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Exam 14: Analyzing Financial Statements

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Question 41

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Agnes Company reported the following data: $\begin{array} { l r } \text { Quick assets } & \$ 55,000 \\\text { Current assets } & 150,000 \\\text { Total liabilities } & 300,000 \\\text { Average net receivables } & 12,600 \\\text { Beginning inventory } & 38,000 \\\text { Long-term liabilities } & 200,000 \\\text { Net credit sales } & 126,000 \\\text { Cost of goods sold } & 84,000 \\\text { Ending inventory } & 46,000\end{array}$ What was the current ratio?

A) 0.5
B) 1.5
C) 2.5
D) 0.75

E) A) and B)
F) C) and D)

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Question 42

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Which of the following statements is incorrect?

A) If selling and administrative expenses as a percentage of sales increases, then gross margin percentage will decrease.
B) If the cost of goods sold percentage decreases and other expenses do not change, then profit margin will increase as a percentage of sales.
C) If sales dollars decrease, a company might still report a higher gross profit percentage if cost of goods sold decreases at a faster rate than the decrease in sales.
D) It is possible for selling and administrative expense in dollars to decrease, while selling and administrative expenses as a percentage of sales to increase.

E) C) and D)
F) B) and D)

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Question 43

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Lee Company has provided the following information: Cash flow from operating activities,$240,000; Net income,$204,000; Interest expense,$20,000; Interest cash payments,$10,000; Income tax payments,$140,000; Income tax expense,$136,000. What was Lee's cash coverage ratio?

The profit margin ratio considers the asset base utilized to earn income.

Many companies use high levels of debt to finance their assets because of financial leverage benefits provided to investors when return on assets exceeds the after tax cost of interest.

Which of the following is correct?

The Apple Pie Company had net income of $47,500,earnings per share of $3.17 and declared dividends per share of $2.00 during 2010.On December 31,2010,the stock had a market price of $18.50 per share.What is Apple Pie's price/earnings ratio?

MusicPod's earnings per share ratios were $2.47 and $2.07 respectively for 2011 and 2010.MusicPod's stock was trading at $53.00 and $41.50 per share at the end of 2011 and 2010 respectively.The company paid cash dividends per share of $.85 in 2011 and $.63 in 2010.Total stockholders' equity was $13,572 million and $11,896 million in 2011 and 2010 respectively.The common shares outstanding were approximately 1,782,000 during both 2011 and 2010.What was MusicPod's dividend yield ratio for 2011?

Lucas Company has provided the following information: Cash flow from operating activities,$360,000; Net income,$306,000; Interest expense,$30,000; Interest cash payments,$20,000; Income tax payments,$240,000; Income tax expense,$246,000. What was Lucas' quality of income ratio?

The quick ratio decreases when the adjusting entry to record bad debt expense is recorded.

Cecilia Company reported net income of $1,200,000.Their average total liabilities were $4,300,000 and average total stockholders' equity was $5,200,000.Interest expense was $100,000 and their tax rate was 40%.What was their return on assets ratio?

Which of the following transactions will increase the quality of income ratio?

Which of the following ratios increases when a company switches from FIFO to LIFO during a period of increasing prices?

Which of the following transactions decreases earnings per share?

Which of the following is false?

Complete the following income statement (both dollar amounts and component percentages): $\begin{array}{ll}&& \text { Component }\\& \text { Amount }& \text { Percentage }\\\text { Sales revenue } & \$&\%\\\text { Cost of goods sold } & &40\% \\\text { Gross margin } & \$ 120,000 \\\text { Operating expenses } & \\\text { Interest expense } & &2\%\\\text { Income (before income tax) } & \\\text { Income tax expense (rate 20\%) } & \\\text { Net income }&&6\%\end{array}$

The year-end adjusting entry to adjust the unearned revenue account for revenue earned,decreases which of the following ratios?

When considering an investment,which of the following is not one of the three critical factors used to evaluate future earning potential of that investment?

Home Depot's operating strategy is to offer a broad assortment of high-quality merchandise and services at competitive prices using highly knowledgeable service-oriented personnel and aggressive advertising.Which of the following is not as critical to achieving its strategy?

Teague Company's working capital was $40,000 and total current liabilities were 1/4 of that amount.What was the current ratio?