Activity Ratio/ CMA 2
On January 1, Year 2, Oak Co. issued 400 of its 8%, $1,000 bonds at 97 plus accrued interest. The bonds are dated October 1, Year 1, and mature on October 1, Year 11. Interest is payable semiannually on April 1 and October 1. Accrued interest for the period October 1, Year 1, to January 1, Year 2, amounted to $8,000. On January 1, Year 2, what amount should Oak report as bonds payable, net of discount?
A bond issued "at 97" is issued at a price equal to 97% of its face amount (400 bonds × $1,000 face amount × .97 = $388,000). At the issue date, no time has passed, so no amortization has occurred, and the accrued interest is credited to either interest payable or interest expense. The reported amount is therefore $388,000 ($400,000 - $12,000).
Inventor Turnover
COGS/ Average Inventory
Days Sales in Outstanding Receivable
Days in Outstanding Receivable/ AR Turnover
Days Sales in Inventory
Days in a Year/ Inventory Turnover
Cash Cycle
Operating cycle-Days Purchsed in AP
AP Turnover
Purchase/ Average AP
A corporation has the option to use either a shorter period or a longer period to amortize a patent, and it can use either the declining-balance method or the straight-line method to depreciate a fixed asset. The corporation would be considered to have better earnings quality if it uses the
Shorter period for patern and double declining
A company with an accounts receivable turnover of 8.1 would be most concerned if
The company's credit terms with vendors are net 30 days. Since the company's accounts receivable turnover is 8.1, it take 45.06 days (365 ÷ 8.1) to collect the accounts receivable. The terms of "net 30 days" mean that full payment of vendors' invoice is due in 30 days. The company may have difficulties paying vendors' invoices on time because its collection period is longer than its number of days to settle payables.
A company had $6 million in credit sales last fiscal year. The company's beginning accounts receivable balance was $1 million and its ending receivable balance was $1.25 million on its year-end financial statements. If the industry average period for the collection of accounts receivables is 90 days, the company's accounts receivable collection period is less than the industry average by approximately
Days' sales outstanding in receivables measures the average number of days it takes to collect a receivable. Days' sales outstanding in receivables equals dividing days in year by accounts receivable turnover. Accounts receivable turnover is equal to net credit sales divided by average accounts receivable, which is 5.33 {$6 million ÷ [($1 million + $1.25 million) ÷ 2]}. Days' sales outstanding in receivables is 68 days (365 days ÷ 5.33). Thus, the company's accounts receivable collection period is less than the industry average by 22 days (90 days - 68 days).
An entity has a high fixed assets turnover ratio. What conclusion can a financial analyst draw from this?
Entity must be unercapitalized
The following transactions occurred during a company's first year of operations: Purchased a delivery van for cash Borrowed money by issuance of short-term debt Purchased treasury stock Which of the items above caused a change in the amount of working capital?
I and III only. Working capital is computed by deducting total current liabilities from total current assets. The purchase of a delivery van for cash reduces current assets and has no effect on current liabilities. The borrowing of cash by incurring short-term debt increases current assets by the same amount as it increases current liabilities; hence, it will have no effect on working capital. The purchase of treasury stock decreases current assets but has no effect on current liabilities. Thus, the purchases of the van and treasury stock affect working capital.
A firm expects to report net income of at least $10 million annually for the foreseeable future. The firm could increase its return on equity by taking which of the following actions with respect to its inventory turnover and the use of equity financing?
Increase Inventory Turnover and Decrease Equity Financing
A company with a lower quality of earnings is most likely to
Manage recognition of revenue and expense
AR Turnover
Net Credit Sales/ Ave AR
Fixed Asset Turnover Ratio
Net Sales/ Average PPE
Working Capital Turnover
Net Sales/ Working Capital
Return on Equity
Net income/ Average Total Equity
Assume the following information pertains to Ramer Company, Matson Company, and for their common industry for a recent year.IndustryRamerMatsonAverageCurrent Accounts receivable turnover of 5.00 8.106.00 Inventory turnover 6.20 8.006. Which one of the following is correct if both companies have the same total assets and the same sales?
Ramer's accounts receivable turnover and inventory turnover are much lower than Matson's. Because Matson is collecting its receivables more quickly and holding inventory for a shorter time, it has a much shorter operating cycle than Ramer. Matson's operating cycle is about 90.7 days [(365 ÷ 8.1) + (365 ÷ 8.0)]. Ramer's operating cycle is about 131.9 days [(365 ÷ 5.0) + (365 ÷ 6.2)].
Barrow Company's sales have remained constant, but the company's inventory turnover has risen each year for the past 3 years. This trend could indicate increased
Stockouts
Which one of the following is not a relevant factor that influences the dividend policy of a firm?
The credit policy of the company. A company's dividend policy is influenced by the amount of cash needed for operations, the availability of profitable investment projects, and the level of income taxes that have to be paid by stockholders on any dividends received. For example, if taxes on dividends are high, stockholders might prefer to forego dividends and receive capital gains instead. The company's credit policy is not a consideration in its dividend policy.
If a company has a current ratio of 2.1 and pays off a portion of its accounts payable with cash, the current ratio will
The current ratio is the ratio of current assets to current liabilities. Since the numerator before the transaction was greater than the denominator, a reduction to both factors of an equal dollar amount will have a proportionally greater effect on the denominator, causing the ratio as a whole to increase.
A corporation issued convertible bonds with a par value of $1,000. The corporation's stock is selling at $38.00 per share, and the current market price of the convertible bonds is $1,050. If the conversion ratio is 25, what will be the conversion price?
The formula for conversion ratio is the par value of the convertible bond divided by the conversion price. Therefore, the conversion price can be calculated as follows: Conversion ratio = Par value of the convertible bond ÷ Conversion price 25 = $1,000 ÷ Conversion price Conversion price = $1,000 ÷ 25 = $40
An abbreviated common-size income statements for Year 1's actual results and Year 2's anticipated results are shown below. Year 1 Year 2 Sales100%100% Cost of goods sold50%50% Selling and administrative expenses40%? Operating Income10%? The corporation estimates that units sold will increase by 5% in Year 2 with no price increase to its customers and no anticipated cost increases from its vendors. Assume selling and administrative expenses are 5% variable and 95% fixed. If all predictions materialize, the corporation should expect selling and administrative expenses in Year 2 to be
This question is best answered using actual numbers. Assume that sales in Year 1 are $500. Because total selling and administrative expenses are 40% of Year 1 sales, selling and administrative expenses equal $200 ($500 × 40%). Given that 5% of this is variable and 95% is fixed, variable expense equals $10 ($200 × 5%) and fixed expense equals $190 ($200 × 95%). In relation to sales, variable selling and administrative expenses are equal to 2% ($10 variable ÷ $500 sales) of sales. This percent will help calculate the variable selling and administrative expenses in Year 2. In Year 2, sales increase by 5%, making Year 2 sales equal to $525 ($500 Year 1 sales × 1.05 increase). The fixed portion of the selling and administrative expenses is equal to $190. The variable portion can be solved by multiplying 2% by sales of $525, which results in $10.50. Therefore, total selling and administrative expenses are equal to $200.50, about 38.20% ($200.50 ÷ $525) of Year 2 sales, which is less than 40%.
An unexpected decrease in which of the following ratios could indicate that fictitious inventory has been recorded?
Total Asset Turnover
Four zero-coupon bonds each will pay $1,000 at maturity. The bonds mature in either 10 or 20 years and have a current price of either $300 or $500. Which of the following bonds has the largest yield to maturity?
Zero-coupon bonds do not pay interest and are usually sold at a deep discount. A bond's yield to maturity is the ultimate rate of return to the investor. A bond that is both inexpensive and matures as soon as possible should be purchased to increase the return. Thus, the bond with the largest yield to maturity is the $300 bond with a 10-year maturity.
