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Exam 14: Analyzing Financial Statements

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Question 61

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Which of the following transactions would increase the current ratio of a company if the ratio is currently greater than 1?

A) Paid the principal on a long-term note payable.
B) Borrowed cash on a short-term note.
C) Sold inventory for more than cost.
D) Purchased supplies with cash.

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

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Question 62

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Which of the following correctly describes the effect of Mogul Company declaring and distributing a 10% common stock dividend?

A) Mogul's current ratio decreased.
B) Mogul's return on equity ratio decreased.
C) Mogul's debt-to-equity ratio remained the same.
D) Mogul's return on assets decreased.

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

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Question 63

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The price earnings ratio is affected by the amount of risk that investors are willing to take.

Bailey Corporation reported the following information for 2010: $\begin{array} { l r } \text { Net income } & \$ 10,000 \\\text { Total assets } & 16,000 \\\text { Total stockholders' equity } & 8,000\end{array}$ What is Bailey's debt-to-equity ratio?

Which of the following ratios increases when cash is collected on an account receivable?

Return on equity (ROE)provides insight with respect to a company's use of its assets.

Potaw Company reported the following data at the end of 2010: $\begin{array} { l r } \text { Sales revenue } ( 75 \% \text { on credit) } & \$ 300,000 \\\text { Expenses } ( 26 \% \text { on credit) } & 60,000 \\\text { Accounts receivable, net at December } 31,2010 \text { (a decrease } & \\\text { of } \$ 4,000 \text { during } 2010 ) & 8,000 \\\text { Total assets } & 200,000 \\\text { Stockholders' equity } & 150,000\end{array}$ What was the average number of days to collect receivables during 2010?

Trenton Company has provided the following information: Net income,$240,000; Preferred shares issued,6,000; Average common shares issued,24,000; Common cash dividends declared and paid,$30,000; Market price per share,$36 Average treasury shares of common stock,4,000. What was Trenton's price earnings ratio?

The following financial data are available for Murphy Company: $\begin{array} { l r } \text { Operating income } & \$ 236,500 \\\text { Net income } & 196,300 \\\text { Earnings per share } & 2.45 \\\text { Dividends paid per share } & 1.25 \\\text { Average common stockholders' equity } & 985,000 \\\text { Average total assets } & 1,870,000 \\\text { Current market price per share } & 24.50 \\\text { Book value per share } & 12.30\end{array}$ Calculate each of the following ratios: A.Return on equity B.Price/earnings ratio C.Dividend yield

Which of the following transactions will not increase the cash ratio?

The quality of income ratio increases when net income increases.

A high price earnings ratio usually indicates the market is optimistic about the company's future earnings potential.

Which of the following transactions increases both the quick and current ratios assuming that both ratios are greater than 1?

Which of the following does not correctly describe the effect of Mogul Company declaring and distributing a 2-for-1 common stock split?

The financial leverage percentage is positive when return on assets is greater than return on equity.

Component percentages are used to express items on financial statements as a percentage of a single base amount.

The year-end adjusting entry to record bad debt expense will increase which of the following ratios?

A company that has a high level of inventory and other assets above their investment in property,plant and equipment should calculate the total asset turnover ratio in addition to the fixed asset turnover ratio.

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 times interest earned ratio?