Chapter 9 Quiz

The Abel Company provided the following information from its financial records: Net income $250,000 Common shares outstanding 1/1 335,000 Common stock dividends $20,000 Common shares outstanding 12/31 400,000 Preferred stock dividends $25,000 Preferred shares outstanding 1/1 20,000 Sales$900,000 Preferred shares outstanding 12/31 16,000 What is the amount of the company's earnings per share?

$0.61 Earnings per share = (Net income − Preferred stock dividends) ÷ Average shares outstanding Earnings per share = (Net income − Preferred stock dividends) ÷ [(Beginning shares outstanding + ending shares outstanding) ÷ 2] Earnings per share = ($250,000 − $25,000) ÷ [(335,000 shares outstanding + 400,000 shares outstanding) ÷ 2] = $225,000 ÷ 367,500 shares = $0.61 per share

The Bernard Company provided the following information from its financial records: Net income $370,000 Total stockholders' equity$970,000 Common dividends$ 27,000 Common shares outstanding 12/31 137,000 Preferred rights$320,000 What is the company's book value per share?

$4.74 Book value per common share = (Stockholders' equity − Preferred rights) ÷ Outstanding common shares Book value per common share = ($970,000 − $320,000) ÷ 137,000 = $650,000 ÷ 137,000 = $4.74 per share

The Miller Company reported gross sales of $780,000, sales returns and allowances of $6,700 and sales discounts of $6,700. The company has average total assets of $430,000, of which $215,000 is property, plant, and equipment. What is the company's asset turnover ratio?

1.78 times Asset turnover = Net sales ÷ Average assets Asset turnover = ($780,000 − $6,700 − $6,700) ÷ $430,000 = $766,600 ÷ $430,000 = 1.78 times

The Dennis Company reported net income of $56,000 on sales of $360,000. The company has average total assets of $590,000 and average total liabilities of $160,000. What is the company's return on equity ratio?

13.0% Return on equity = Net income ÷ Average stockholders' equity Return on equity = Net income ÷ (Average total assets − Average total liabilities) Return on equity = $56,000 ÷ ($590,000 − $160,000) = 13.0%

The Martin Company reported net income of $16,200 on gross sales of $89,000. The company has average total assets of $124,200, of which $109,000 is property, plant and equipment. What is the company's return on investment? (Round your final answer to 1 decimal place.)

13.0% Return on investment = Net income ÷ Average total assets Return on investment = $16,200 ÷ $124,200 = 13.0%

The Crestar Company reported net income of $158,400 on 28,000 average outstanding common shares. Preferred dividends total $12,800. On the most recent trading day, the preferred shares sold at $58 and the common shares sold at $88. What is this company's current price-earnings ratio? (Do not round your intermediate calculations.)

16.92 Earnings per share = (Net income − Preferred stock dividends) ÷ Average shares outstanding Earnings per share = ($158,400 − $12,800) ÷ 28,000 shares = $145,600 ÷ 28,000 shares = $5.2 per share Price-earnings ratio = Market price per share ÷ Earnings per share Price-earnings ratio = $88 per share ÷ $5.2 per share = 16.92

The Poole Company reported the following income for Year 2: Sales $35,000 Cost of goods sold 9,000 Gross margin $26,000 Selling and administrative expense 11,000 Operating income $15,000 Interest expense 5,000 Income before taxes $ 10,000 Income tax expense 3,000 Net income $ 7,000 What is the company's net margin?

20.00% Net margin = Net income ÷ Net sales Net margin = $7,000 ÷ $35,000 = 20.00%

The following balance sheet information was provided by O'Connor Company: Assets Year 2 Year 1 Cash $2,000 $1,000 Accounts receivable $7,000 $ 5,000 Inventory $20,000 $21,000 Assuming that net credit sales for Year 2 totaled $145,000, what is the company's most recent accounts receivable turnover?

24.17 times Accounts receivable turnover = Net credit sales ÷ [(Beginning accounts receivable + ending accounts receivable) ÷ 2]Accounts receivable turnover = $145,000 ÷ [($5,000 + $7,000) ÷ 2] = $145,000 ÷ $6,000 = 24.17 times

The following balance sheet information is provided for Patton Company: Assets Year 2 Year 1 Cash $2,600 $2,200 Accounts receivable $12,100 $14,100 Inventory $22,500 $29,500 Assuming Year 2 cost of goods sold is $366,000, what are the company's average days to sell inventory? (Use 365 days in a year. Do not round your intermediate calculations.)

25.93 days Inventory turnover = Cost of goods sold ÷ [(Beginning inventory + ending inventory) ÷ 2] Inventory turnover = $366,000 ÷ [($29,500 + $22,500) ÷ 2] = 366,000 ÷ $26,000 = 14.08 times Average days to sell inventory = 365 days ÷ Inventory turnover Average days to sell inventory = 365 days ÷14.08 times = 25.93 days

The following balance sheet information is provided for Gaynor Company: Assets Year 2 Year 1 Cash $2,850 $2,100 Accounts receivable 15,600 13,600 Inventory $30,500 $38,000 Assuming Year 2 cost of goods sold is $116,000, what is the company's inventory turnover?

3.39 times Inventory turnover = Cost of goods sold ÷ [(Beginning inventory + ending inventory) ÷ 2Inventory turnover = $116,000 ÷ [($38,000 + $30,500) ÷ 2] = $116,000 ÷ $34,250 = 3.39 times

The Fortune Company reported the following income for Year 2: Sales $143,000 Cost of goods sold 86,500 Gross margin $56,500 Selling and administrative expense 28,000 Operating income $28,500 Interest expense 6,300 Income before taxes $22,200 Income tax expense 6,660 Net income $15,540 What is the company's number of times interest is earned ratio?

4.5 times Times interest earned = (Net income + Taxes + Interest expense) ÷ Interest expense Times interest earned = $28,500 ÷ $6,300 = 4.5 times

The Phibbs Company paid total cash dividends of $81,400 on 22,000 outstanding common shares. On the most recent trading day, the common shares sold at $77. What is this company's dividend yield?

4.81% Dividend yield = Dividends per share ÷ Market price per share Dividend yield = ($81,400 ÷ 22,000 shares) ÷ $77 per share = $3.7 per share ÷ $77 per share = 4.81%

The following balance sheet information was provided by Western Company: Assets Year 2 Year 1 Cash $2,300 $1,800 Accounts receivable $16,500 $14,500 Inventory $27,000 $33,000 Assuming Year 2 net credit sales totaled $123,000, what was the company's average days to collect receivables? (Use 365 days in a year. Do not round your intermediate calculations.)

46.00 days Accounts receivable turnover = Net credit sales ÷ [(Beginning accounts receivable + ending accounts receivable) ÷ 2]Accounts receivable turnover = $123,000 ÷ [($14,500 + $16,500) ÷ 2] = $123,000 ÷ $15,500 = 7.94 timesAverage days to collect receivables = 365 days ÷ 7.94 = 46.00 days

Financial ratios can be used to assess which of the following aspects of a firm's performance? Liquidity Solvency Profitability All of these answers are correct.

All of these answers are correct.

Working capital is defined as:

Current assets less current liabilities.

Knoell Company paid its sales employees $15,000 in sales commissions. What impact will this transaction have on the firm's working capital?

Decrease it

All of the following are considered to be measures of a company's short-term debt-paying ability except:

Earnings per share.

The study of an individual financial statement item over several accounting periods is called:

Horizontal analysis.

Common methods of financial statement analysis include all of the following except:

Incremental analysis.

Solvency ratios are used to assess a company's:

Long-term debt paying ability.

You are considering an investment in IBM stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing. All of the following ratios can be used to assess solvency except:

Net margin.

Which of the following statements regarding the quick ratio is incorrect?

The quick ratio equals quick assets divided by total liabilities.

An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:

Vertical analysis.

The balance sheet for Adams Corporation follows: Current assets $237,000 Long-term assets (net) 765,000 Total assets $1,002,000 Current liabilities $149,000 Long-term liabilities 460,000 Total liabilities 609,000 Common stock and retained earnings 393,000 Total liabilities and stockholders' equity$1,002,000 Required Compute the following. (Round "Ratios" to 1 decimal place.) Working Capital Current Ratio Debt to Assets Debt to Equity

Working Capital - $88,000 Current Ratio - 1.6 Debt to Assets - 60.8% Debt to Equity - 1.5 Working capital = Current assets − Current liabilities= $237,000 − $149,000 = $88,000 Current ratio = Current assets ÷ Current liabilities= $237,000 ÷ $149,000 = 1.6:1 Debt to assets ratio = Total liabilities ÷ Total assets= $609,000 ÷ $1,002,000 = 60.8% Debt to equity ratio = Total liabilities ÷ Total stockholders' equity= $609,000 ÷ $393,000 = 1.6:1