300 million $200 million

$300 million

Which of the following are noncash expenses on the income statement? income tax expense amortization expense depreciation expense interest expense

-amortization expense -depreciation expense

Which of the following are traditional financial ratio categories? asset management ratios real options ratios market value ratios profitability ratios

-asset management ratios -market value ratios -profitability ratios

A firm has a total debt ratio of ______ times. This means the firm has $0.20 in total debt for every $1 in total assets. 0.20 $0.20 $0.80 0.80

0.20

A firm that generated $0.24 in sales for every dollar in assets has a total asset turnover of ______ times.

0.24

When the component has been sold

1. Income or loss from operations (revenues, expenses, gains, and losses) of the component from the beginning of the reporting period to the disposal date. 2. Gains or loss on disposal of the component's assets

Cash flows: Operating Activities

1. inflows and outflows of cash related to transactions that help determine net operating income. like: -customers from the sale of goods and services - interest and dividends from investements - purchase of inventory - salaries, wages, and other operating expenses - interest on debt - income taxes

A firm has an operating profit (EBIT) of $600 on sales of $1,000. Interest expense is $250 and taxes are $120. What is the times interest earned ratio? 0.60 1.67 2.40 0.42

2.40

If a firm collects its credit sales in 25 days, on average, it has a days' sales in receivables of ________.

25

True or false: Given external financing needs in a financial plan, the firm must borrow both long- and short-term funds. True False

False

Who is responsible for the information in the annual report? Multiple choice question. Board of directors of the company. CPA firm that audits the company. Internal auditors of the company.

Management of the company.

Financial _______ allow users to compare a companies' performance over time.

Ratio

Short-term investments are sometimes called which of the following?

Temporary investments Short-term marketable securities

Is prepaid expenses on the balance sheet?

Yes

Utilization ratios measure how efficiently a firm uses ______. assets equity debt liabilities tax liabilities

assets

Money on hand and in banks that is available for use in the operations of the business is shown in the

cash

The maximum rate of growth a firm can maintain without increasing its financial leverage is ______. sustainable growth rate internal growth rate external growth rate

sustainable growth rate

Alpha Star's net income is $300 on $2,000 of sales. The company has $5,000 in assets and equity of $3,000. The firm paid out $125 in cash dividends. What is the dividend payout ratio? 6.25 percent 4.17 percent 6 percent 41.67 percent

41.67 percent

Swenson's return on assets is 14 percent and its plowback ratio is 40 percent. What is the internal rate of growth? 6.35% 2.68% 5.93% 9.17%

5.93%

What is included in a company's paid in capital? (Select all that apply.) Multiple select question. Comprehensive income Additional paid-in capital Common stock Retained earnings

Additional paid-in capital Common stock

An accrued liability represents which of the following? Multiple choice question. An expense that has been incurred but will be paid in a future period. A revenue that was earned but payment will be received in a future period. An expense that has been incurred and was paid in a prior period.

An expense that has been incurred but will be paid in a future period.

Bear Corp. has $100,000 cash in the bank restricted to repay a note payable that matures in 2 years. How should this $100,000 be reported?

As restricted cash in the long-term asset section of the balance sheet.

The current versus noncurrent classification applies to what in the financial statements? Multiple choice question.

Assets and liabilities

Which of the following items is classified as cash? Multiple choice question. Treasury bills Investment in stock of another company Bank drafts Accounts receivable

Bank drafts

Weston's financial planning model shows assets are projected to increase by $2.7 million while liabilities and equity increase by $1.5 million. What is the external financing need (EFN)? $1.5 million $4.2 million $2.2 million $1.2 million

$1.2 million $2.7m-$1.5m

A pro forma balance sheet indicates that total assets will increase by $300,000. If a debt-equity ratio of 0.5 is maintained, then debt must increase by ______. $150,000 $300,000 $100,000 $200,000

$100,000

If a firm needs $300 million in new assets and has projected retained earnings of $72.4 million, what is the external financing needed? $300 $227.6 $372.4 $72.4

$227.6

Cal's Market has a return on equity (ROE) of 15 percent. What does this mean? Cal generated $0.15 in profit for every $1 of the market value of equity. Cal generated $0.15 in profit for every $1 of book value of equity. Cal generated $0.15 in profit for every $1 of sales. Cal paid a dividend of $0.15 per share to its shareholders this year.

Cal generated $0.15 in profit for every $1 of book value of equity.

A firm with $600,000 in sales, cash on hand of $750,000, liabilities of $200,000, and total assets of $1 million has a total asset turnover of _____ times. 0.60 0.20 0.75 0.80

Sales/assets = 600,000/1,000,000 = 0.6

A good working knowledge of financial statements is desirable because such statements are the primary means of communicating financial information both within and outside the firm. True False

True

Other assets represents Multiple choice question. assets that are immaterial any asset other than cash or cash equivalents a catch-all category of noncurrent assets a catch-all category of current assets

a catch-all category of noncurrent assets

How are accounts receivable classified on the balance sheet? Multiple choice question. current liability current asset noncurrent asset noncurrent liability

current asset

A ______ is satisfied within 1 year or the current operating cycle, whichever is longer. Multiple choice question. noncurrent liability noncurrent asset current liability current asset

current liability

List all current liabilities

current portion of longterm debt notes payable accounts payable accrued liabilities income taxes payable

Which of the following items are required disclosures in the notes to financial statements? (Select all that apply.) Multiple select question. description of subsequent events marketing strategies related third-party transactions significant accounting policies

description of subsequent events related third-party transactions significant accounting policies

Which three of the following are most apt to create problems when comparing financial statements for multiple firms? differing fiscal years seasonality differing accounting methods differing levels of cash

differing fiscal years seasonality differing accounting methods

A one-time profit from an asset sale makes it ______ to compare financial statements. difficult easier

difficult

Based on the sustainable growth rate, which of the following factors affect a firm's ability to sustain growth? current stock price financial policy dividend policy profit margin

financial policy dividend policy profit margin

What items must be removed from continuing operations and reported separately for a discontinued operation? (Select all that apply.) Multiple select question. gains tax expense assets Revenues expenses liabilities

gains tax expense Revenues expenses

All else equal, when the rate of growth in sales or assets in a financial plan is higher, external financing needs will be ______. unaffected greater the same lower

greater

A times interest earned (TIE) ratio greater than 1 means EBIT is ______ the firm's interest expense. less than equal to greater than

greater than

Given an internal growth rate of 3 percent, a firm can ______. grow by 3 percent or less without any additional external financing grow by more than 3 percent without any additional external financing not grow repay all of its outstanding debt.

grow by 3 percent or less without any additional external financing

A ______ PE ratio may indicate that investors believe a company has better prospects for future growth in earnings. higher lower negative

higher

As long as all sales requests are being met, a ______ inventory turnover ratio is better. lower higher

higher

When analyzing financial performance over time, all else equal, a(n) ______ profit or EBITDA margin is preferred. zero higher smaller lower

higher

An increase in a firm's total asset turnover will ______ the sustainable growth rate. increase decrease destabilize

increase

As projected sales growth increases, the external financing needs ______. remain the same decrease increase

increase

If a firm increases its debt-equity ratio, it will _____ its sustainable rate of growth. not affect increase decrease

increase

Long-term debt on the common-size balance sheet of Solid Rock Construction over the past 3 years is 30 percent, 34 percent, and 40 percent, respectively. This indicates that the firm has increased its _____. notes payable current assets equity leverage

leverage

Which of the following are common characteristics of property, plant, and equipment? (Select all that apply.) Multiple select question. long-lived intangible tangible used within 1 year or the operating cycle, whichever is longer used in normal operations

long-lived tangible used in normal operations

A low-growth firm will have a relatively _____ need for external financing than a high-growth firm. higher lower indecisive

lower

A lower PE ratio may indicate that investors believe a company has ______ prospects for future growth in earnings. higher lower

lower

When the typical stock in the S&P 500 Index has a PE ratio of 12, a company with a PE ratio of 7 may have _____ than average growth prospects, given similar earnings per share. lower higher

lower

Generally, the ______ the inventory turnover ratio, the ______ efficiently the firm is managing inventory. lower; less lower; more higher; more higher; less

lower; less higher; more

Responsibility for the financial statements and other information found in the annual report lies with...

management

Income smoothing describes the concept that Multiple choice question. managers manipulate the pattern of income to not vary much between years. income is not reported until approved by the board of directors. income is averaged over a 10-year moving average.

managers manipulate the pattern of income to not vary much between years.

A _____ firm will include finished goods, work in process, and raw materials as part of their inventory. Multiple choice question. service wholesale manufacturing retail

manufacturing

The accounts common stock and paid-in capital in excess of par are classified as Multiple choice question. treasury stock. contra equity accounts. other comprehensive income. paid-in capital.

paid-in capital

The liquidity of a company with significant amounts of obsolete inventory is best measured by the _____ ratio. current quick cash total asset turnover

quick

If a company's common-size income statement shows a lower percentage for the cost of goods sold this period compared to the last period, the company may be controlling its costs well or it has ______. lowered its prices relative to costs sold more goods raised its prices relative to costs sold fewer goods

raised its prices relative to costs

Which of the following are accrued liabilities? (Select all that apply.) Multiple select question. utilities payable bonds payable taxes payable notes payable

utilities payable taxes payable

On January 1 of the current year, Lafferty signs a contract to rent a building for $1,000 per month for the next three years. On that date, Lafferty pays $36,000 for rent. On January 1 when payment is made, what is the amount of the prepaid rent that should be classified as a noncurrent asset? Multiple choice question. $12,000 $36,000 $0 $24,000

$24,000 Reason: The portion of rent that will be paid within the next 12 months is classified as current and the remainder is classified as noncurrent.

Dot's financial planning model shows assets are projected to increase by $800,000 but liabilities and equity increase by $395,000. What is the external financing need (EFN)? $800,000 $405,000 $305,000 $395,000 $1,195,000

$405,000

Which of the following can a firm do to increase sales above its sustainable growth rate? increase retained earnings decrease profit margin increase profit margin increase financial leverage buy back shares

-increase retained earnings -increase profit margin -increase financial leverage

Assume current assets = $48; fixed assets = $125, current liabilities = $42, and equity= $100. What is the total debt ratio? .24 .88 .42 .36

.42

Omega Co. has annual sales of $250,000, costs of goods sold of $168,000, and assets of $322,000. Accounts receivable are $86,200. What is the receivables turnover? Multiple choice question. 2.48 3.75 1.95 2.90

2.90

Alpha Omega's percentage of sales model forecasts sales growth of 20 percent next year. If cost of good sold is proportionate at 80 percent of sales, then cost of good sold will increase by ______. 60 percent 16 percent 36 percent 20 percent

20%. In a percentage of sales model, expenses that are proportionate will grow at the same rate of sales.

AC Motors has net income of $51,750, total assets of $523,400, total debt of $267,000, and total sales of $491,300. What is the return on equity? 10.53 percent 19.38 percent 9.89 percent 20.18 percent

20.18 percent

Which of the following is a category of accounting change? Multiple choice question. Accounting principle Asset classification Liability classification Accounting structure

Accounting principle There are three: acc principle, change in estimate, change in reporting entity

Income tax expense is reported in what way on the income statement? Multiple choice question. As a separate line item. As part of general expenses. As part of other expenses.

As a separate line item.

Which of the following are included in the summary of significant accounting policies included in the notes to the financial statements? (Select all that apply.) Multiple select question.

Choice between LIFO and FIFO. Method of depreciation. Items included in cash and cash equivalents.

Which of the following items are considered cash equivalents? (Select all that apply.) U.S. Treasury bills due in 2 months. Commercial paper due in 1 month. Cashier's checks and money orders. Reason: These are considered cash, not cash equivalents

Commercial paper due in less than 3 months. Money market funds quickly converted into cash. U.S. Treasury bills due in 2 months.

How is the inventory turnover ratio computed? Cost of goods sold/Inventory Inventory/Cost of good sold Current assets/Inventory Inventory/Total assets

Cost of goods sold/Inventory

Management's assessment of permanent earnings are referred to as what? Multiple choice question. Perpetual income Net income Non-GAAP earnings Income from continuing operations

Non-GAAP earnings

_____ costs include costs associated with shutdown or relocation of facilities. Multiple choice question. Closing Refunding Restructuring Moving

Restructuring

Profitability measures such as return on assets (ROA) and return on equity (ROE) are ______ rates of return. meaningless accounting market cash flow

accounting

Zantron Corp. pays $100,000 for robotic equipment to be used in its production facility. Zantron should include this transaction as: an increase in inventory. equipment expense on the income statement. an increase in plant, property, and equipment.

an increase in plant, property, and equipment.

The sustainable growth rate can be used to ______. determine company value assess planned growth determine the optimal debt-equity ratio evaluate company risk

assess planned growth

Which of the following financial statements shows a firm's financial position on a particular date?

balance sheet

Non-GAAP earnings are calculated Multiple choice question. based on assets that are expected to be converted to cash in the next operating cycle. based on statistical analysis of time series data. based on management's assumptions of permanent earnings. based on historical cost assumptions.

based on management's assumptions of permanent earnings. They calc. Non-GAAP by excluding certain expenses and sometimes certain revenues.

The sustainable growth rate is computed as ROE × b when equity used is at the ______ of the period. end middle beginning

beginning

A company's assets minus its liabilities shown on the balance sheet is referred to as its ______ value.

book

Which of the following items should be included in cash on the balance sheet? (Select all that apply.) Multiple select question. short-term investments cash on hand money orders cashier's checks

cash on hand money orders cashier's checks

What is the EBITDA margin if a firm's EBITDA is $175, sales are $540, and net income is $60? 29.17 percent 34.29 percent 32.41 percent 2.92 percent

32.41 percent

What is the EBITDA margin if a firm's EBITDA is $125, sales are $350, and net income is $80? 29.17 percent 35.71 percent 36.29 percent 22.92 percent

35.71 percent

Which two of the following groups are most interested in liquidity ratios? short-term creditors stock analysts bankers tax authorities such as the IRS

short-term creditors bankers

A bond pays annual coupon payments of $50, has a face value of $1,000, and a market price of $1,200. How is the coupon rate computed? $50/[($1,000 + 1,200)/2] $50/$1,200 $50/($1,200 − 1,000) $50/$1,000

$50/$1000

ABC Co. issued 1 million 6 percent annual coupon bonds that mature in 10 years. The face value is $1,000 per bond. What are the expected cash flows from one of these bonds? $1,060 at the end of 10 years. $60 at the end of each year in interest and $100 at the end of each year in principal payments. $60 in interest at the end of each year for 10 years and a $1,000 repayment of principal at the end of 10 years. Interest at the end of each year, the amount of which is based on the current market rate of interest, and $1,000 at the end of 10 years.

$60 in interest at the end of each year for 10 years and a $1,000 repayment of principal at the end of 10 years.

Barsky Corp. has the following items: Cash $5,000 Prepaid expenses 2,000 Building 40,000 Land 20,000 Inventory 15,000 Total noncurrent assets on the balance sheet is

$60,000

Last year, Benton, Inc., had a net income of $3.5 million and paid out $700,000 in cash dividends. If income this year is $4.1 million and the dividend payout ratio is held constant, how much will be paid in dividends? $840,000 $760,000 $820,000 $700,000

$820,000= $4.1m(700,000/$3.5m) = 820,000dividend payout rate = cash dividends/ net income

Financial analysis uses EBITDA over EBIT because the former adds back _____ and ______ and is thus a better measure of pretax operating cash flow. taxes interest expense depreciation expense amortization expense

- depreciation expense - amortization expense

Firms can raise financing via ______. issuing treasury bonds short-term borrowing long-term borrowing new equity

-short-term borrowing -long-term borrowing -new equity

A financial planning model can be used to test the feasibility of a planned growth rate because it incorporates which of the following? -the asset turnover rate -the firm's use of financial leverage -the choice of long-term or short-term debt -the firm's dividend policy

-the asset turnover rate -the firm's use of financial leverage -the firm's dividend policy

A firm with $900,000 in sales, cash on hand of $1,150,000, liabilities of $400,000 and total assets of $2 million has a total asset turnover of _____ times. 0.75 0.80 0.45 0.20

0.45

BT Tools has current assets totaling $9.2 million, including $4.3 million in inventory. The company's current liabilities total $8.1 million. What is the quick ratio? 0.53 1.14 0.60 0.47

0.60

Discontinued operations are reported when

1. A component on a entitiy or group of componenets has been sold or disposed of 2. If the disposal represents a strategic shift that has or will have a major effect on a company's operations

3 Major components of income

1. Operating Income: revenues, expenses, gains, and losses directly related to the primary revenue-generating activities 2. Non-operating Income: revenues, expenses, gains, and losses related to the peripheral or incidental activities 3. Income tax expense:

Cash flows: Investing Activities

1. the purchase of long-lived assets 2. The purchase of investment securities like stock and bonds 3. loans to other entities 4. the sale of long lived assets 5. the sale of investment securities 6. the collection of a non-trade receivable (excluding the collection of interest)

Assume current assets = $11,300; long-term liabilities = $45,000; and total debt = $54,800. What is the current ratio? 1.15 .87 .25 .21

1.15

A firm with $0.25 in debt for every $1 in assets has an equity multiplier of ______. 1.33 1.25 0.25 0.33

1.33

What is the debt-equity ratio for a company with $3.5 million in total assets and $1.4 million in equity? 1.50 2.50 .67 .40

1.50

Vera has earnings per share of $3 and dividends per share of $1.20. The stock sells for $30 a share. What is the PE ratio? 10 times 0.4 times 25 times 2.5 times

10 times

BC Corporation has 1,800 shares outstanding and earned $2,700 last year on assets of $2 million and equity of $1.5 million. What is the PE ratio if the stock is currently selling at $18 per share? 8.3 times 10 times 12 times 27 times

12 times

On January 1 of the current year, Lafferty signs a contract to rent a building for $1,000 per month for the next three years. On that date, Lafferty pays $36,000 for rent. On January 1 when payment is made, what is the amount of the prepaid rent that should be classified as a current asset? Multiple choice question.

12,000 Reason: The portion of rent that will be paid within the next 12 months is classified as current and the remainder is classified as noncurrent.

BC Corporation's ROA is 22 percent and its plowback ratio is 0.5. What is its internal growth rate? 13.28% 11.00% 12.36% 10.54%

12.36%

If a firm has a receivables turnover of 13.65 times and accounts receivables of $200. What is the sales? $2,530 $1,465 $14.65 $2,730

13.65*200= $2,730

Nestor has a net income of $315,000, total sales of $3.52 million, total assets of $4.4 million, and total equity of $1.98 million. What is the return on equity? 7.16 percent 8.95 percent 13.67 percent 15.91 percent

15.91 percent

A firm that generates 18 cents in net income for every dollar in sales has a profit margin of ________ percent.

18

BC Corporation had sales of $1,000,000 and costs of goods sold of $450,000 for the year. Inventory at year-end was $180,000. What is the inventory turnover? 4 times 1.8 times 2.5 times 5.55 times

2.5 times

Alder Inc. has net income of $403,000, operating earnings of $640,000, sales of $1.23 million, and total assets of $1.48 million. What is the return on assets? 17.86% 62.97% 32.76% 27.23 percent

27.23 percent

BC Toys has total equity of $584,000. There are 35,000 shares outstanding at a market price of $54 per share. What is the market-to-book ratio? 4.23 times 3.24 times 1.54 times 6.69 times

3.24 times

What is the EBITDA margin if a firm's EBITDA is $175, sales are $540, and net income is $60? 29.17 percent 2.92 percent 32.41 percent 34.29 percent

32.41 percent

AD corporation had sales of $750,000 and costs of goods sold of $350,000. Inventory at year end was $87,500. What is the inventory turnover? 0.12 times 0.25 times 4.00 times 8.57 times

4.00 times

A firm with a profit margin of 6.8 percent generates ______ cents in net income for every one dollar in sales. 6.8 3.2 0.68 0.32

6.8

A firm's return on equity is 18 percent and its retention ratio is 40 percent. What is its sustainable growth rate? 7.76 percent 5.59 percent 9.52 percent 13.64 percent

7.76 percent

Turner's return on equity is 12 percent and its retention ratio is 60 percent. What is its sustainable growth rate? 9.52% 7.76% 13.64% 5.59%

7.76%

BC Corporation has net income of $176,000, sales of $1,982,000, and total assets of $2.24 million. What is the return on assets? 113.02 percent 7.86 percent 8.88 percent 88.48 percent

7.86 percent

In a financial plan using the percentage of sales approach, why is it assumed that some assets increase with sales? Funds must be borrowed to support sales. Additional profits are generated. Additional working capital and fixed assets are needed to support growth. Increased profits increase retained earnings thereby increasing equity.

Additional working capital and fixed assets are needed to support growth.

The full-disclosure principle requires that financial statements report which of the following? Multiple choice question. All calculations of each item on the balance sheet. All financial strategy and policies of the entity. All material relevant information. All calculations regardless of materiality.

All material relevant information.

What is the difference between an account payable and a note payable? Multiple choice question. A note payable is always long-term. An account payable is a signed promissory note. A note payable is owed to a bank. An account payable is usually due in 30-60 days.

An account payable is usually due in 30-60 days.

All else equal, when the rate of growth in sales or assets in a financial plan is higher, ________ financing needs will be greater.

Blank 1: external or debt

The percentage of sales approach will produce _______ __________ financial statements.

Blank 1: pro Blank 2: forma

List of all items in stockholders equity

Common stock additional paid in capital retained earnings accumulated other comprehensive (loss) income

The ______ identity can help to explain why two firms with the same return on equity may not be operating in the same way. Bourne ratio DuPont dilution

DuPont

All else equal, a higher profit or _______ margin is preferable.

EBITDA

Which of the following financial statement elements are measured and reported as a result of providing goods and services to customers? (Select all that apply.) Multiple select question. Losses Expenses Gains Revenues

Expenses Revenues Gains and losses is equity from peripheral or incidental transactions of an entity

True or false: Investments are assets used directly in the operations of the business. True false question.

False

Assets not used directly in the operations of the business are called what? Multiple choice question. Property Prepaid assets Investments Inventories

Investments

Cash Flows: Financing Activities

Involves cash flows from transactions with creditors (excluding trades payables) and owners 1. Owners when shares are sold to them 2. creditors when cash is borrowed through notes, loans, mortgages, and bonds 3. Owners in the form of dividends or other distributions 4. owners for the reacquisition of shares previously owned 5. creditors repayment of amount of debt(excluding trade payables because it's operating)

Which of the following is true about the sustainable growth rate? It is the minimum rate of growth a firm can maintain without increasing its financial leverage. It is the maximum rate of growth a firm can maintain while increasing its financial leverage. It is the maximum rate of growth a firm can maintain without increasing its financial leverage. It is the minimum rate of growth a firm can maintain while increasing its financial leverage.

It is the maximum rate of growth a firm can maintain without increasing its financial leverage.

What will happen to the current ratio if current assets increase, while everything else remains unchanged? It may either increase or decrease. It will decrease. It will not be affected. It will increase.

It will increase.

What is an interest-only loan? It's a loan in which the borrower pays interest periodically and repays the principal when the bond matures. It's a loan in which the borrower pays both interest and principal periodically. It's a loan in which the borrower pays all of the interest owed when the bond matures. It's a loan in which the borrower never repays the principal.

It's a loan in which the borrower pays interest periodically and repays the principal when the bond matures.

What refers to the riskiness of a company with regard to the amount of liabilities in its capital structure? Multiple choice question. Cash flow risk Long-term solvency Liquidity

Long-term solvency

An analysis provided by the company's management is included in the Multiple choice question. Management Discussion and Analysis. notes to the financial statements. summary of significant accounting policies.

Management Discussion and Analysis.

How is the price-earnings (PE) ratio computed? Sales price per unit/Earnings per share Market capitalization/Earnings per share Market price per share/Earnings per share Book value per share/Earnings per share

Market price per share/Earnings per share

How is market-to-book ratio measured? Book value per share/Market value per share Market value per share/Book value per share Market value of bonds/Book value of bonds Market value of sales/Book value of costs

Market value per share/Book value per share

If discontinued operations have a _____ effect on the income statement, they must be reported separately. Multiple choice question. material negative minimal positive

Material discontinued operations are things that a company has stopped selling. Whether it was a positive or negative operation, it is still separate.

Which of the following are included in the summary of significant accounting policies included in the notes to the financial statements? (Select all that apply.) Multiple select question. Method of depreciation. Items included in cash and cash equivalents. Choice between LIFO and FIFO. Supporting calculations for income taxes.

Method of depreciation. Items included in cash and cash equivalents. Choice between LIFO and FIFO.

Which of the following items are considered cash equivalents? (Select all that apply.) Multiple select question. Money market funds that are quickly converted to cash. Commercial paper due in 1 month. Cashier's checks and money orders.

Money market funds that are quickly converted to cash. Commercial paper due in 1 month. U.S. Treasury bills due in 2 months. Reason: These are considered cash, not cash equivalents U.S. Treasury bills due in 2 months. Still a cash equivalent but from a different problem.

Which of the following best describes the formula for the times interest earned ratio? Multiple choice question. Interest expense divided by net income. Net income plus interest expense divided by interest expense. Net income plus interest and tax expense divided by interest expense. Net income divided by interest expense.

Net income plus interest and tax expense divided by interest expense.

Which one of the following is the correct equation for computing return on assets (ROA)? Sales/Total assets Net income/Sales Net income/Total assets Total assets/Net income

Net income/Total assets

When a component classified as a discontinued operation is sold, what two elements are included in calculating the total gain or loss from discontinued operations displayed on the income statement? Multiple choice question. Operating income or loss for the period and gain or loss on disposal. Extraordinary loss on the sale of the asset and the related tax benefit. Revenues and expenses of the component.

Operating income or loss for the period and gain or loss on disposal.

When a component that qualifies as a discontinued operation is held for sale, what are the two elements that may be reported in discontinued operations? Multiple select question. Operating income or loss of the component during the reporting period. Estimated gain from sale of the component. Estimated impairment loss expected from the sale of the component. Revenues and expenses related to the component.

Operating income or loss of the component during the reporting period. Estimated impairment loss expected from the sale of the component.

The Management Discussion and Analysis section of the financial statements includes a perspective on which of the following? (Select all that apply.) Multiple select question. Operations Capital resources Liquidity Job costing Auditors' report

Operations Capital resources Liquidity

What does ROA equal? Net income/Sales Profit margin × Total asset turnover Total asset turnover × Equity multiplier ROE/Equity multiplier

Profit margin × Total asset turnover ROE/Equity multiplier

List all Long Term Assets

Property, plant and equipment identifiable intangible assets(net) goodwill deferred income and other assets

What does ROE equal? ROA × Profit margin ROA × Equity multiplier ROA × Total asset turnover Profit margin × Equity multiplier

ROA × Equity multiplier

How is sustainable growth calculated when equity used in the calculation of ROE is the beginning value? ROA × b ROE × b (ROE/ROA)b

ROE × b

Financial _________ allow users to compare companies of different sizes.

Ratio

Costs that are planned and controlled by management that materially change the scope of the business undertaken or the manner in which the business is conducted are called ____costs

Restructuring costs costs associated with shutdown or relocation of facilities or downsizing of operations

A common-size income statement helps compare financial results over time by controlling for changes in ______. market share capital structure tax rates sales

Sales

Classifying items on the balance sheet as current and noncurrent assists financial statement users in assessing what aspects about a company?

Solvency and liquidity.

What does it mean when a company reports ROA of 12 percent? The company generates $12 in net income for every $100 invested in assets. The company generates $12 in sales for every $100 of debt. The company generates $12 in net income for every $100 of debt. The company generates $12 in sales for every $100 invested in assets.

The company generates $12 in net income for every $100 invested in assets.

What does an inventory turnover ratio of 5 mean? The average life of the inventory was 5 weeks. The entire inventory was sold and replaced 5 times during the year. The entire inventory was sold every 5 days. The average life of the inventory was 5 months.

The entire inventory was sold and replaced 5 times during the year.

What does it mean when a firm has a days' sales in receivables of 45? The firm is able to collect 55 percent of its credit sales. The firm collects its credit sales in 320 (365 − 45) days on average. The firm collects its credit sales in 45 days on average. The firm is able to collect 45 percent of its credit sales.

The firm collects its credit sales in 45 days on average.

Which one of the following statements is most likely correct for a firm with days' sales in receivables of 30 days? Cost of goods sold is about 12 times accounts receivable. The firm finances approximately 8 percent of its annual sales at any given time. Annual sales are about 10 times accounts receivable. The receivables turnover rate is roughly 9 times.

The firm finances approximately 8 percent of its annual sales at any given time.

Which one of the following statements is most likely correct for a firm with days' sales in receivables of 30 days? The firm finances approximately 8 percent of its annual sales at any given time. The receivables turnover rate is roughly 9 times. Cost of goods sold is about 12 times accounts receivable. Annual sales are about 10 times accounts receivable.

The firm finances approximately 8 percent of its annual sales at any given time.

What does a total asset turnover ratio of 0.75 mean? The firm's profit margin is 7.5 percent of sales. The firm generated $0.75 in sales for every $1 in assets. The firm generated $1 in sales for every $0.75 in assets. The firm's profit margin is 0.75 percent of sales.

The firm generated $0.75 in sales for every $1 in assets.

What does a current ratio of 1.2 mean? The firm has $1.20 in current assets for every $1 in current liabilities. The firm has $1.20 in current assets for every $1 in fixed assets. The firm has $1.20 in current liabilities for every $1 in current assets. The firm has $1.20 in current liabilities for every $1 in long-term debt.

The firm has $1.20 in current assets for every $1 in current liabilities.

What does a current ratio of 1.4 mean? The firm has $1.40 in current liabilities for every $1 in current assets. The firm has $1.40 in current liabilities for every $1 in long-term debt. The firm has $1.40 in current assets for every $1 in fixed assets. The firm has $1.40 in current assets for every $1 in current liabilities.

The firm has $1.40 in current assets for every $1 in current liabilities.

How are current liabilities satisfied? (Select all that apply.) Multiple select question. The use of current liabilities. The use of current assets. The creation of other current liabilities. The creation of other current assets.

The use of current assets. The creation of other current liabilities.

Why are inventories reported as current assets? Multiple choice question. They are directly related to revenues. They may become obsolete. They are matched with current liabilities. They are normally sold within the operating cycle.

They are normally sold within the operating cycle.

Which of the following describe long-term liabilities? (Select all that apply.) Multiple select question. They do not require the creation of current liabilities for payment. They require the creation of current liabilities for payment. They do not require the use of current assets. They require the use of current assets.

They do not require the creation of current liabilities for payment. They do not require the use of current assets.

What is the purpose of additional financial disclosures in an annual report? Multiple choice question. To explain management's strategies for the future. To assist in understanding the financial statements. To provide users with information regarding nonmaterial items. To describe the business plan of the firm.

To assist in understanding the financial statements.

What is the role of the auditor? Multiple choice question. To attest to the accuracy of information in the annual report. To attest to the accuracy of the financial statements. To attest to the solvency of the company. To attest to the fairness of the financial statements.

To attest to the fairness of the financial statements.

The quick ratio provides a more reliable measure of liquidity than the current ratio especially when the company's inventory takes ______ to sell. less than a day the same number of days as raw materials a long time a short time

a long time

A firm that collects credit sales quickly will have ______ days' sales in receivables than a comparable firm. a lower the same a higher

a lower

If a company's common-size income statement shows ______ percentage for the cost of goods sold this period compared to the last period, the company may be controlling its costs well or it has raised its prices relative to costs. a higher the same a lower

a lower

ROE is a(n) ______ rate of return, while stock return is a(n) ______ rate of return. accounting; accounting market; market accounting; market market; accounting

accounting; market

Which of the following items are reported as components of operating income for most manufacturing and merchandising companies? (Select all that apply.) Multiple select question. administrative expenses revenues selling expenses interest expense

administrative expenses revenues selling expenses

Typically, enterprise value uses ______ value of debt because it is widely available. book market projected

book

Financial statements report ______. market values book values

book values

Which of the following are noncurrent assets? (Select all that apply.) Multiple select question. inventory building land intangible assets

building land intangible assets

In a financial plan, how is the amount of borrowing determined? by the needed increase in fixed assets by the increase in total assets minus the increase in cash by management's D/E decision in direct proportion to sales growth

by management's D/E decision

The enterprise value multiple allows for comparing the value of firms with different ______ structures. regulatory capital management book-to-market

capital

List of all current assets

cash and equalivalents short-term investments accounts receivable (net) inventory Prepaid expenses and other current assets

Which of the following are often left out of most financial planning models? cash flow size, risk, and timing profit margins, financial leverage, and turnover sales growth, asset growth, and equity growth equity growth, cash flow, and financial leverage

cash flow size, risk, and timing

Which of the following accounts represent amounts shareholders have invested in the company? (Select all that apply.) Multiple select question. common stock additional paid-in capital retained earnings accumulated other comprehensive income

common stock additional paid-in capital

The standardized statements used for the purpose of comparing the financial statements of different companies are called ______. secondary financial statements common-size statements primary financial statements annualized statements

common-size statements

A firm with a market-to-book value that is greater than 1 is said to have ______ value for shareholders. reduced destroyed maintained created

created

Skylark has the following information in its financial statements: Cash 1,000 Accounts receivable 4,000 Short-term investments in trading securities 3,000 Inventory 2,000 Accounts payable 5,000 What is Skylark's current ratio?

current ratio= current assets/current liabilities 2.0 Reason: ($1,000 + 4,000 + 3,000 + 2,000)/$5,000

The difference between ROA and ROE reflects the use of ______ financing.

debt

Which type of risk is the risk of a company not being able to pay its obligations when they come due? Multiple choice question. interest rate risk profitability risk default risk operational risk

default risk

List of other liabilites

deferred income taxes and other liabilities

Shareholders' equity changes based on the firm's ______. dividend policy debt needs investments made

dividend policy

The two sources of stockholders' equity are amounts ______. Multiple select question. borrowed from banks borrowed from related companies earned by the corporation paid in from shareholders

earned by the corporation paid in from shareholders

A times interest earned (TIE) ratio of 3.5 times means a firm has ______ that is(are) 3.5 times greater than the firm's interest expense. additions to retained earnings net income sales earnings before interest and taxes

earnings before interest and taxes

In the DuPont identity, financial leverage is measured by _____. profit margin total asset turnover equity multiplier

equity multiplier

Given an internal growth rate of 5 percent, for a firm to grow by 10 percent, it will need ______. external financing internal financing only

external financing

True or false: The times interest earned formula is net income divided by interest expense.

false Reason: The times interest earned formula is calculated as earnings before interest and taxes divided by interest expense.

Inventory for a wholesale or retail company includes which of the following? Multiple choice question. work in process raw materials finished goods

finished goods

Inventories include which of the following items? finished goods goods directly consumed in production goods in production all assets held for sale

finished goods goods directly consumed in production goods in production

What is the principle that requires that financial statements provide all material relevant information concerning the entity? Multiple choice question. full-disclosure realization going concern conservatism

full-disclosure

Which of the following items are included in property, plant, and equipment? (Select all that apply.) Multiple select question. inventory furniture mineral mines oil wells investments machines

furniture mineral mines oil wells machines

A high-growth firm will have a relatively _____ need for external financing than a low-growth firm. lower indecisive higher

higher

When the typical stock in the S&P 500 Index has a PE ratio of 12, a company with a PE ratio of 15 may have Blank______ than average growth prospects, given similar earnings per share. lower higher

higher

Operating Income

includes revenues and expenses, gain, and losses directly related to the primary revenue-generating activities of the company.

The information needed to compute the profit margin can be found on the _____. cash flow statement income statement balance sheet

income statement

In a financial plan using the percentage of sales approach, as total assets increase, total liabilities and equity will ______. decrease remain the same increase

increase

The least liquid current asset is often ______. accounts receivable inventory cash equivalents cash

inventory

The reason the quick ratio of Walmart is different from its current ratio is due to ______. inventory cash long-term liabilities short-term liabilities

inventory

Which of the following items should be classified as investments on the balance sheet? (Select all that apply.) Multiple select question. investments in stock of another company accounts receivable from customers cash restricted to purchase building note receivable due in 3 years

investments in stock of another company cash restricted to purchase building note receivable due in 3 years

Which one of the following does not affect ROE according to the DuPont identity? operating efficiency asset use efficiency investor sentiment financial leverage

investor sentiment

In general, a corporate bond's coupon rate _____. changes in sync with market interest rates changes every year is fixed until the bond matures decreases as a bond nears maturity

is fixed until the bond matures

The criteria used to determine if a liability should be classified as long-term is Multiple choice question. it will not be satisfied within 12 months or the operating cycle, whichever is longer. it is due within 6 months. it is due within 3 months after year-end. it is due within 12 months or the current operating cycle, whichever is longer.

it will not be satisfied within 12 months or the operating cycle, whichever is longer.

Financial planning is a(n) _____ process. inert static iterative one-time

iterative

Which of the following are noncurrent assets? (Select all that apply.) Multiple select question. inventory land building intangible assets

land building intangible assets

Which of the following items requires supplemental disclosures in the notes to the financial statements? (Select all that apply.) Multiple select question. leases long-term debt items that are immaterial pension plans

leases long-term debt pension plans

If a company has inventory, the quick ratio will always be _____ the current ratio. less than equal to greater than

less than

If management has been unsuccessful at creating value for the company's stockholders, the market-to-book ratio will be ______. greater than 1 rising less than 1 very high

less than 1

Common practice requires that current assets are presented on the balance sheet in the order of

liquidity

Current assets on the common-size balance sheet over the past 3 years have increased from 32 to 35 percent, while current liabilities have decreased from 29 to 25 percent. This indicates the firm has increased its ______. production efficiency earnings outlook size liquidity

liquidity

Short-term creditors are interested in __________ ratios.

liquidity

Which of the following are noncurrent assets? (Select all that apply.) Multiple select question. inventory machines property accounts receivable investments with maturity of 18 months

machines property investments with maturity of 18 months

U.S. GAAP uses a ___ approach to determine reportable operating segments.

management

Assets minus liabilities, measured according to GAAP, is not likely to be representative of the __ value of the entity.

market

The price-earnings (PE) ratio is a ______ ratio. leverage turnover liquidity market value

market value

Which ratios use information that is not contained in financial statements? profitability ratios leverage ratios market value ratios liquidity ratios

market value ratios

Enterprise value is the sum of a firm's market capitalization and the ______ value of its interest-bearing debt _____ any cash on hand. book; less market; plus market; less book; plus

market; less

Discontinued operations should be reported on the income statement Multiple choice question. net of tax below income from continuing operations. net of tax in operating income. pre-tax before income from continuing operations. pre-tax with other income and other loss in operating income.

net of tax below income from continuing operations.

Rice Company purchases a building for $500,000, which will be used as a production facility. How should the building be classified on the balance sheet?

noncurrent asset

Which of the following is included with the annual report to help evaluate a firm's financial performance and financial health? Multiple choice question. press releases note disclosures proxy statements marketing data

note disclosures

The time period necessary to convert cash to raw materials, convert raw materials into finished products, sell the products, and collect on the account receivable is referred to as the ______ cycle.

operating

Shareholders' equity is composed of which of the following accounts? (Select all that apply.) Multiple select question. long-term liabilities deferred revenues paid-in capital retained earnings

paid-in capital retained earnings

Financial planning using the percentage of sales approach produces ______. investor sentiment ratings credit ratings amortization schedules pro forma financial statements

pro forma financial statements

Return on assets (ROA) is a measure of ______. liquidity leverage profitability utilization

profitability

The net income as shown on the common-size income statement of Omega Industries for the past 3 years increased from 3 percent to 6 percent. This indicates that the firm is increasing its ______. leverage size profitability market share

profitability

If the net income on a common-size income statement decreases over time, one can infer that ______. profitability decreased market capitalization increased market capitalization decreased profitability increased

profitability decreased

Which document is required to provide information on executive and director compensation? Multiple choice question. income statement proxy statement balance sheet tax return

proxy statement

Market value measures can be calculated for ______. publicly traded companies sole proprietorships any company partnerships

publicly traded companies

A ratio used to measure liquidity is the Multiple choice question. debt to equity ratio. quick ratio. price to earnings. earnings per share ratio.

quick ratio. quick assets/current liabilities

A manufacturing firm will use which of the following accounts to record inventory? (Select all that apply.) Multiple select question. sales returns and allowances short-term investments raw material work in process finished goods

raw material work in process finished goods

Which of the following items are included in calculating operating income? (Select all that apply.) Multiple select question. expenses related to peripheral activities revenues related to peripheral activities revenues related to primary revenue-generating activities expenses related to primary revenue-generating activities

revenues related to primary revenue-generating activities expenses related to primary revenue-generating activities

Income statement items that are affected by ___________ will be included in the percentage of sales approach.

sales

The percentage of sales approach separates accounts on the pro forma income statement and balance sheet into those that change directly with ______ and those that do not. sales increases in retained earnings expenses assets

sales

The profit margin is equal to net income divided by ______. total assets net working capital operating income sales

sales

The FASB requires that companies that engage in more than one significant business must provide supplemental information concerning individual operating__

segment

Companies that operate in more than one significant business must provide which of the following? Multiple choice question. multiple financial statements notes to financial statements subsidiary financial statements segment information

segment information

Analyzing earnings quality requires an analyst to Multiple choice question. separate a company's temporary and permanent earnings. determine whether the auditor was correct in calculating earnings. score a company based on its historical earnings. combine all earnings for analysis.

separate a company's temporary and permanent earnings. temporary earnings arise from transactions or events that are unlikely to happen again or have a different impact on earning later. permernant earnings arise from operations that are expected to generate similar profits in the future.

Large inventories are often a sign of _____. short-term success long-term trouble long-term success short-term trouble

short-term trouble

Common-size statements allow comparison of companies of different ______. financial reporting methods board of directors sizes industries

sizes

Common-size statements are used for comparing firms with differing ______. management styles capital structures sizes tax years

sizes

If a company has a large amount of long-term debt in its capital structure, this will affect the firm's ______. Multiple choice question. liquidity working capital solvency

solvency

SEC requirements provide for disclosures on executive and director compensation, particularly concerning___ options

stock

If a firm maintains a constant debt-equity ratio and dividend payout ratio and does not use any new external equity financing, the firm can grow at a rate no greater than its ______. sustainable growth rate return on assets return on equity internal growth rate

sustainable growth rate

The enterprise value multiple allows for comparing the value of firms with different ______. taxes capital structures book-to-market capital spending amounts

taxes capital structures capital spending amounts

Nonoperating items that are not expected to continue into the future are considered a ______ component of earnings and should be __________ when forecasting future performance.

temporary; excluded

Earnings quality refers to Multiple choice question. the strength of the regression model used to analyze earnings. the ability of reported earnings to predict future earnings. the historical earnings of the company. the earnings score assigned by a financial analyst.

the ability of reported earnings to predict future earnings.

Paid in Capital

the amount stockholders have invested in the company. Often arises when the company issues stock

A summary of significant accounting policies includes information regarding Multiple choice question. the choice of accounting policies. the calculation of specific items. management's intentions in the future. achievement of performance targets.

the choice of accounting policies.

Gains and losses from the sale of investments can affect earnings quality because Multiple choice question. they are often recurring. they are often nonrecurring. the gains were included in revenues. they are netted against cost of goods sold.

they are often nonrecurring.

The _____ ratio is calculated as (net income + interest expense + income taxes) divided by interest expense. Multiple choice question. current working capital times interest earned debt to equity

times interest earned

In the DuPont identity, asset use efficiency is measured by ______. equity multiplier total asset turnover profit margin

total asset turnover

True or false: The single-step and the multiple-step formats are most commonly used in income statement preparation; however, there are no specific standards on how income from continuing operations must be displayed.

true. This flexibility has resulted in variety of income statement presentations. There is the single- step and multiple- step formats that are the two extremes, with most income statements falling somewhere in between.

Which of the following are traditional financial ratio categories? real options ratios turnover ratios liquidity ratios financial leverage ratios employee ratios

turnover ratios liquidity ratios financial leverage ratios

A customer pays in advance for services to be performed in a future period. In which account should the transaction be recorded? Multiple choice question. accounts payable unearned revenues notes payable accounts receivable

unearned revenues

In the percentage of sales approach to financial planning described in the text book, it is assumed that any surplus funds ______. were ignored were added to retained earnings were added to assets were used to pay off debt

were used to pay off debt

A liability is classified as current if it is due Multiple choice question. within 6 months of the close of the current year. within 1 year or the current operating cycle, whichever is shorter. within 3 months after the fiscal year-end. within 1 year or the current operating cycle, whichever is longer.

within 1 year or the current operating cycle, whichever is longer.

If a company's current ratio is equal to its quick ratio, then its inventory is ______. low extremely high zero moderately high

zero

If a company's current ratio is equal to its quick ratio, then its inventory is ______. zero extremely high moderately high low

zero