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Barrett Company received cash of $5,000,000 by issuing 20-year bonds payable. As a result of the this transaction, the company's current ratio will:


A) Remain the same.
B) Decrease.
C) Increase.
D) Cannot be determineD.The transaction will increase current assets (cash) and increase long-term liabilities (bonds payable) . The current ratio is current assets/current liabilities. The ratio will not be affected by the increase in long-term liabilities, but the increase in current assets will cause the ratio to increase.

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

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While horizontal analysis examines one item over many time periods, vertical analysis examines many items in the same interval of time.

A) True
B) False

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As of December 31, 2012, Grove Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, 2012 Grove sold inventory on account for $6,000 and recorded cost of goods sold of $4,100. Which of the following statement is incorrect?


A) Grove's current ratio will decrease.
B) Grove's quick ratio will increase.
C) Grove's working capital will decrease.
D) A and C are both incorrect statements

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

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Many companies have to monitor closely certain ratios, such as the current ratio, due to debt covenants. Selected transactions are provided below for a company that uses a perpetual inventory system; sells its merchandise at a selling price that exceeds cost; and had a current ratio of 1.85 and a quick ratio of 1.19 before the event occurred. Many companies have to monitor closely certain ratios, such as the current ratio, due to debt covenants. Selected transactions are provided below for a company that uses a perpetual inventory system; sells its merchandise at a selling price that exceeds cost; and had a current ratio of 1.85 and a quick ratio of 1.19 before the event occurred. Required: In the above table, indicate whether each transaction would increase (+), decrease (-), or not affect (0) the company's current ratio and quick ratio. Required: In the above table, indicate whether each transaction would increase (+), decrease (-), or not affect (0) the company's current ratio and quick ratio.

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The return on investment measure is also referred to as:


A) Net margin.
B) Return on equity.
C) Return on assets.
D) Return on debt.

E) A) and B)
F) All of the above

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You are considering an investment in Jet Blue Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitability except:


A) Net margin.
B) Asset turnover.
C) Return on investment.
D) Average days to collect receivables.

E) A) and B)
F) None of the above

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As of December 31, 2012, Grove Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, 2012, Grove paid $250 for transportation costs on merchandise it had received. Which of the following statements is incorrect?


A) Grove's current ratio will decrease
B) Grove's quick ratio will decrease
C) Grove's working capital will remain the same
D) Grove's quick ratio will decrease and its current ratio will remain the same.

E) All of the above
F) None of the above

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Financial analysis typically involves some form of comparison such as changes in the same item over a number of years.

A) True
B) False

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Select the incorrect statement regarding the quick ratio:


A) The quick ratio is also known as the acid-test ratio.
B) The quick ratio equals quick assets divided by total liabilities.
C) The quick ratio is a conservative variation of the current ratio.
D) The quick ratio ignores some current assets that are less liquid than others.

E) B) and C)
F) All of the above

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Select the incorrect statement regarding horizontal analysis.


A) Percentage analysis involves establishing the relationship of one amount to another.
B) In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account.
C) Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes.
D) A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue.

E) A) and D)
F) None of the above

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The Monticello Company reported net income of $14,400 on gross sales of $80,000. The company has total average assets of $115,200, of which $100,000 is property, plant and equipment. What is the company's return on investment?


A) 69.4%
B) 18.0%
C) 14.5%
D) 12.5%

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

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The Best Company provided the following information from its financial records: The Best Company provided the following information from its financial records: What is the company's book value per share? A) $1.67 B) $6.67 C) $5.42 D) $1.58 What is the company's book value per share?


A) $1.67
B) $6.67
C) $5.42
D) $1.58

E) All of the above
F) B) and D)

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Long-term creditors are usually most interested in evaluating:


A) Solvency
B) Managerial effectiveness
C) Liquidity
D) Profitability.

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

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Barrett Company received cash of $1,000,000 from issuing common stock. As a result of this transaction, the company's debt to equity ratio will:


A) Increase.
B) Decrease.
C) Remain the same.
D) Cannot be determineD.The transaction will increase assets (cash) and increase stockholders' equity (common stock) . The debt to equity ratio is total debt/total stockholders' equity. The increase in cash will not affect the ratio, but the increase in common stock will cause the ratio to go down.

E) None of the above
F) A) and C)

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The following balance sheet information is provided for Paris Company: The following balance sheet information is provided for Paris Company: Assuming 2012 cost of goods sold is $365,000, what is the company's average days to sell inventory? A) 25 days B) 15 days C) 100 days D) None of the other answers are correct. Assuming 2012 cost of goods sold is $365,000, what is the company's average days to sell inventory?


A) 25 days
B) 15 days
C) 100 days
D) None of the other answers are correct.

E) All of the above
F) B) and C)

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The following information was provided by Jongeward Company as of December 31, 2012: The following information was provided by Jongeward Company as of December 31, 2012: On the most recent trading date, Jongeward's common shares sold at $36 and the preferred shares sold at $14. The following information on industry averages is provided: Earnings per share $3.06 Price-earnings ratio 19.2:1 Required: 1) Calculate and compare Jongeward Company's ratios with the industry averages shown above. 2) Discuss whether you would invest in this company. On the most recent trading date, Jongeward's common shares sold at $36 and the preferred shares sold at $14. The following information on industry averages is provided: Earnings per share $3.06 Price-earnings ratio 19.2:1 Required: 1) Calculate and compare Jongeward Company's ratios with the industry averages shown above. 2) Discuss whether you would invest in this company.

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1) Earnings per share = ($528,000 - $8,0...

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Financial statement analysis involves forms of comparison including:


A) Comparing changes in the same item over a number of periods.
B) Comparing key relationships within the same year.
C) Comparing key items to industry averages.
D) All of the other answers are correct.

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

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Morton Company has total current assets of $45,000, including inventory of $10,000, and current liabilities of $21,000. The company's current ratio is:


A) 0.4.
B) 1.7.
C) 2.1.
D) 2.6.

E) None of the above
F) B) and C)

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


A) Current ratio.
B) Inventory turnover.
C) Earnings per share.
D) Average collection perioD.Liquidity ratios indicate a firm's short-term ability to pay its current obligations. Liquidity ratios include: working capital, current ratio, acid test (quick) ratio, accounts receivable turnover, average days to collect ratio, inventory turnover and average days to sell inventory. Earnings per share is a stock market ratio.

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

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Solvency ratios are used to assess a company's:


A) Short-term debt paying ability.
B) Profitability.
C) Long-term debt paying ability.
D) Efficiency in use of its assets.

E) B) and D)
F) None of the above

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