Test Bank - Chapter18 FS Analysis - Free Download PDF Ebook

Chapter 18“How Well Am I Doing?” Financial Statement Analysis True/False 1. F Medium In determining whether a company's financial condition is improving or deteriorating over time, vertical analysis of financial statement data would be more useful than horizontal analysis. 2. T Easy Trend percentages state several years' financial data in terms of a base year. For example, sales for every year would be stated as a percentage of the sales in the base year. 3. T Easy The gross margin percentage is computed taking the difference between sales and cost of goods and then dividing the result by sales. 4. F Medium The gross margin percentage is computed by dividing net income before interest and taxes by sales. 5. F Easy The priceearnings ratio is determined by dividing the price of a product by its profit margin. 6. T Easy The priceearnings ratio is computed by dividing the market price per share by the current earnings per share. 7. F Medium When computing the return on total assets, the aftertax effect of interest expense must be subtracted from net income. 8. F Medium If the assets in which funds are invested have a rate of return lower than the fixed rate of return paid to the supplier of the funds, then financial leverage is positive. 9. F Easy If the market value of a share of stock is greater than its book value, the stock is probably overpriced. 10. T Hard Working capital equals current assets, plus noncurrent liabilities and stockholders' equity, less total assets. Managerial Accounting, 9/e 152 11. T Medium Assuming that a company has a current ratio greater than 1.0 to 1, repaying a shortterm note payable will increase the current ratio. 12. F Medium The acidtest ratio is a test of the quality of accounts receivablein other words, whether they are likely to be collected. 13. T Medium When computing the acidtest ratio, prepaid expenses are ignored. 14. T Easy Only credit sales (i.e., sales on account) are included in the computation of the accounts receivable turnover. 15. F Easy The inventory turnover ratio is equal to the average inventory balance divided by the cost of goods sold. Multiple Choice 16. D Easy Horizontal analysis of financial statements is accomplished through: a. placing statement items on an aftertax basis. b. commonsize statements. c. computing both earnings per share and the priceearnings ratio. d. trend percentages. 17. D Easy The gross margin percentage is most likely to be used to assess: a. how quickly accounts receivables can be collected. b. how quickly inventories are sold. c. the efficiency of administrative departments. d. the overall profitability of the company's products. 18. C Medium Earnings per share of common stock will immediately increase as a result of: a. the sale of additional shares of common stock by the company. b. an increase in the dividends paid to common stockholders by the company. c. an increase in the company's net income. d. the issuance of bonds by the company to finance construction of new buildings. 153Managerial Accounting, 9/e 19. C Easy The market price of XYZ Company's common stock dropped from $25 to $21 per share. The dividend paid per share remained unchanged. The company’s dividend payout ratio would: a. increase. b. decrease. c. be unchanged. d. impossible to determine without more information. 20. A Medium CMA adapted An increase in the market price of a company’s common stock will immediately affect its: a. dividend yield ratio. b. debttoequity ratio. c. earnings per share of common stock. d. dividend payout ratio. 21. D Medium Which of the following is true regarding the calculation of return on total assets? a. The numerator of the ratio consists only of net income. b. The denominator of the ratio consists of the balance of total assets at the end of the period under consideration. c. The numerator of the ratio consists of net income plus interest expense times the tax rate. d. The numerator of the ratio consists of net income plus interest expense times one minus the tax rate. 22. D Medium Financial leverage is negative when: a. the return on total assets is less than the rate of return on common stockholders' equity. b. total liabilities are less than stockholders' equity. c. total liabilities are less than total assets. d. the return on total assets is less than the rate of return demanded by creditors. 23. D Medium Which of the following is not a source of financial leverage? a. Bonds payable. b. Accounts payable. c. Preferred stock. d. Retained earnings. 24. A Medium If a company's bonds bear an interest rate of 8%, the tax rate is 30%, and the company's assets are generating an aftertax return of 7%, then the leverage would be: a. positive. b. negative. c. neither positive or negative. d. impossible to determine without knowing the return on common stockholders' equity. Managerial Accounting, 9/e 154 25. D Medium CMA adapted A company’s current ratio and acidtest ratios are both greater than 1.0 to 1. If obsolete inventory is written off, this would: a. decrease the acidtest ratio. b. increase the acidtest ratio. c. increase net working capital. d. decrease the current ratio. 26. D Medium If a company converts a shortterm note payable into a long term note payable, this transaction would: a. decrease working capital and increase the current ratio. b. decrease working capital and decrease the current ratio. c. decrease the current ratio and decrease the acidtest ratio. d. increase working capital and increase the current ratio. 27. B Hard CMA adapted Which one of the following would increase the working capital of a company? a. Cash payment of payroll taxes payable. b. Refinancing a shortterm note payable with a two year note payable. c. Cash collection of accounts receivable. d. Payment of a 20year mortgage payable with cash. 28. A Medium Sale of a piece of equipment at book value for cash will: a. increase working capital. b. decrease working capital. c. decrease the debttoequity ratio. d. increase net income. 29. B Medium CMA adapted If a firm has a high current ratio but a low acidtest ratio, one can conclude that: a. the firm has a large outstanding accounts receivable balance. b. the firm has a large investment in inventory. c. the firm has a large amount of current liabilities. d. the firm's financial leverage is very high. 30 B Hard Desktop Co. presently has a current ratio of 1.2 to 1 and an acidtest ratio of 0.8 to 1. Prepaying next year's office rent of $50,000 will: a. have no effect on either the company's current ratio or its acidtest ratio. b. have no effect on the company's current ratio but will decrease its acidtest ratio. c. decrease the company's current ratio and decrease its acid test ratio. d. increase the company's current ratio and increase its acid test ratio. 155Managerial Accounting, 9/e 5. b. $1. pays the taxes payable which have been a current liability. but increased to 60 days this year. Which of the following would most likely account for this change? a. d. yes yes no b.75 to 1.000 at the end of the year.500. yes no no 34.31.445. d. decrease.700. an increase in sales. c.000. sells inventory for more than their cost. $1. 33. c. b. A Medium The Miller Company paid off some of its accounts payable using cash. If the accounts receivable turnover for the year was 8.000. a decrease in accounts receivable relative to sales. no yes yes c. then the total sales for the year were: a. pays the following month's rent on the last day of the year. c. no no yes d. d. D Easy Which of the following accounts would be included in the calculation of the acidtest ratio: Accounts Receivable Prepaid Expense Inventory a. a relaxation of credit policies. remain unchanged. and 15% of total sales were cash sales.0 to 1.000 at the beginning of the most recent year and $190. $1. The company's current ratio is greater than 1. d. borrows cash using a sixmonth note. $1. b. B Hard The net accounts receivable for Andante Company were $150. C Medium Allen Company's average collection period for accounts receivable was 40 days last year. 32. Managerial Accounting. b. a decrease in sales. 35. The company’s current ratio would: a. c. A Hard Rahner Company has a current ratio of 1. increase.000.900. 9/e 156 . impossible to determine from the information given. This ratio will decrease if Rahner Company: a.000. $440. Common stockholders received dividends totaling $210.000.000 shares of preferred stock outstanding with each share receiving a dividend of $3 per share. $4. The company has 3.. c. $240.000. d..200. The company declared and paid dividends last year of $1..000 shares of preferred stock at the end of the year just completed.41. The earnings per share of common stock is closest to: a.. 2...000 shares of common stock and 80. Current ratio . $1.. $7..000. The earnings per share of common stock is: a. 39.. $2. b.000. $10... b. $0.5 Current liabilities . C Hard Perlman Company had 100. $0.. 8 times Gross profit margin . c... d.0 Acidtest ratio .000.. 40% Sheridan's sales for the year was: a. $147. 9/e . b.. C Medium NOTE TO THE INSTRUCTOR: Questions 39. 37....000.000 shares of preferred stock outstanding. d.40 per share on the preferred stock. $480. and 41 are different versions of the same question. 38..92.30 per share on the common stock and $1.37.. Arlberg Company's net income last year was $250.67..000 shares of common stock and 20. Preferred stockholders received dividends totaling $140.0 and the market price of a share of common stock is $32.000.. c. $287.000.000 Inventory turnover . $1. then the net income for the year was: a.. There was no change in the number of common or preferred shares outstanding during the year. If the dividend payout ratio for the year was 70%. $3. c. 1.. A Hard CMA adapted Selected data from Sheridan Corporation’s yearend financial statements are presented below.000......36..000. d. The company has 150.000. b.. 40.. $800. $300... 157Managerial Accounting.. $120. C Hard Fulton Company's priceearnings ratio is 8. The difference between average and ending inventory is immaterial. 000. There was no change in the number of common or preferred shares outstanding during the year.0 to 1. 9/e 158 . b.. $4. The earnings per share of common stock is closest to: a. $3... $4.76. $2. d. Managerial Accounting. $10 Dividend per share .67 to 1. and 41 are different versions of the same question. Arquandt Company's net income last year was $550..00. $4. Arget Company's net income last year was $600.000 shares of common stock and 50..10. The following data have been taken from your company's financial records for the current year: Earnings per share . c.40. 7. $6 Market price per share . $70 The priceearnings ratio is: a.000 shares of preferred stock outstanding. and 41 are different versions of the same question. d. $2. The earnings per share of common stock is closest to: a. The company declared and paid dividends last year of $1. b..24.. c.70 per share on the preferred stock. 9.23. C Easy NOTE TO THE INSTRUCTOR: Questions 42 and 43 are different versions of the same question. The company has 150. 42.10 per share on the common stock and $0. c..47.. $90 Book value per share .0 to 1.90. D Medium NOTE TO THE INSTRUCTOR: Questions 39.. 40. The company has 150. 15.000.. 1.. C Medium NOTE TO THE INSTRUCTOR: Questions 39.0 to 1.000 shares of common stock and 60. 41. $3. There was no change in the number of common or preferred shares outstanding during the year.000 shares of preferred stock outstanding.20 per share on the common stock and $1. d.67.60 per share on the preferred stock.. b. $3. 40.. The company declared and paid dividends last year of $1. ..41%...89%. c.43%... 9/e .3%....5 to 1... 460..0 to 1.. 44. b. c.. d... Number of shares outstanding . 6. 11....5 to 1. $6. $15 Dividend per share . beginning of current year ......0 to 1. $90 The priceearnings ratio is: a.... $40 Book value at end of current year .....00 Market price per share ....43. 159Managerial Accounting.00 Earnings per share ..... 8. D Hard Cameron Company had 50.. b.000 Par value per share . c.... $5. $54.00 Dividends paid per share . Cameron Company's dividend yield ratio for the year was: a... end of current year ..... 20.... The following information pertains to these shares: Price originally issued ....0%...00 The dividend yield ratio is closest to: a.. 7...1%..... The following data have been taken from your company's financial records for the current year: Earnings per share .. 50. 45. $18............. 12. D Medium Information concerning the common stock of Morris Company as of the end of the company's fiscal year is presented below. 11.... $120 Book value per share ...000.... $85 Market value...... d...000 shares of common stock issued and outstanding during the year just ended. 33. C Easy NOTE TO THE INSTRUCTOR: Questions 42 and 43 are different versions of the same question... 120. 8... $70 Market value..0%. 9.. $90 The total dividend on common stock for the year was $400.. d.00% b.. $9 Market price per share ...... 47. 49. D Medium NOTE TO THE INSTRUCTOR: Questions 46. 15. Total assets at the beginning of the year were $650. 9. 47.8%.8%. b. 14. d. 19x9 were $2. c. b. 10.000 and its interest expense was $20.8%. 47.0%.5 million.000. The company's return on total assets for the year was closest to: a.9%.4%. 47. The company's return on total assets for the year was closest to: a.4%.5%.5%.000.9%. Net income for 19x9 was $188. C Medium NOTE TO THE INSTRUCTOR: Questions 46.000. The company's income tax rate was 30%. 9. 10. and 48 are different versions of the same question. Total assets at the beginning of the year were $660. d.6%. d.000.5%. Braverman Company's net income last year was $75.000.000. Managerial Accounting. 8.7%.3 million and on December 31. b.000 and total assets at the end of the year were $620. A Medium NOTE TO THE INSTRUCTOR: Questions 46. 9/e 160 . 13. 48. 12. c. Dividends for 19x9 totaled $75. and 48 are different versions of the same question. 9.000. Total assets at the beginning of the year were $660. c.000 and total assets at the end of the year were $620. 13. Brawer Company's net income last year was $55. The return on total assets for 19x9 was closest to: a. 6. The company's return on total assets for the year was closest to: a. interest expenses totaled $70.7%.000 and its interest expense was $20. and 48 are different versions of the same question. 12. The company's income tax rate was 30%. and the tax rate was 30%.000.000 and its interest expense was $10. The company's income tax rate was 30%. b. 11. C Medium The total assets of the Philbin Company on January 1. 11. d. 19x9 were $2.6%.000 and total assets at the end of the year were $610. Brachlan Company's net income last year was $80. 13. c.000.5%.46. b. 52. 23%.. The company paid preferred dividends of $10. 17.. 13. The company's net income for the year was $120. 52. 22. 75... The company's return on common stockholders' equity for the year was closest to: a... c. 300.. The company's return on common stockholders' equity for the year was closest to: a. C Medium CPA adapted Selected financial data for Irvington Company appear below: Account Balances o Beginning End of of year year Preferred stock .000 185.000. Crasler Company's net income last year was $100...50.5%.000 Common stock .000 and its average common stockholders' equity was $580.. the company paid dividends of $10.000 Retained earnings. A Easy NOTE TO THE INSTRUCTOR: Questions 51. and 53 are different versions of the same question.000. 20. d.. 161Managerial Accounting....4%.7%. 25%.000. 20..000 and its average common stockholders' equity was $400.. and 53 are different versions of the same question. 17%. 52. D Easy NOTE TO THE INSTRUCTOR: Questions 51. $125.000 on its preferred stock. d. The company paid preferred dividends of $20..5%. b. 9/e .2%... 17.000 $125.000 During the year. 19%.... c.8%. c. 51. b. 3..0%.5%.000..000. 2. Crawler Company's net income last year was $80.. d.. The company's return on common stockholders' equity for the year is closest to: a.000 400... b. 0.41 to 1. and 57 are different versions of the same question.8%.59 to 1. d. The company's current ratio is closest to: a.000 and its current liabilities are $61. 3. c. b. d. 2. C Easy NOTE TO THE INSTRUCTOR: Questions 51. 55.41 to 1.69 to 1.000 (5.000. 54.53.41 to 1. Crabtree Company's net income last year was $50. 1. 0. 9/e 162 . 56. and 57 are different versions of the same question.59 to 1.000. 6.000 and its average common stockholders' equity was $440. 15. $25. and 53 are different versions of the same question.59 to 1. b. 56. D Medium NOTE TO THE INSTRUCTOR: Questions 55.000 Total common stock $50. 11. b. 1. Dratif Company's working capital is $33.000 shares) The book value per share of common stock is: a. $28.000 shares) Total preferred stock $10. 52. 4.5%. Managerial Accounting. $20.4%.000 Total stockholders' equity $120. Dragin Company's working capital is $36.000 (1. A Medium The following account balances have been provided for the end of the most recent year: Total assets $150. 0. The company paid preferred dividends of $20.9%. c. d. 56. d. c.000.42 to 1.000 and its current liabilities are $80.000. The company's current ratio is closest to: a. 0. A Medium NOTE TO THE INSTRUCTOR: Questions 55. The company's return on common stockholders' equity for the year was closest to: a. $22. c. 0.. Acquisition of land valued at $50.000 by issuing new common stock.. c.. Orem Company's current liabilities totaled $75. b.. c.000 and its current liabilities are $59.000.000 of next year’s rent. Which of the following transactions would increase its working capital? a. 163Managerial Accounting.64 to 1.000. 0..55 to 1. $1.....000 and current liabilities of $200. Draban Company's working capital is $38.000.0 to 1 Cost of goods sold .. 1.225.300... B Medium NOTE TO THE INSTRUCTOR: Questions 55. 56.67 times....36 to 1. b.000 of shortterm debt with longterm debt. 1.64 to 1.. b.000 The company has no prepaid expenses and inventories remained unchanged during the year.. 2. Prepayment of $50. d....000. 60. B Hard CMA adapted Starrs Company has current assets of $300. d.. The company's current ratio is closest to: a. total long term assets must equal: a. $1. c. c.125.000.000...... 2. 58. 9/e . C Hard CMA adapted Selected yearend data for the Brayer Company are presented below: Current liabilities .30 to 1. 59. 3. d.. and 57 are different versions of the same question.20 times.000... 2... and its longterm liabilities totaled $225. d.. $1.000. b. If the company's debttoequity ratio is 0.000.000 of marketable securities for cash..000.33 times. 1..57. 2.. the company's inventory turnover ratio for the year was closest to: a. $1.000 Acidtest ratio .. C Hard At the end of the year just completed. Working capital at yearend was $100.40 times.5 to 1 Current ratio . Based on these data. Purchase of $50.. Refinancing $50.. $500. $600.. .8 to 1.000.. Eral Company has $17.... and 66 are different versions of the same question.. $125... $ 62... A Hard Ben Company has the following data for the year just ended: Cash .. 65. c.....000 in current receivables..61. $50. $43.750. c.000.....400..00 million..000 of which $5. 63. $35.000 in marketable securities... The firm’s current ratio cannot fall below 1.. Managerial Accounting.4 to 1 Acid test ratio .000 in inventories. 62...44 to 1.6 to 1 Ben Company's current liabilities were: a. $28. c. B Easy NOTE TO THE INSTRUCTOR: Questions 64....000 in cash. $40.. $35. d...000..67 million.78 to 1.000 in current liabilities. the maximum new short term debt that can be issued to finance an equivalent amount of inventory expansion is: a. 1. ? Accounts Receivable .. 9/e 164 .00 million. and $45.000.50 million.000 consists of prepaid expenses.. 2... 0. $35. b. $3. d. Current assets equal $175... $30.000 Inventory . $24. 0..000. b.000 Current ratio . 64.. 1... d. $375.000. A Hard Harwichport Company has a current ratio of 3. $63. $50. b.. $ 41. 1. $36.. Harwichport Company's inventory must be: a... If current liabilities are presently $250 million.. c....5 to 1 and an acidtest ratio of 2. d.5 to 1 without violating agreements with its bondholders... b. C Hard CMA adapted Marcy Corporation's current ratio is currently 1.. The company's acidtest (quick) ratio is closest to: a.75 to 1.24 to 1.80 to 1. 10. c. c. $8. 9/e . 13. Cash sales for the year were $300. Erambo Company has $11. $3. d. The beginning accounts receivable balance was $10. 0.13 times. The accounts receivable turnover for the year was 5 times. and 70 are different versions of the same question.000 in inventories.800.43 to 1. 65. D Hard CPA adapted Eastham Company's accounts receivable were $600. Eastham Company's total sales for the year were: a.000 in inventories. $1.000 in sales on account last year.000 at the end of the year. $27. d. 1. 5. 1.000 and the ending accounts receivable balance was $16. and 66 are different versions of the same question. 68.300.95 to 1.000 in cash. A Easy NOTE TO THE INSTRUCTOR: Questions 64. 1.000 in current liabilities. 1. $6. The company's accounts receivable turnover was closest to: a.000. $4.53 to 1.65. b. The company's acidtest (quick) ratio is closest to: a.000. b.00 times.75 to 1. c.000 in current receivables.02 to 1. and $40. 65.33 to 1. d. c.000 in current liabilities. b.000 in marketable securities. b. 0. 0. 67. The company's acidtest (quick) ratio is closest to: a. and $51.300.86 to 1. Erack Company has $15.00 times. Frantic Company had $130. 66. and 66 are different versions of the same question. $3.000 in marketable securities.000. d.000.000 in cash. 8.000.88 to 1. $ 800.000 in current receivables.000. $18. $38. C Easy NOTE TO THE INSTRUCTOR: Questions 64.00 times. C Easy NOTE TO THE INSTRUCTOR: Questions 68. 69. 0. 165Managerial Accounting.000 at the beginning of the year and $800. Managerial Accounting. c. 69. d. 36. Granger Company had $180.25 times. d. D Easy NOTE TO THE INSTRUCTOR: Questions 68. c. 10. d.46 days. 95. Fracus Company had $100.000 and the ending accounts receivable balance was $18. c. 72. 9/e 166 . 6. 70. The beginning accounts receivable balance was $14. 28.000.000 in sales on account last year.38 times.000 in sales on account last year. B Easy NOTE TO THE INSTRUCTOR: Questions 71. d.000 and the ending accounts receivable balance was $16. and 70 are different versions of the same question. 9. 47. The beginning accounts receivable balance was $14. b. 7. 4. 8. 56.50 days.000.000 and the ending accounts receivable balance was $18. The beginning accounts receivable balance was $10.69.39 days.28 days. b. 69. B Easy NOTE TO THE INSTRUCTOR: Questions 68.71 times. 3.000 in sales on account last year.000 and the ending accounts receivable balance was $16. 44.73 days.33 times.67 times.000.33 times. and 70 are different versions of the same question. The beginning accounts receivable balance was $18. 72.92 days. b. Grapp Company had $130.14 times. A Easy NOTE TO THE INSTRUCTOR: Questions 71. 50.54 days.000 in sales on account last year.000. 71. The company's accounts receivable turnover was closest to: a. 20.69 times. b. 72. c.78 days. Frabine Company had $150. and 73 are different versions of the same question. The company's accounts receivable turnover was closest to: a. 6. The company's average collection period (age of receivables) was closest to: a. and 73 are different versions of the same question. The company's average collection period (age of receivables) was closest to: a. The beginning inventory balance was $26. 58.07 days.96 times. 9/e . The company's average collection period (age of receivables) was closest to: a. 75. The company's inventory turnover was closest to: a. b. Harton Company. 24. The beginning accounts receivable balance was $14. D Easy NOTE TO THE INSTRUCTOR: Questions 74. d. 3. Grave Company had $150. b. and 73 are different versions of the same question.20 days. d.40 days. 8. 72.50 times. 75. had cost of goods sold of $290. c. 34. D Easy NOTE TO THE INSTRUCTOR: Questions 71. 75.000 and the ending inventory balance was $22. c.60 times. 11. a retailer. d. 5.00 times. 75. a retailer. 6.000. and 76 are different versions of the same question. The company's inventory turnover was closest to: a. c. had cost of goods sold of $160. 11.000.000 last year.80 times. c. 11. The beginning inventory balance was $26.000 in sales on account last year.000 last year. C Easy NOTE TO THE INSTRUCTOR: Questions 74.08 times. The beginning inventory balance was $20. 74.36 times. 5. 76. 6.33 days. 11. B Easy NOTE TO THE INSTRUCTOR: Questions 74. a retailer. and 76 are different versions of the same question.73.000 and the ending inventory balance was $20. b.15 times.000.000 and the ending accounts receivable balance was $10.000 last year. 29.000. The company's inventory turnover was closest to: a. 12.90 times. Harris Company.95 times. Harker Company. d. b. 12.15 times.000 and the ending inventory balance was $24. 167Managerial Accounting. and 76 are different versions of the same question.48 times. had cost of goods sold of $250. 000. 63.000 last year. 78. D Easy NOTE TO THE INSTRUCTOR: Questions 77. c.000 and the ending inventory balance was $26.000 last year. and 79 are different versions of the same question.000. 6.83 days. Irappa Company. 38. c. 6.800. d.00 times.67 days.000 last year. 78. The company's average sale period (turnover in days) was closest to: a. 78. 36. c. 80.77. The inventory balance at the beginning of the year was $175. The company's average sale period (turnover in days) was closest to: a. The beginning inventory balance was $24. 2.82 days. 5.94 days.27 days. 81. A Easy NOTE TO THE INSTRUCTOR: Questions 77.000 and the ending inventory balance was $24.920.91 days.09 days.000. 60. c. The company's average sale period (turnover in days) was closest to: a.0 times. then the inventory turnover for the year was: a. A Hard During the year just ended. What was the inventory turnover? a. 73.000. d.40 days. d. 79.50 days. Irally Company. d. 3. 55. c. a retailer. b.77 times.4 times. had cost of goods sold of $170. had cost of goods sold of $230. Irawaddy Company. a retailer.62 times. Managerial Accounting. The beginning inventory balance was $26. and 79 are different versions of the same question.000 of inventory. b. A Easy NOTE TO THE INSTRUCTOR: Questions 77. and 79 are different versions of the same question.12 days. a retailer. 2. 115. 34. 121. b.000 and the ending inventory was $360.000 of inventory.000. 57. d. If the cost of goods sold for the year was $450.3 times.00 days.000.0 times. The cost of good sold was $1.57 times. had cost of goods sold of $150. b. C Hard CPA adapted Last year Dunn Company purchased $1. 5.000 and the ending inventory balance was $22. 2. The beginning inventory balance was $28. James Company purchased $425. b. 58. 78. 9/e 168 . 60.97 days. Last year Javer Company had a net income of $200. Mariah Company's aftertax net income was: a. The company's times interest earned was closest to: a.82. 10.00 times.000.000. d. 4.000.0 for the year just ended. 85.10 times. 83. D Easy NOTE TO THE INSTRUCTOR: Questions 82.30 times. $25. b. $75. 83.000.00 times.000.90 times. and 84 are different versions of the same question. and interest expense of $20.00 times. $66. income tax expense of $66. b. $22. The company's times interest earned was closest to: a. 3. B Hard The times interest earned ratio of McHugh Company is 4. 8. d. 12. and the company's tax rate is 40%. B Easy NOTE TO THE INSTRUCTOR: Questions 82. 84. $54. The company's net income is: a. D Hard Mariah Company has a times interest earned ratio of 3.000. d. 9.30 times.000. C Easy NOTE TO THE INSTRUCTOR: Questions 82.000. and 84 are different versions of the same question. The company's times interest earned was closest to: a. b. and interest expense of $20. income tax expense of $74.5 times. c. c. c. 9/e .000. d. 14. c.000. and interest expense of $20.000.000. $30. 86. $42.70 times.000. $50.000. and 84 are different versions of the same question.000.00 times. Last year Jackson Company had a net income of $160. 10. 13. 5.00 times.000.00 times. b. d. 83.70 times. Last year Jabber Company had a net income of $180. 83. b. income tax expense of $62.000. c.000. 169Managerial Accounting. 9. The company's tax rate is 40% and the interest expense for the year was $25.000. 11. The interest expense for the year was $20. 88. d. 89. 15. c. 0. d. c. 0. 90. 0. 0.39 to 1.000 and total liabilities of $80.000. b. 0. A Hard PFM Company has sales of $210.35 to 1.000.53 to 1. and 90 are different versions of the same question. 0. The company's debttoequity ratio is closest to: a. and 90 are different versions of the same question. and 90 are different versions of the same question.53 to 1. Karl Company has total assets of $170. d.47 to 1. Karma Company has total assets of $190. a tax rate of 30%. c. Krakov Company has total assets of $170. 4.000. 0.47 to 1. The company's debttoequity ratio is closest to: a.5 times.65 to 1.32 to 1. 89. 9/e 170 .90 to 1.000.87. 0. interest expense of $8. 7. D Easy NOTE TO THE INSTRUCTOR: Questions 88.000 and total liabilities of $90. c. b.89 to 1.000.375 times. b. 0. 1.375 times.83 to 1.32 to 1. 89.000. 89. d. Managerial Accounting. The company's debttoequity ratio is closest to: a.000 and total liabilities of $110. 0. 0. and a net profit after tax of $35. A Easy NOTE TO THE INSTRUCTOR: Questions 88. PFM Company's times interest earned ratio is: a. b. B Easy NOTE TO THE INSTRUCTOR: Questions 88.25 times. 5. the net income before taxes as a percentage of sales was: a. 450 400 Interest Expense . 94. D Easy Refer To: 181 For 19x9. b.. 60%... d.. increased. b.... decreased....... the net operating income as a percentage of sales was: a. 8%.. 3%... c. 9/e . D Easy Refer To: 181 For 19x9.Reference: 181 Selected financial data for Barnstable Company appear below: 19x9 19x8 (in thousands) Sales .. 171Managerial Accounting.200 Operating Expenses .500 $1. 10%. c.. 10%. d. 70%. remained the same. $1.. 40%.. b. the gross margin as a percentage of sales was: a....... 5%.. 40%.... 92. 8%..... c...... 75 30 Cost of Goods Sold ... 5%.. 10%.. d..... 900 720 Dividends Declared and Paid ... b... cannot be determined from the data provided. 30 0 91. d.. the times interest earned ratio: a... B Medium Refer To: 181 Between 19x8 and 19x9.... C Easy Refer To: 181 For 19x9.. c. 93.... . 400 360 Noncurrent liabilities: Bonds payable ......600 Total assets ................270 1............. 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ... $10 par ............ 180 180 Additional paidin capitalcommon stock ............040 $1.. 102 to 108........ 20 20 Total current assets ......... 9/e 172 ...950 Managerial Accounting.................. 770 760 Stockholders' equity: Preferred stock....................... $2.............. 1....... Financial statements for Larned Company appear below: Larned Company Statement of Financial Position December 31.... 370 400 Total liabilities ....... 150 130 Inventory ..................640 1........ 170 160 Total current liabilities .....040 $1..............950 Current liabilities: Accounts payable ........ short term .. 110 110 Retained earnings ............ $ 130 $ 100 Accounts receivable...................190 Total liabilities & stockholders' equity .................. and 109 to 115 are different versions of the same question................. 860 780 Total stockholders' equity ..................Reference: 182 NOTE TO THE INSTRUCTOR: Questions 95 to 101.............. $20 par.. 10% .................... net ............ 110 80 Notes payable......... $ 120 $ 120 Accrued liabilities ............ net .. 400 350 Noncurrent assets: Plant & equipment....... 1....... 120 120 Common stock........ $2............. 100 100 Prepaid expenses ........ . c........22..3%. 95.. 9.50....... $ 343 Dividends during 19X6 totalled $263 thousand.. C Medium Refer To: 182 Larned Company's return on total assets for 19X6 was closest to: a... 350 Net operating income ..... c. 76.. $2....4%........70..... 8.06........ 19X6 (dollars in thousands) Sales (all on account) .. 880 Operating expenses .5%... A Medium Refer To: 182 Larned Company's dividend payout ratio for 19X6 was closest to: a. $18...39... 99..... c........ b... 18..8%... d..... 8. 40 Net income before taxes . d.050 Gross margin ... $27... 14..... 490 Income taxes (30%) ....... 15.. 2........ b.. 17...... 17... 173Managerial Accounting.7%.. 98... A Medium Refer To: 182 Larned Company's earnings per share of common stock for 19X6 was closest to: a. b.. 19X6 was $160...5%..... 75..... c.. 96... 530 Interest expense .......2%. 5......... 19X6 was closest to: a.... 147 Net income ... 5.. d...03.. b.. d..6%... d.. 9/e ...930 Cost of goods sold .... $11..1%.........88.......Larned Company Income Statement For the Year Ended December 31. b.7%............. 8.. 28. c. 97...8%... C Medium Refer To: 182 Larned Company's priceearnings ratio on December 31..... 19X6 was closest to: a... A Medium Refer To: 182 Larned Company's dividend yield ratio on December 31.. The market price of a share of common stock on December 31. of which $12 thousand were preferred dividends... 8......8%..40... $19. 47... .......11... 70 80 Notes payable. 9/e 174 .......... Reference: 183 NOTE TO THE INSTRUCTOR: Questions 95 to 101..900 $1..... $1................ c. b. $20 par. $16....370 Total assets .. d.... d.. 740 640 Total stockholders' equity ........89. b. A Medium Refer To: 182 Larned Company's return on common stockholders' equity for 19X6 was closest to: a............. 100 100 Common stock.. 160 180 Prepaid expenses ............260 1.... $10 par ...... B Medium Refer To: 182 Larned Company's book value per share at the end of 19X6 was closest to: a..... 640 720 Stockholders' equity: Preferred stock.........................880 Managerial Accounting... $ 150 $ 190 Accrued liabilities ... $70....... $10.... 1.... Financial statements for Laroche Company appear below: Laroche Company Statement of Financial Position December 31.................................... 50 40 Total current assets ....8%. 1.. 30. 280 300 Total liabilities ....... 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities .............9%.... 140 120 Inventory .................. 530 510 Noncurrent assets: Plant & equipment...................... 360 420 Noncurrent liabilities: Bonds payable .. 102 to 108.... 29............ 240 240 Additional paidin capitalcommon stock ..............................900 $1...56................ 26.............. c.............. 10% ..100.9%.... $1... 27...... net . 180 180 Retained earnings .............370 1.160 Total liabilities & stockholders' equity .. $63.. 140 150 Total current liabilities ....9%....880 Current liabilities: Accounts payable .. and 109 to 115 are different versions of the same question.... 101..... net .00........... $ 180 $ 170 Accounts receivable...... short term ..... 6%. 1......3%. $ 266 Dividends during 19X6 totaled $166 thousand. 62...Laroche Company Income Statement For the Year Ended December 31.. $11.. b...250 Cost of goods sold .......... 19X6 was $150......0%.... 4... 103... 30 Net income before taxes ......... 40. 14. of which $10 thousand were preferred dividends....1%. 270 Net operating income . d.. 102...... 1..... d.43..67... $10. A Medium Refer To: 183 Laroche Company's earnings per share of common stock for 19X6 was closest to: a..........9%. 60..... 14. 4. d.. 104. 380 Income taxes (30%) ........ 410 Interest expense .... $3............. The market price of a share of common stock on December 31.. 4. c. 9/e ..71.83. b.. c.. 14. 22.. 106.0%. b...... d.... B Medium Refer To: 183 Laroche Company's return on total assets for 19X6 was closest to: a.........9%... c..4%....06..47..... d..... 15... C Medium Refer To: 183 Laroche Company's dividend yield ratio on December 31.....53....... 13.6%. C Medium Refer To: 183 Laroche Company's dividend payout ratio for 19X6 was closest to: a.... $2........08..... 105...... 680 Operating expenses ................ 9. 19X6 was closest to: a. b. 19X6 was closest to: a...570 Gross margin ..1%... 38..... b.. c. 13. C Medium Refer To: 183 Laroche Company's priceearnings ratio on December 31.. 114 Net income ....6%.....2%.......... 19X6 (dollars in thousands) Sales (all on account) . $15.. 175Managerial Accounting.. c. ...990 1........ Reference: 184 NOTE TO THE INSTRUCTOR: Questions 95 to 101....33....... 40 40 Total current assets .... $ 150 $ 120 Accounts receivable.................520 $2... $2. b. $10 par ....810 1..................240 1....... D Medium Refer To: 183 Laroche Company's return on common stockholders' equity for 19X6 was closest to: a...50. 1. $48...0%........ 23................ net ...... 10% ........................ 10 40 Notes payable...... $20 par.... $10..... 190 160 Inventory .......... c... $52...... 530 470 Noncurrent assets: Plant & equipment....................... 250 250 Retained earnings . 220 220 Additional paidin capitalcommon stock ...640 Total liabilities & stockholders' equity ..... 1........ 102 to 108.. 710 810 Stockholders' equity: Preferred stock........070 Total stockholders' equity .............. and 109 to 115 are different versions of the same question......520 $2...... 24..... d.......2%....... 190 200 Total current liabilities ...........980 Total assets .. 22...... 370 400 Total liabilities ........ net . short term . C Medium Refer To: 183 Laroche Company's book value per share at the end of 19X6 was closest to: a........... c..450 Managerial Accounting. 100 100 Common stock...00............. 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities .......0%.... $ 140 $ 170 Accrued liabilities . $2.50.. $17.................. Financial statements for Larosa Company appear below: Larosa Company Statement of Financial Position December 31.......... 21............ 9/e 176 ..........1%.......... 108.... b.... 340 410 Noncurrent liabilities: Bonds payable .107....... 1..... d..450 Current liabilities: Accounts payable ......... 150 150 Prepaid expenses ..... . 1... 6..7%... 112...... 2......9%. 22..66..5%... c.300 Gross margin .. 1... of which $10 thousand were preferred dividends.. c.... b.44. 19X6 was closest to: a.. d. 21.... 7.. 177Managerial Accounting. 113.. B Medium Refer To: 184 Larosa Company's earnings per share of common stock for 19X6 was closest to: a.... $9.... b.. 310 Income taxes (30%) . $1.. $14..... B Medium Refer To: 184 Larosa Company's dividend payout ratio for 19X6 was closest to: a.4%.. c... 7........ 40 Net income before taxes .. 3.... $9.Larosa Company Income Statement For the Year Ended December 31... b.. b.. 110. 109... 1.... d.10....870 Cost of goods sold ..... 570 Operating expenses ... d............ 7.. 111....... C Medium Refer To: 184 Larosa Company's dividend yield ratio on December 31..7%.. 8.97.... 9..9%...6%. 93 Net income .. b........ 19X6 (dollars in thousands) Sales (all on account) ....... d. 19X6 was $70..41..86..... 220 Net operating income .09.............. 350 Interest expense .. The market price of a share of common stock on December 31...6%..... C Medium Refer To: 184 Larosa Company's priceearnings ratio on December 31....... 10.... $ 217 Dividends during 19X6 totaled $47 thousand...0%.. 19X6 was closest to: a.. B Medium Refer To: 184 Larosa Company's return on total assets for 19X6 was closest to: a. 17....1%. $3..... 4....2%...... 9/e ................... 9...8%... d......... c. c.09... 9/e 178 .Managerial Accounting. b. $3..... Financial statements for Orange Company appear below: 179Managerial Accounting....00.... $56... B Hard CMA adapted Refer To: 185 If Dawson corporation’s common stock has a priceearnings ratio of eight...90. 40% 116... $72............4%. $35 million Interest expense . c...6%. B Medium Refer To: 184 Larosa Company's return on common stockholders' equity for 19X6 was closest to: a...... 30% Average number of common shares outstanding .. 12. 13.36.. Reference: 186 NOTE TO THE INSTRUCTOR: Questions 118 to 124. A Hard CMA adapted Refer To: 185 The expected dividend per share of common stock is a............. b. Reference: 185 The Dawson Corporation projects the following for the upcoming year: Earnings before interest and taxes ....10.. d. $2...27..7%. d.. 9/e ...114. b. $ 5 million Preferred stock dividends ... A Medium Refer To: 184 Larosa Company's book value per share at the end of 19X6 was closest to: a. $68. d. $ 4 million Common stock dividend payout ratio . $2. and 132 to 138 are different versions of the same question.......0%.73. 12.. b...70.. $125.. c. d.. c. $77..80. 125 to 131.. $10.... 115... 12.. the market price per share (to the nearest dollar) would be a. $82... 117. 2 million Effective corporate income tax rate . $1.. c.. $21...... 830 Cost of goods sold ..... 60 60 Total current assets . 30 Net income before taxes ........ 160 160 Prepaid expenses . $5 par ......... $2..................... 1.......................... 1............. 9/e 180 ............. short term ........650 1.......................................... 560 660 Stockholders' equity: Preferred stock.. 480 Income taxes (30%) ....... 250 300 Total liabilities .....100 920 Total stockholders' equity ................. $10 par.... Managerial Accounting.... net ....210 $2....130 Orange Company Income Statement For the Year Ended December 31................................. $2................. net ........... $ 336 Dividends during 19X6 totaled $156 thousand..................................... 120 120 Common stock......... 850 Operating expenses .............................. $ 130 $ 110 Accounts receivable...................680 1.......... 19X6 was $100....Orange Company Statement of Financial Position December 31................... 340 Net operating income ........... $2... 60 80 Notes payable..620 Total assets .................................. 210 210 Retained earnings ........... 510 Interest expense ........... 15% ...................... 310 360 Noncurrent liabilities: Bonds payable .. The market price of a share of common stock on December 31........ 19X6 (dollars in thousands) Sales (all on account) ... 180 180 Inventory ..................... of which $18 thousand were preferred dividends. $ 90 $ 100 Accrued liabilities .................................................. 160 180 Total current liabilities . 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ...............980 Gross margin ...210 $2....130 Current liabilities: Accounts payable ....... 530 510 Noncurrent assets: Plant & equipment............. 144 Net income . 1........... 220 220 Additional paidin capitalcommon stock . 1..........470 Total liabilities & stockholders' equity .. 17.2 days.44 to 1. 124. 123. b. c. 15.0 times.5 days. 1. 12. d. d. b. C Medium Refer To: 186 Orange Company's times interest earned for 19X6 was closest to: a. 29.24 to 1. 181Managerial Accounting. $7.71 to 1. d. $2. b. c. c. 16.91. d.2 days. A Medium Refer To: 186 Orange Company's accounts receivable turnover for 19X6 was closest to: a. d. 16. 2. 20.5%. 120.2 times. b. c. 33. 11.55 to 1. 11. 9/e .1%. d. b. 3. A Medium Refer To: 186 Orange Company's dividend yield ratio on December 31. 14. B Medium Refer To: 186 Orange Company's average sale period (turnover in days) for 19X6 was closest to: a. D Medium Refer To: 186 Orange Company's current ratio at the end of 19X6 was closest to: a. C Medium Refer To: 186 Orange Company's return on total assets for 19X6 was closest to: a.1%. 119. 3.3 times.118. A Medium Refer To: 186 Orange Company's earnings per share of common stock for 19X6 was closest to: a.27. c. 19X6 was closest to: a. 0.0 times.0 times. 15. b.4 times. 121. 28. b. 23.5%. 17.6 days.7%. c.64.5%.5%. 1.7 times.9%. 15. 0. 1.7 times. $7. $10. d.23. 122. c. ...... 480 440 Noncurrent assets: Plant & equipment............ 1.............. 430 Income taxes (30%) .......... 170 170 Total current liabilities ....... 460 Interest expense ................. 300 Net operating income .. short term ....................... 180 160 Inventory ...780 Total liabilities & stockholders' equity ... 1......... 760 Operating expenses . 590 630 Stockholders' equity: Preferred stock....... $2... 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ......410 Orantes Company Income Statement For the Year Ended December 31.......... $2....... $ 301 Managerial Accounting.. 9/e 182 .......... $ 120 $ 100 Accounts receivable........ 320 330 Noncurrent liabilities: Bonds payable ..900 1.....................................................410 Current liabilities: Accounts payable ......................... 10% ........ 200 200 Additional paidin capitalcommon stock .Reference: 187 NOTE TO THE INSTRUCTOR: Questions 118 to 124............750 Gross margin .... 129 Net income ......................... 19X6 (dollars in thousands) Sales (all on account) ...190 Total stockholders' equity . 2.......310 1.... Financial statements for Orantes Company appear below: Orantes Company Statement of Financial Position December 31. 120 120 Common stock............................ 50 50 Total current assets ............ 125 to 131..........510 Cost of goods sold ....... 1................................. 130 130 Prepaid expenses ....................... net ............. 30 40 Notes payable.........490 $2.. and 132 to 138 are different versions of the same question....... $10 par.............................................970 Total assets . $2...........490 $2. 270 300 Total liabilities ..... net ........... 270 270 Retained earnings ............ $ 120 $ 120 Accrued liabilities ...... $10 par ..................................010 1.......................... 30 Net income before taxes ............................ Dividends during 19X6 totaled $181 thousand. b. b. d. d.5 times. 13. 19X6 was $280. $14. d. $21. 19.3 times. B Medium Refer To: 187 Orantes Company's earnings per share of common stock for 19X6 was closest to: a. C Medium Refer To: 187 Orantes Company's return on total assets for 19X6 was closest to: a. 3.3 times. 11. 0. 13. 2. 0. 12. D Medium Refer To: 187 Orantes Company's current ratio at the end of 19X6 was closest to: a.50.0 times. 183Managerial Accounting. d. The market price of a share of common stock on December 31. B Medium Refer To: 187 Orantes Company's times interest earned for 19X6 was closest to: a.19 to 1. 128.45. b.1 days. 127. c.2%. B Medium Refer To: 187 Orantes Company's average sale period (turnover in days) for 19X6 was closest to: a.8%.3 times. 14. 129. 125. 131. C Medium Refer To: 187 Orantes Company's accounts receivable turnover for 19X6 was closest to: a.9 days.50 to 1. of which $12 thousand were preferred dividends.7 days. 12. b. 1. 3. c. c.8 times.05.3 times. 35. 126. 15. b.5 days. 10. 27. 24. 1. 25. 18. b. 130. d.54 to 1. d. 19X6 was closest to: a. d.0%.4%.7%.1%.3%. A Medium Refer To: 187 Orantes Company's dividend yield ratio on December 31.3 times. c. 0. 14. c. b.8%. c.35 to 1. 9/e . $15.61. 10. $3. c. ................. 300 300 Total liabilities ......... 1.... 19X6 (dollars in thousands) Sales (all on account) ...... Financial statements for Oratz Company appear below: Oratz Company Statement of Financial Position December 31.370 Total assets ......... $15 par .............. 30 Net income before taxes .....................170 Total liabilities & stockholders' equity .........630 Cost of goods sold .......................... $1...........................860 Oratz Company Income Statement For the Year Ended December 31....... 490 Operating expenses ..... net ................430 1..920 $1..Reference: 188 NOTE TO THE INSTRUCTOR: Questions 118 to 124.................860 Current liabilities: Accounts payable ......... 5% ..... 1............. 100 70 Notes payable........ 400 390 Noncurrent liabilities: Bonds payable ...... 30 30 Total current assets ........................ 270 Income taxes (30%) .......... $ 189 Managerial Accounting......... 180 180 Prepaid expenses .. $1....... net .. 720 670 Total stockholders' equity ...... 130 130 Inventory ........... 140 140 Additional paidin capitalcommon stock .............. 9/e 184 .... 1................920 $1... 81 Net income ........................... 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ............................... 490 490 Noncurrent assets: Plant & equipment......... 300 Interest expense ........................................ 240 240 Retained earnings ............................... $1. and 132 to 138 are different versions of the same question....................... 700 690 Stockholders' equity: Preferred stock.....140 Gross margin ............. 120 120 Common stock........... $ 150 $ 150 Accounts receivable.......... 125 to 131........... short term ..... 190 Net operating income .......................................220 1.............. 230 220 Total current liabilities ...... $ 70 $ 100 Accrued liabilities ...... $10 par..... 9/e . The market price of a share of common stock on December 31. of which $6 thousand were preferred dividends. 185Managerial Accounting. Dividends during 19X6 totaled $139 thousand. 19X6 was $260. C Medium Refer To: 188 Oratz Company's dividend yield ratio on December 31. 11. 0.3 days. $19. 57. 10. D Medium Refer To: 188 Oratz Company's average sale period (turnover in days) for 19X6 was closest to: a.74. 134.61. 138. b.9%. B Medium Refer To: 188 Oratz Company's return on total assets for 19X6 was closest to: a.2%.25. 8. d. d. 9. D Medium Refer To: 188 Oratz Company's earnings per share of common stock for 19X6 was closest to: a.23 to 1. 19X6 was closest to: a.5%.57 to 1. $28. 10.5%. c. 0.51 to 1. $20. 133. 29.1 days. d. 5. 5. 40. $1. C Medium Refer To: 188 Oratz Company's times interest earned for 19X6 was closest to: a. b.8 times. b.1%.6 days. b. 16.3 times. d. 1. c.3 times. 12.6 days. 137. b. 10. 1. 8. 5.0 times. 136. 135. b.7%.26 to 1. B Medium Refer To: 188 Oratz Company's accounts receivable turnover for 19X6 was closest to: a. 0. 41.132. 6. Managerial Accounting. c. B Medium Refer To: 188 Oratz Company's current ratio at the end of 19X6 was closest to: a. c. 9. b. d.93. d. c.5%.0 times.5 times.3 times. 6. 9/e 186 .0%. c.1 times. c. d. 3 to 1....... B Hard Refer To: 179 The priceearnings ratio for the prior year was: a.9%. 187Managerial Accounting. $15.. c.18.. 14. c.... 12. $20.. D Hard Refer To: 179 MK Company's return on common stockholders' equity for the current year was (rounded to the nearest tenth of a percent): a......Reference: 189 Selected data for the MK Company follow: Current Year Prior Year Preferred stock.000 Dividends paid on common stock . 20. d....... par value $10 .... c.000 $250... 6..2 to 1.. 13.. 8.. 11. 140%.. 9/e ...... par value $50 ..000 Dividends paid on preferred stock .000 60.2% b. 7....8 to 1.....000 20. 10.. 25. c..000 240.000 Net income .. $250.....000 Quoted market price per common share at year end... b. 142. 114... b. 500..6% b.. 15... b..14.000 Retained earnings at end of year ...000 Common stock. $22....00 139.. 257. A Medium Refer To: 179 The dividend yield ratio on common stock for the current year was (rounded to the nearest tenth of a percent): a.... 8%. c. C Medium Refer To: 179 The book value per share for the current year is (rounded to the nearest cent: a. 102.14.7%.. d.000 90.. $18.... D Medium Refer To: 179 The dividend payout ratio for the prior year was: a...6%...4%.3%...8%. 65.. 140.. d.. 6.2%... d.. 10.. d. 141.. 143.00 20..000 500. 85.. 5... 55..6%.1 to 1.2%.31. ....... 85 55 Longterm otes payable .................. 15 20 Total current assets ...........'s balance sheet appears below: Lisa Inc.. 144..... All sales were on credit................ 15 15 Total longterm liabilities .......................... b..................................... Preferred dividends for the year were $5..... 65 50 Total shareholders’ equity . $ 47 $ 28 Accrued interest .... 95 100 Total longterm assets ... $500 $455 Accounts payable ... 2. 1... $ 30 $ 25 Marketable securities ...1 to 1....Reference: 1810 Lisa Inc.........................000............ 20 15 Accounts receivable (net) ............... 170 140 Land . its cost of goods sold was $220.......... 9/e 188 .. and its net income was $35...................... Managerial Accounting..... 15 15 Shortterm notes payable .. 1.........000........ B Medium CMA adapted Refer To: 1810 Lisa Inc.. d. 390 375 Total liabilities & equity .............................. 100 100 Common Stock ($10 par value) .. Statement of Financial Position December 31 (in thousands) 19X7 19X6 Cash ..... 45 30 Inventories ............. 10 10 Bonds payable . was closest to: a.................... 0.. 80 90 Equipment (net) ......... 330 315 Total Assets ........000.....................8 to 1.. c..............6 to 1....................... 110 80 Preferred stock ($100 par value.0 to 1.................. 23 12 Total current liabilities ............. 150 150 Additional paidin capitalcommon stock 75 75 Retained earnings .. 60 50 Prepaid expenses . $500 $455 The company's sales for the year were $300... 5%) .......................... 19X7...................000.............. 25 25 Total liabilities ...’s acid test (quick) ratio at December 31.... 155 125 Building (net) ... 25.’s return on common stockholders' equity for 19X7 was closest to: a.’s book value per share of common stock at December 31. d. d.6%.33. $11. 146. c. D Medium CMA adapted Refer To: 1810 Lisa Inc.7 times. 12. c. 4. c. c. $19. 6. 7. B Medium CMA adapted Refer To: 1810 Lisa Inc. 19X7. was closest to: a.4%.4 times.’s accounts receivable turnover for 19X7 was closest to: a. 10.7 times. b. 148. d.9 times. 189Managerial Accounting.0 times. 9/e . 10. 4. $10. B Medium CMA adapted Refer To: 1810 Lisa Inc. 147. b. $18.8%. b. 8. 5. C Medium CMA adapted Refer To: 1810 Lisa Inc.0 times. d. 3.33.00.0 times.145. b.’s inventory turnover for 19X7 was closest to: a. 4. 5.9%.9 times. . 280 290 Total current liabilities ........550 Cost of goods sold ...... 8% .. 720 620 Total stockholders' equity ... net ........ net ..170 $2................................................................................. 1................. 930 1.. 19X6 (dollars in thousands) Sales (all on account) ...............................170 $2............... 300 Net operating income ...............680 Total assets . $ 294 Managerial Accounting................140 Marcell Company Income Statement For the Year Ended December 31. 156 to 162.....000 Stockholders' equity: Preferred stock.............................. 450 500 Noncurrent liabilities: Bonds payable ..Reference: 1811 NOTE TO THE INSTRUCTOR: Questions 149 to 155.......... 470 Interest expense ...... 480 500 Total liabilities ..... 1................. 126 Net income ..... $2.....................140 Total liabilities & stockholders' equity . $2... 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ............... 50 Net income before taxes ... $ 110 $ 150 Accrued liabilities ..... and 163 to 169 are different versions of the same question................... $10 par. 1.............. 280 280 Retained earnings .............. 140 140 Additional paidin capitalcommon stock . 20 20 Total current assets ...................... 100 100 Common stock.......................................140 Current liabilities: Accounts payable . $ 160 $ 150 Accounts receivable.. $5 par ............................ short term ........ 9/e 190 ............................ 770 Operating expenses ........ 110 110 Inventory ................. 60 60 Notes payable..............780 Gross margin .240 1............... Financial statements for Marcell Company appear below: Marcell Company Statement of Financial Position December 31. $2...................... 470 460 Noncurrent assets: Plant & equipment... 420 Income taxes (30%) ............................ 180 180 Prepaid expenses ..700 1.... 2 times. d.42 to 1. 23. d. C Medium Refer To: 1811 Marcell Company's average sale period (turnover in days) for 19X6 was closest to: a. 155. 9. 1.2 times. A Medium Refer To: 1811 Marcell Company's current ratio at the end of 19X6 was closest to: a. 191Managerial Accounting. 0. d. d.7 days. d.7 days. b. b.240.2 times. c. 153. 22.9 days. b. $1. 9/e .60 to 1. 16.33 to 1.2 times. 23. d. B Medium Refer To: 1811 Marcell Company's average collection period (age of receivables) for 19X6 was closest to: a. 0.6 days. 9. b.149. 1. d. 25. $520. 36.8 days. D Medium Refer To: 1811 Marcell Company's inventory turnover for 19X6 was closest to: a. c. c. 25. 154.04 to 1. $20. 150. 0. 14.35 to 1. 152. C Medium Refer To: 1811 Marcell Company's accounts receivable turnover for 19X6 was closest to: a. c. 15. 36. 14. 151. 15. 0. 1.9 times. c.22 to 1.9 days. 16.6 days.9 times. c. b. 22. b.2 times.74 to 1. $470.8 days. B Medium Refer To: 1811 Marcell Company's working capital (in thousands of dollars) at the end of 19X6 was closest to: a.2 times. 0. b. c.48 to 1. C Medium Refer To: 1811 Marcell Company's acidtest (quick) ratio at the end of 19X6 was closest to: a. ................560 1..... 9/e 192 ............. 80 60 Notes payable.120 Gross margin ... 220 220 Retained earnings ..... 1... $2... 450 500 Total liabilities .............. 50 40 Total current assets .................................090 Current liabilities: Accounts payable ....560 Total assets ...... 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ..................200 Total liabilities & stockholders' equity ............. $2.............. 50 Net income before taxes ................ Financial statements for March Company appear below: March Company Statement of Financial Position December 31...... and 163 to 169 are different versions of the same question......... $ 175 Managerial Accounting......... net ..............Reference: 1812 NOTE TO THE INSTRUCTOR: Questions 149 to 155.. 1... $1... 250 Income taxes (30%) ......... $ 90 $ 100 Accrued liabilities ..610 Cost of goods sold ... net .............. 190 Net operating income ..090 March Company Income Statement For the Year Ended December 31.....................290 1........................ $10 par..................................................... 400 390 Noncurrent liabilities: Bonds payable . $5 par ................................ 1........................ short term .. 156 to 162...... 230 230 Total current liabilities ........ 300 Interest expense .............. 580 530 Noncurrent assets: Plant & equipment......................140 $2...........................140 $2...... 75 Net income ..... 850 890 Stockholders' equity: Preferred stock.. 180 180 Additional paidin capitalcommon stock ..... 770 680 Total stockholders' equity .................. 150 150 Prepaid expenses ........... $ 220 $ 190 Accounts receivable.................. 490 Operating expenses ................. 160 150 Inventory ..... 120 120 Common stock................... 19X6 (dollars in thousands) Sales (all on account) ....................................... 8% ...... c. 10. b. 193Managerial Accounting. d. d. 161. 162. c.156. d. b.5 times.0 days. 0. 160. $580. c. 48. 34. $520. c.1 days. 158.4 times.5 times. 7.53 to 1. b.95 to 1.45 to 1. 1. 9/e . $1.290. 1. 10. 34. 35. b. d.7 times. d. 0. 1.7 times.5 days.9 days. 7. 7.27 to 1.2 times. d.5 days. A Medium Refer To: 1812 March Company's acidtest (quick) ratio at the end of 19X6 was closest to: a. b.49 to 1. 0.0 days. b.47 to 1. 0. c. 10. 157. c. d.4 times.90 to 1. $180. b. 50. A Medium Refer To: 1812 March Company's inventory turnover for 19X6 was closest to: a. B Medium Refer To: 1812 March Company's average collection period (age of receivables) for 19X6 was closest to: a.2 times. B Medium Refer To: 1812 March Company's accounts receivable turnover for 19X6 was closest to: a. D Medium Refer To: 1812 March Company's current ratio at the end of 19X6 was closest to: a. C Medium Refer To: 1812 March Company's working capital (in thousands of dollars) at the end of 19X6 was closest to: a. A Medium Refer To: 1812 March Company's average sale period (turnover in days) for 19X6 was closest to: a. c. 48. 7. 50.39 to 1. 0. 35. 159.9 days. 10.1 days. $ 140 $ 140 Accounts receivable.630 Cost of goods sold ............... $1.................................... 490 Operating expenses .......... net .......... 8% .......200 Total liabilities & stockholders' equity ....... $5 par .....550 1..........910 Current liabilities: Accounts payable ...........Reference: 1813 NOTE TO THE INSTRUCTOR: Questions 149 to 155.................. 440 430 Noncurrent assets: Plant & equipment..990 $1............ 790 630 Total stockholders' equity .................................... 10 40 Notes payable............ 240 310 Noncurrent liabilities: Bonds payable .. 190 Net operating income .............. 120 120 Common stock.140 Gross margin ...........910 Marcial Company Income Statement For the Year Ended December 31...360 1........ 50 50 Total current assets ....... 140 130 Prepaid expenses ... 78 Net income . and 163 to 169 are different versions of the same question. short term ..................................480 Total assets ............... 630 710 Stockholders' equity: Preferred stock...... net ........... 9/e 194 ...... 300 Interest expense ......................... 1...................... 156 to 162............. $ 182 Managerial Accounting....................... 40 Net income before taxes ....................... 19X6 (dollars in thousands) Sales (all on account) ........ $10 par......... 1.......... 390 400 Total liabilities ...... 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ......... 1..................... 200 200 Additional paidin capitalcommon stock ....... 110 100 Total current liabilities .... 250 250 Retained earnings ...............990 $1.................................... $1............................ $ 120 $ 170 Accrued liabilities ............................. 260 Income taxes (30%) .......... Financial statements for Marcial Company appear below: Marcial Company Statement of Financial Position December 31... 110 110 Inventory ...... $1...... c.83 to 1.04 to 1. 35. 0. $1. 166. D Medium Refer To: 1813 Marcial Company's working capital (in thousands of dollars) at the end of 19X6 was closest to: a. b. b. 30. c.35 to 1. 1. d.38 to 1. 165. A Medium Refer To: 1813 Marcial Company's inventory turnover for 19X6 was closest to: a. b. d. 43. 12. 168. 195Managerial Accounting. b. b.1 times. $440.2 days. 164.2 days. 12.25 to 1.8 times. 10. c. c.163. 1. 14. 14.32 to 1. $570. 9/e .8 times. 167. 8.4 times. C Medium Refer To: 1813 Marcial Company's average sale period (turnover in days) for 19X6 was closest to: a. c. 169. $200.1 times.22 to 1. c. 1. d. 24. b. C Medium Refer To: 1813 Marcial Company's acidtest (quick) ratio at the end of 19X6 was closest to: a. c.2 days. d. A Medium Refer To: 1813 Marcial Company's current ratio at the end of 19X6 was closest to: a.4 times. 10. d. 43. 0.4 times. 8. 35. d.4 times.2 days. 24.6 days. 0. B Medium Refer To: 1813 Marcial Company's accounts receivable turnover for 19X6 was closest to: a.2 days. 0.76 to 1. A Medium Refer To: 1813 Marcial Company's average collection period (age of receivables) for 19X6 was closest to: a. 30. d. b.6 days. 1.360.2 days. ........ b...... 19x7...000 at December 31.........14......000 Land ....... D Medium CMA adapted Refer To: 1814 The current ratio for CPZ Enterprises is: a..000 Notes payable....... 0................... 5....... 2. 100. 80........000 Cash ....000 Inventory .. 1..500 $1...... 440. d......000 Interest payable. 9/e 196 . due in three months . increase increase b.... c............ C Medium CMA adapted Refer To: 1814 What is the company’s acid test (quick) ratio? a...........000 170........31.. 1..... $200............00....... due in 10 years ..... 5. 2.. c.. 100 60 Other assets ........... net . increase decrease d. 2........ 250..... 400 250 Total assets . 500 300 Prepaid expenses .. 172..... Managerial Accounting.........29....200 800 Inventory ... A Hard CMA adapted Refer To: 1814 What will happen to the ratios below if CPZ Enterprises uses cash to pay 50% of its accounts payable? Current Ratio Acidtest Ratio a....000 Bonds payable.... 1. $2..610 Curry had current liabilities of $1..... 50......... d. decrease decrease c....... due in six months ....68... b....68..... Accounts receivable .... and credit sales of $7..... decrease increase Reference: 1815 At December 31.. had the following balances in selected asset accounts: 19x7 19x6 Cash ... $ 300 $ 200 Accounts receivable.Reference: 1814 The following financial data have been taken from the records of CPZ Enterprises.... 300.......14... Curry Co.200 for 19x7............. 10..68..........000 Accounts payable ..... 171.... 9/e .197Managerial Accounting. .. 19x7 was closest to: a... 140 140 Additional paidin capitalcommon stock . d............0 to 1.. short term . c.................. 1............ 180 200 Total current liabilities ........ $2 par ....7 days.......100 1.. c. 50 60 Notes payable... 210 180 Inventory ...... net . 120 120 Prepaid expenses ..........660 Total assets ... 60.................5 to 1............ 640 700 Stockholders' equity: Preferred stock.....6 days.......180 $2............... net ........ Reference: 1816 NOTE TO THE INSTRUCTOR: Questions 175 to 176. 1...... b..........000 Total stockholders' equity ...173.660 1........ 9/e 198 .......6 to 1.. 380 400 Noncurrent liabilities: Bonds payable .. C Medium CPA adapted Refer To: 1815 Drew Company's average collection period (age of receivables) for 19x7 was closest to: a.....180 $2. $2.......440 Total liabilities & stockholders' equity .......... 60 50 Total current assets ......... 2...... d. 30...... $ 150 $ 140 Accrued liabilities ............ 520 480 Noncurrent assets: Plant & equipment.... 6% ........ 2................... b.. $10 par........ Financial statements for Narita Company appear below: Narita Company Statement of Financial Position December 31.1 to 1........ 120 120 Common stock...... 180 180 Retained earnings ....... 1. 177 to 178.... A Medium CPA adapted Refer To: 1815 Curry Company’s acidtest (quick) ratio at December 31............ 260 300 Total liabilities ... 50................ 1..8 days............ $2..140 Current liabilities: Accounts payable ........... 1................. 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ..540 1................ 40.......140 Managerial Accounting.. and 179 to 180 are different versions of the same question. $ 130 $ 130 Accounts receivable.........4 days... 174.. ............160 $2........070 199Managerial Accounting..... $ 308 175...... 15.... b................. 9/e ........ b. d..... $2...3 times. 0.. d..................... and 179 to 180 are different versions of the same question.Narita Company Income Statement For the Year Ended December 31.............. 30 Net income before taxes ..... 150 150 Inventory .............. c....58 to 1.......... 177 to 178..................... 10.670 1..17 to 1..600 Total assets . 132 Net income ... $ 120 $ 120 Accounts receivable..42 to 1......... net ............. 490 470 Noncurrent assets: Plant & equipment..................... 470 Interest expense ............7 times............ 19X6 (dollars in thousands) Sales (all on account) ....0 times....... 14. Reference: 1817 NOTE TO THE INSTRUCTOR: Questions 175 to 176..790 Gross margin ... 130 120 Prepaid expenses ....... 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities .25 to 1................... $2....... 440 Income taxes (30%) ..... D Medium Refer To: 1816 Narita Company's debttoequity ratio at the end of 19X6 was closest to: a..... 780 Operating expenses ................... 0............. Financial statements for Narlock Company appear below: Narlock Company Statement of Financial Position December 31............... 176......... 26.. 0........... c.. net ............... 1... 0..... 1. 310 Net operating income .......570 Cost of goods sold ....7 times....... D Medium Refer To: 1816 Narita Company's times interest earned for 19X6 was closest to: a...... 90 80 Total current assets . .... 8.... 360 Income taxes (30%) .. 680 Operating expenses ..............09 to 1... 200 200 Additional paidin capitalcommon stock ......... c... $2..... $10 par..............................32 to 1.......................... 50 Net income before taxes .38 to 1... 820 660 Total stockholders' equity ..................2 times.. 0.............070 Narlock Company Income Statement For the Year Ended December 31.....160 $2... 410 460 Noncurrent liabilities: Bonds payable ...........70 to 1. Managerial Accounting. 0. 480 500 Total liabilities ........................................0 times............ 6% .............. 1.... 1............................. 108 Net income .......... 9/e 200 ........ 250 290 Total current liabilities .570 Gross margin .... A Medium Refer To: 1817 Narlock Company's debttoequity ratio at the end of 19X6 was closest to: a.. 150 150 Retained earnings .................. 270 Net operating income ........... b..... 410 Interest expense ......... 0......... 19X6 (dollars in thousands) Sales (all on account) .... 178... $ 252 177......2 times... $2 par . $2. $ 100 $ 100 Accrued liabilities ......... short term ...6 times.. 890 960 Stockholders' equity: Preferred stock.................... B Medium Refer To: 1817 Narlock Company's times interest earned for 19X6 was closest to: a......... 60 70 Notes payable...... 7.110 Total liabilities & stockholders' equity .... 1....270 1......... 5......... d..... b........ 100 100 Common stock....... 13..... Current liabilities: Accounts payable .......... c...250 Cost of goods sold . d........ Financial statements for Narumi Company appear below: Narumi Company Statement of Financial Position December 31.................................... 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ....................................................................... 380 420 Noncurrent liabilities: Bonds payable ..... 1.....430 Gross margin ................... 460 440 Noncurrent assets: Plant & equipment............................ 130 130 Prepaid expenses ........................... net .............. $2 par ................... 140 130 Inventory ........... $1.............. 330 Income taxes (30%) ............................ 9/e ............ 120 120 Common stock.............. 430 350 Total stockholders' equity ...................................... $10 par........Reference: 1818 NOTE TO THE INSTRUCTOR: Questions 175 to 176............. $ 231 201Managerial Accounting......050 Cost of goods sold ......750 Current liabilities: Accounts payable ............. 240 Net operating income .......................... 50 Net income before taxes .........750 Narumi Company Income Statement For the Year Ended December 31... 160 160 Additional paidin capitalcommon stock .......... $ 120 $ 110 Accrued liabilities .. 6% .... 620 Operating expenses .......... $1........ 200 200 Retained earnings .................... 177 to 178...............800 $1. 510 500 Total liabilities ............. 890 920 Stockholders' equity: Preferred stock..... 1.....340 1..... net ......................... 40 30 Total current assets .......310 Total assets ....... 380 Interest expense ..... 19X6 (dollars in thousands) Sales (all on account) .800 $1.... $ 150 $ 150 Accounts receivable................. $2.. 99 Net income ........ short term .......... 80 80 Notes payable.... 180 230 Total current liabilities . and 179 to 180 are different versions of the same question...... 910 830 Total liabilities & stockholders' equity ...... .......42 to 1............ 2. 29% Gross margin percentage .......... 30% Current ratio ..... 41 days CE Ltd's latest financial statements are as follows: CE Ltd. c... No dividends were paid during the year..........179.... 180....98 to 1.................. Essay 181. c.... Income Statement for the year ended 31 October (in thousands) Sales ...6 times......6 times.............. Berry is the managing director of CE Ltd.. d.. £110 The country in which the company operates has no corporate income tax... a small... 1. 55 Interest ..... familyowned company which manufactures cutlery..9:1 Average sale period ......... 6.... The latest issue of the magazine contains a very brief article based on the analysis of the accounting statements published by the 40 companies which manufacture this type of product... b....4 times........ 0.... K.. The article contains the following table: Average for all companies in the industry Return on stockholders' equity ... Medium CIMA (UK) adapted M.......... 4........................ 0.. 9/e 202 .... Managerial Accounting...... B Medium Refer To: 1818 Narumi Company's times interest earned for 19X6 was closest to: a............ d... 7..... C Medium Refer To: 1818 Narumi Company's debttoequity ratio at the end of 19X6 was closest to: a.......... £900 Cost of goods sold . 15 Net income ..... b.. 180 Selling and administrative expenses ..........07 to 1..... His company belongs to a trade association which publishes a monthly magazine...... 33% Return on total assets ....... 12. 720 Gross margin ............ 0...56 to 1. 37 days Average collection period ..6 times..... All sales are on account. ......... £721 £670 Current liabilities: Accounts payable ..... 100 100 Retained earnings .... 9/e ........... 500 460 Total assets .. 150 150 Common stock .............. 324 214 Total liabilities and stockholders’ equity . Balance Sheets as of 31 October (in thousands) This Year Last Year Current assets: Cash ....00)] ÷ £695................0% (rounded) 203Managerial Accounting......CE Ltd......................................... Explain why it could be misleading to compare CE Ltd's ratios with those taken from the article... b............ £721 £670 Required: a..8% (rounded) Return on total assets: Net income = £110 Tax rate = 0% Interest expense = £15 Average total assets = (£721 + £670) ÷ 2 = £695..................... £ 5 £ 20 Accounts receivable ....5 Return on total assets = [£110 + £15x(1 0. Return on common stockholders’ equity: Net income = £110 Preferred dividends = £0 Average common stockholders’ equity = [(£100 + £324) + (£100 + £214)] ÷ 2 = £369 Return on common stockholders’ equity = (£110 £0) ÷ £369 = 29.................... 120 110 Inventories .5 = 18.............. Calculate each of the ratios listed in the magazine article for this year for CE......... Answer: a.... 96 80 Noncurrent assets ............. £147 £206 Noncurrent liabilities: Bonds payable ...... and comment briefly on CE Ltd's performance in comparison to the industrial averages... companies should try to obtain payment from customers as soon as possible. Similarly.5. 9/e 204 . For every pound invested. Managerial Accounting. Most companies aim to turn over inventory as quickly as possible. This indicates that the company is unable to make good use of the funds invested in the company. CE Ltd is not managing to do this as quickly as the industry's average of 37 days. CE Ltd is taking much longer to do this than the average for the industry.5:1 (rounded) Average sale period: Cost of goods sold = £720 Average inventory balance = (£96 + £80)/2 = £88 Inventory turnover = £720/£88 = 8. CE Ltd's gross margin percentage is also lower than average perhaps because it's selling prices are lower than the average or its cost of sales are higher. in order to improve cash flow. Gross margin percentage: Gross margin = £180 Sales = £900 Gross margin percentage = £180/£900 = 20% Current ratio: Current assets = £5 + £120 + £96 = £221 Current liabilities = £147 Current ratio = £221/£147 = 1. The industry average shows an even higher figure.8 (rounded) Average collection period = 365 days/7.8 = 47 days (rounded) CE Ltd's return on stockholders' equity is not as good as the industry’s average. with current assets amounting to almost double current liabilities. based on the article's figures. The current ratio indicates that CE Ltd's current assets are greater than its current liabilities by a factor of 1. the return on total assets is much less than the average. shareholders are obtaining a return which is smaller than they should expect.2 (rounded) Average sale period = 365 days/8.2 = 45 days (rounded) Average collection period: Sales on account = £900 Average accounts receivable balance = (£120 + £110)/2 = £115 Accounts receivable turnover = £900/£115 = 7. Similarly. one firm may use straight line depreciation. For example. Although accounting standards have reduced the range of acceptable accounting policies. A very large manufacturing business should be able to achieve economies of scale which are not possible for CE Ltd. for very high prices. while another may use accelerated depreciation. and in small volumes. Care must be taken when comparing CE Ltd's ratios with industry averages because there may be differences in accounting methods. CE Ltd may produce cutlery which is sold at the top end of the market. These variations make comparisons difficult. 205Managerial Accounting. Either situation will reduce the value of comparisons with the industry average. low quality cutlery for the catering industry. Size differences may also mean that ratios are not comparable.b. large companies may be able to negotiate sizable discounts from suppliers. 9/e . Alternatively. there is still scope for different firms to apply different accounting policies. For example. A third problem arises from differences in product range. it may be producing highvolume. .... 28..000. 12................. 200......000 Accrued liabilities .467 Net income . 5.... 24......000 112...000 were paid to preferred stockholders and $10......... 61...000.....800 Total stockholders' equity ....... Springville Company Statement of Financial Position December 31.........667 Income taxes (40%) ....... 9/e 206 .000 shares....000 81....600 Plant & equipment....... 75.....000 Common stock.000 31..... 59........... During Year 2....000 16.......................... 13..000 shares.........200 Noncurrent liabilities: Bonds payable ........................... 8..............333 Net operating income .......... net ...... 54... 1..........000 Springville Company Income Statement For the Year Ended December 31....................................000 $ 4......182.......... Medium Comparative financial statements for Springville Company for the last two years appear below. $ 7.....800 Total current assets ... 109..000 $144................ $ 8..000 $144....................000 Total liabilities .....000 24.000 Gross margin ....... 20.000 Retained earnings ..000 Current liabilities: Accounts payable . $ 80.....000 20.. 32.. The market price of Springville's common stock was $25 per share on December 31..400 Noncurrent assets: Investments..000 62..........200 Managerial Accounting....200 Total current liabilities ......... $141................ Year 2....... 1...000 Total assets ............ $ 6.000 12..........000 50.. no par.....000 7. Year 2 (dollars in thousands) Sales (all on account) ..... Year 2 and Year 1 (dollars in thousands) Year 2 Year 1 Current assets: Cash and marketable securities ..................000.000 30....800 Total liabilities & stockholders' equity .....800 Inventory .. 30.. 5......000 28...000 1.............667 Interest expense .... 8%........ $280.. net ....000 Operating expenses . $141... 20...000 Net income before taxes ......000 to stockholders..000 Cost of goods sold ...000.. 5...................800 Accounts receivable............ 18.....000 $ 6...200 Stockholders' equity: Preferred stock....... dividends of $2.......... 000)/2)) = 15.000  (($16.000) ÷ (($8. Inventory turnover = Cost of goods sold ÷ Average inventory balance = $200. Was financial leverage positive or negative for the year? Explain.000. h.200.000.800 + $28. Dividend yield ratio = Dividends paid per share  Market price per share = $2. Accounts receivable turnover = Sales on account  Average accounts receivable balance = $280.000)) = $2. Accounts receivable turnover.000. Return on total assets = [Net income + ((Interest expense x (1 Tax rate))]  Average total assets = [$8. Dividend payout ratio = Dividends per share ÷ Earnings per share. b. c. = ($10.04 times f. Priceearnings ratio.9% 207Managerial Accounting. b. Inventory turnover.000 ÷ (($28.200.Required: Compute the following for Year 2: a. Priceearnings ratio = Market price per share ÷ Earnings per share = $25 ÷ (($8. Answer: a.00  $1. e.000)/2)) = 7. g.000.000 + $141.000. Return on common stockholders' equity. c. Return on total assets.200. Dividend payout ratio. f.22 times.16.000 + 5.000 $2.3%.24 = 161.000.40)]  [($144. Dividend yield ratio.000 x (1 0.000. d.000/5.000)/2] = 7.000 $2.000. e.00 ÷ $25 = 8%. d.000) /5.800 + $20.000.000)) = 20.000)/5. 9/e . .590 Total liabilities & stockholders' equity .. $ 100 $ 100 Accounts receivable...430 Current liabilities: Accounts payable ............ 110 110 Prepaid expenses ..460 $2.. 183...................... 810 840 Stockholders' equity: Preferred stock...... 100 100 Common stock... 60 60 Total current assets ..........000 + $89... 200 200 Additional paidin capitalcommon stock .......... 70 50 Notes payable......... 310 340 Noncurrent liabilities: Bonds payable ......................650 1...... Return on common stockholders' equity = (Net income preferred dividends)  Average common stockholders' equity = ($8...........200...... 9/e 208 .................... Medium Financial statements for Praeger Company appear below: Praeger Company Statement of Financial Position December 31..090 Total stockholders' equity ..........000)/2] = 6... 440 440 Noncurrent assets: Plant & equipment.....000 $2...................... 200 200 Retained earnings ... 170 170 Inventory .460 $2. 1..........................8%) was less than the rate of return on total assets (7.............................150 1..... $ 140 $ 170 Accrued liabilities .............g.......... net . 5% .8%)..... 500 500 Total liabilities ...... $2.........000................... $5 par.......... $2... net .. since the rate of return to the common stockholders (6....000)  [($92.....800.000..... 100 120 Total current liabilities ..................... 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities .. Financial leverage was negative. 1....... short term ............... $5 par ........430 Managerial Accounting.020 1...................8% h. 2..990 Total assets . .. Average collection period (age of receivables). 150 Income taxes (30%) .... m........... 130 Net operating income ... Inventory turnover...... l.. of which $5 thousand were preferred dividends....... Dividend payout ratio... i.. b.... 770 Gross margin ... $1....................... o.50 *Number of common shares outstanding = Common stock ÷ Par value = $200 ÷ $5 = 40 209Managerial Accounting.. Book value per share.... Earnings per share of common stock. Acidtest (quick) ratio......... The market price of a share of common stock on December 31.. d...... Earnings per share = (Net Income Preferred Dividends) ÷ Average number of common shares outstanding* = ($105 $5) ÷ 40 = $2.. Priceearnings ratio.. 200 Interest expense ... 45 Net income ... n.Praeger Company Income Statement For the Year Ended December 31.... Times interest earned.......... Return on common stockholders' equity... Debttoequity ratio.. Answer: a..... Dividend yield ratio... Accounts receivable turnover.. f............ h.... 50 Net income before taxes ... g.......... Required: Compute the following for 19X6: a... Return on total assets... p..... 330 Operating expenses ....... $ 105 Dividends during 19X6 totalled $45 thousand. Current ratio........... 19X6 was $30......... 9/e .. e... c.. Working capital.100 Cost of goods sold ........... Average sale period (turnover in days)........... 19X6 (dollars in thousands) Sales (all on account) ............. j... k.... Return on common stockholders' equity = (Net income Preferred dividends) ÷ Average common stockholders' equity* = ($105 $5) ÷ $1.490) ÷ 2 = $1. Book value per share = Common stockholders' equity ÷ Number of common shares outstanding* = $1.73% *Adjusted net income = Net income + [Interest expense x (1Tax rate)] = $105 + [$50 x (1 – 0.50 = 40.75 *Number of common shares outstanding = Common stock ÷ Par value = $200 ÷ $5 = 40 Managerial Accounting. 9/e 210 . Priceearnings ratio = Market price per share ÷ Earnings per share (see above) = $30 ÷ $2.00 ÷ $30.30)] = $140 **Average total assets = ($2.00 **See above d.58% *Average common stockholders' equity = ($1.b.33% *See above e. Return on total assets = Adjusted net income* ÷ Average total assets** = $140 ÷ $2.445 f.00 = 3.00 ÷ $2.520 g. Dividend yield ratio = Dividends per share* ÷ Market price per share = $1.50 = 12.550 ÷ 40 = $38.460 + $2.0% *Dividends per share = Common dividends ÷ Common shares** = $40 ÷ 40 = $1.445 = 5.550 + $1.520 = 6.430) ÷ 2 = $2.0 c. Dividend payout ratio = Dividends per share* ÷ Earnings per share (see above) = $1. Times interest earned = Net operating income ÷ Interest expense = $200 ÷ $50 = 4.100 ÷ $170 = 6.42 to 1 j.650 = 0.h.4 days *See above m. Average sale period = 365 days ÷ Inventory turnover* = 365 ÷7. Current ratio = Current assets ÷ Current liabilities = $440 ÷ $310 = 1. Acidtest ratio = Quick assets* ÷ Current liabilities = $270 ÷ $310 = 0. Inventory turnover = Cost of goods sold ÷ Average inventory* = $770 ÷ $110 = 7. 9/e . Working capital = Current assets Current liabilities = $440 $310 = $130 i. Accounts receivable turnover = Sales on account ÷ Average accounts receivable* = $1.47 = 56.87 to 1 *Quick assets = Cash + Marketable securities + Current receivables = $100 + $170 = $270 k. Average collection period = 365 days ÷ Accounts receivable turnover* = 365 ÷ 6.47 times *Average accounts receivable = ($170 + $170) ÷ 2 = $170 l.00 times p.00 times *Average inventory = ($110 + $110)÷2 = $110 n.00 = 52.1 days *See above o.49 to 1 211Managerial Accounting. Debttoequity ratio = Liabilities ÷ Stockholders' equity = $810 ÷ $1. ........ $1.. $1.. and stockholders' equity totaled $725.. $ 75.100.. 200...000 Total current liabilities .......... 810....000 Stockholders' equity: Common stock......... 100... 300..000 AAR Company Income Statement For the Year Ended December 31 (dollars in thousands) Sales (all on account) ......... short term .. The market price of the company's stock at December 31 was $63 per share..000.......100..... 25.......300.....................000....... 800.000 Prepaid expenses ............. 50...000 Inventory .......................... 1...... 130..................000 Total assets ..300................................. 160...000 Retained earnings ............000 Accounts receivable..... 150........ 45.................. $2...........000 Total liabilities .000 Net operating income ...............................000 Interest expense ...................000 Cost of goods sold ..... $5 par ..000 Noncurrent liabilities: Bonds payable .............. 200............ 330................000 Net income before taxes .......000 Total stockholders' equity .15 per share during the year......000 AAR Company paid dividends of $3.....000 Accrued liabilities ...000 Current liabilities: Accounts payable ...000 Operating expenses ...... $ 21.... net .. $ 105............000......... Managerial Accounting............ 500..........000 Total liabilities & stockholders' equity . 300........... 700.. The balance in inventory at the beginning of the year was $250.. 490.....000 Income taxes (30%) ..................... net ........000 Notes payable.......................000 Gross margin ... The balance of accounts receivable at the beginning of the year was $150... 100... 9........000 Total current assets .......... Medium Financial statements for AAR Company appear below: AAR Company Statement of Financial Position December 31 Current assets: Cash and marketable securities ..............000 Net income .000................770...................... Assets at the beginning of the year totaled $1...000 Noncurrent assets: Plant & equipment..........184........ 9/e 212 ...... Was financial leverage positive or negative for the year. Average collection period (age of receivables).000. k.000 + $150. Return on common stockholders' equity. 213Managerial Accounting.000 = 0. h.4 times *Average inventory = ($300.000 + $250.45 to 1 b.91 to 1 *Quick assets = Cash + Marketable securities + Current receivables = $21. i. Answer: a.55 times *Average accounts receivable = ($160. f. Average collection period = 365 days ÷ Accounts receivable turnover = 365 ÷ 13.000 = $181. Current ratio. e. c. Inventory turnover = Cost of goods sold ÷ Average inventory* = $1. Acidtest (quick) ratio.000 ÷ $200. Inventory turnover. Explain.000 = 6. d.100.000. Acidtest ratio = Quick assets* ÷ Current liabilities = $181. g. Debttoequity ratio.000 = 2. Return on total assets.000 = 13.000 ÷ $275.000 + $160. j. Priceearnings ratio. b. Times interest earned.55 = 26.770.Required: Compute the following: a. Current ratio = Current assets ÷ Current liabilities = $490.000 ÷ $200. 9/e .000) ÷ 2 = $275.000) ÷ 2 = $155. Accounts receivable turnover = Sales on account ÷ Average accounts receivable* = $2.000 ÷ $155.94 days d.000 c. Dividend payout ratio. 000 = 0. Return on total assets = ((Net income + (Interest expense x (1 Tax rate))  Average total assets = (($105. h.30))  (($1. i.15 ÷ $63. since the rate of return to the common stockholders (13.000/20.000 shares) = $3. Priceearnings ratio = Market price per share ÷ Earnings per share = $63 ÷ $5.625 to 1 g.8%) was greater than the rate of return on total assets (11.000  [($725.000 = 4. Managerial Accounting.100.000 = 11.67%).00 = 5%. Dividend yield ratio = Dividends paid per share  Market price per share = $3. Return on common stockholders' equity = (Net income – Preferred dividends)  Average common stockholders' equity = $105.15 ÷ ($105. Debttoequity ratio = Liabilities ÷ Stockholders' equity = $500.0. Financial leverage was positive.300.000  $1. Dividend payout ratio = Dividends per share ÷ Earnings per share.25 = 12. j.000)/2)) = $140.e.25 = 60%.000 + (50. Times interest earned = Net operating income ÷ Interest expense = $200.000)/2] = 13.000 + $800.000 ÷ $800.000 ÷ $50.00 times f.15  $5. k. = $3.000 + $1.8% l. 9/e 214 .67%.200.000 x (1 0. . 130 100 Inventory .................. $5 par .180 Total stockholders' equity ................. 1.................... net ....340 215Managerial Accounting.. 180 180 Additional paidin capitalcommon stock .. 290 340 Noncurrent liabilities: Bonds payable ................... 80 110 Total current liabilities ............. and 187 are different versions of the same question......... 10% ...390 $2........................390 $2.... $ 170 $ 160 Accounts receivable............. $ 160 $ 160 Accrued liabilities ..........340 Current liabilities: Accounts payable .....700 1... 9/e ....880 Total assets ......... $2...... 490 460 Noncurrent assets: Plant & equipment.280 1. $2.. 130 130 Prepaid expenses .................................................... 1..............185...................... 690 740 Stockholders' equity: Preferred stock......... 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities .. 60 70 Total current assets ......... 400 400 Total liabilities ..... $5 par........................... 186.......600 Total liabilities & stockholders' equity ..900 1......... Financial statements for Qiang Company appear below: Qiang Company Statement of Financial Position December 31... 1........ 120 120 Common stock........ 120 120 Retained earnings ... net ................ Medium NOTE TO THE INSTRUCTOR: Questions 185........ 50 70 Notes payable... short term .................. ... 19X6 (dollars in thousands) Sales (all on account) ........050 Gross margin ........ d..... Book value per share..1 Managerial Accounting..........Qiang Company Income Statement For the Year Ended December 31. f.... b........500 Cost of goods sold ..... 40 Net income before taxes ..... The market price of a share of common stock on December 31.............14 *Number of common shares outstanding = Common stock ÷ Par value = $180 ÷ $5 = 36 b..................................... 1... Priceearnings ratio.. Answer: a... 69 Net income .................. 180 Net operating income ............. Earnings per share of common stock..... Return on total assets. e...14 = 12. of which $12 thousand were preferred dividends.... Return on common stockholders' equity.... $ 161 Dividends during 19X6 totaled $61 thousand.. $1... Earnings per share = (Net Income Preferred Dividends) ÷ Average number of common shares outstanding* = ($161 $12) ÷ 36 = $4... 9/e 216 ...... Dividend yield ratio........ Required: Compute the following for 19X6: a... 230 Income taxes (30%) . c........... Priceearnings ratio = Market price per share ÷ Earnings per share (see above) = $50 ÷ $4.... 450 Operating expenses . 270 Interest expense ....... 19X6 was $50....................... 365 = 7.c. Return on total assets = Adjusted net income* ÷ Average total assets** = $189 ÷ $2.89 *Number of common shares outstanding = Common stock ÷ Par value = $180 ÷ $5 = 36 217Managerial Accounting.480) ÷ 2 = $1.72% *Dividends per share = Common dividends ÷ Common shares** = $49 ÷ 36 = $1. Book value per share = Common stockholders' equity ÷ Number of common shares outstanding* = $1.530 = 9.580 ÷ 36 = $43. 9/e .99% *Adjusted net income = Net income + [Interest expense x (1Tax rate)] = $161 + [$40 x (1 0.340) ÷ 2 = $2.36 ÷ $50.36 **See above d.390 + $2. Return on common stockholders' equity = (Net income – Preferred dividends) ÷ Average common stockholders' equity* = ($161 $12)÷$1.580 + $1.365 e.530 f. Dividend yield ratio = Dividends per share* ÷ Market price per share = $1.30)] = $189 **Average total assets = ($2.74% *Average common stockholders' equity = ($1.00 = 2. 1. $10 par ... 186........ 10% ............. $2.............010 900 Total stockholders' equity .............. 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ..............................890 1........ net ............ 40 50 Notes payable..... 890 970 Stockholders' equity: Preferred stock... 100 100 Common stock............ 9/e 218 .........................................330 $2.... 30 30 Total current assets . $ 130 $ 120 Accounts receivable.................. 1....... 160 160 Additional paidin capitalcommon stock .....880 Total assets ..............330 Total liabilities & stockholders' equity .................................... and 187 are different versions of the same question.. Financial statements for Qualle Company appear below: Qualle Company Statement of Financial Position December 31.... 110 100 Inventory ... $ 130 $ 130 Accrued liabilities ........186.......... $2....... 440 420 Noncurrent assets: Plant & equipment............ 170 170 Prepaid expenses . 470 500 Total liabilities ..... 420 470 Noncurrent liabilities: Bonds payable ..................300 Managerial Accounting..... Medium NOTE TO THE INSTRUCTOR: Questions 185. 250 290 Total current liabilities ...... net ........ 170 170 Retained earnings ...............330 $2.....................440 1..................... $5 par........ 1... short term .300 Current liabilities: Accounts payable ....... ............ Earnings per share = (Net Income Preferred Dividends) ÷ Average number of common shares outstanding* = ($259 $10) ÷ 16 = $15.... 1.. Priceearnings ratio... Answer: a......................... The market price of a share of common stock on December 31......... Required: Compute the following for 19X6: a. Book value per share.. $2..610 Gross margin ................. $ 259 Dividends during 19X6 totaled $149 thousand...56 *Number of common shares outstanding = Common stock ÷ Par value = $160 ÷ $10 = 16 b.. 19X6 (dollars in thousands) Sales (all on account) .... 19X6 was $280.... Return on total assets...... c.................. 111 Net income .......................300 Cost of goods sold . 50 Net income before taxes . b...... 9/e ........ 420 Interest expense ...0 219Managerial Accounting.. Return on common stockholders' equity................Qualle Company Income Statement For the Year Ended December 31. f..... Priceearnings ratio = Market price per share ÷ Earnings per share (see above) = $280 ÷ $15. 690 Operating expenses ........ Dividend yield ratio.. 370 Income taxes (30%) . d........ e...................56 = 18......... of which $10 thousand were preferred dividends........ Earnings per share of common stock. 270 Net operating income . Book value per share = Common stockholders' equity ÷ Number of common shares outstanding* = $1.300) ÷ 2 = $2.00 = 3.315 = 12. Dividend yield ratio = Dividends per share* ÷ Market price per share = $8.230) ÷ 2 = $1.285 f.69 ÷ $280. Return on common stockholders' equity = (Net income – Preferred dividends) ÷ Average common stockholders' equity* = ($259 $10)÷$1.340 + $1.70% *Adjusted net income = Net income + [Interest expense x (1Tax rate)] = $259 + [$50 x (1 0.330 + $2. 9/e 220 .c.30)] = $294 **Average total assets = ($2.69 **See above d.285 = 19.340 ÷ 16 = $83.315 e.10% *Dividends per share = Common dividends ÷ Common shares** = $139 ÷ 16 = $8. Return on total assets = Adjusted net income* ÷ Average total assets** = $294 ÷ $2.75 *Number of common shares outstanding = Common stock ÷ Par value = $160 ÷ $10 = 16 Managerial Accounting.38% *Average common stockholders' equity = ($1. ... Financial statements for Quade Company appear below: Quade Company Statement of Financial Position December 31. 790 840 Stockholders' equity: Preferred stock......... $ 130 $ 130 Accrued liabilities ..... net ....................................... 80 80 Total current assets ... 186.....................187....220 1. Medium NOTE TO THE INSTRUCTOR: Questions 185.....550 1.............. 1....... and 187 are different versions of the same question...... 460 470 Noncurrent assets: Plant & equipment..... $2...150 Total liabilities & stockholders' equity . 9/e ... 660 590 Total stockholders' equity ..990 Current liabilities: Accounts payable . 280 280 Retained earnings ............ $5 par......010 $1........................... 120 140 Prepaid expenses ...........520 Total assets .................................................... 160 160 Additional paidin capitalcommon stock ................ $10 par ............... 380 400 Total liabilities ... 120 120 Common stock.......... 150 140 Inventory ................990 221Managerial Accounting.... $2........ 1...................... 260 270 Total current liabilities .. $ 110 $ 110 Accounts receivable....... 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ........................... net ...... 20 40 Notes payable....... 410 440 Noncurrent liabilities: Bonds payable ...010 $1..... short term ...... 15% ............... ................ Return on common stockholders' equity....400 Cost of goods sold ........... Priceearnings ratio. 440 Interest expense ......... Earnings per share of common stock.... 400 Income taxes (30%) ..... 1. c.... Book value per share...............................Quade Company Income Statement For the Year Ended December 31.680 Gross margin ....... e. 9/e 222 ....... 720 Operating expenses .... Required: Compute the following for 19X6: a....... 280 Net operating income .... Earnings per share = (Net Income Preferred Dividends) ÷ Average number of common shares outstanding* = ($280 $18) ÷ 16 = $16... $2...... 40 Net income before taxes ..... Return on total assets.... of which $18 thousand were preferred dividends.... 19X6 (dollars in thousands) Sales (all on account) ....38 *Number of common shares outstanding = Common stock ÷ Par value = $160 ÷ $10 = 16 b............ 19X6 was $230................. f..........38 = 14................ b........ Dividend yield ratio.. 120 Net income ....0 Managerial Accounting........ The market price of a share of common stock on December 31.... Priceearnings ratio = Market price per share ÷ Earnings per share (see above) = $230 ÷ $16...... d.. Answer: a.... $ 280 Dividends during 19X6 totaled $210 thousand.. 030) ÷ 2 = $1.c.40% *Adjusted net income = Net income + [Interest expense x (1Tax rate)] = $280 + [$40 x (1 – 0.00 **See above d. Return on total assets = Adjusted net income* ÷ Average total assets** = $308 ÷ $2. Dividend yield ratio = Dividends per share* ÷ Market price per share = $12.75 *Number of common shares outstanding = Common stock ÷ Par value = $160 ÷ $10 = 16 223Managerial Accounting.22% *Dividends per share = Common dividends ÷ Common shares** = $192 ÷ 16 = $12.00 = 5.100 + $1.010 + $1.000 = 15. Return on common stockholders' equity = (Net income – Preferred dividends) ÷ Average common stockholders' equity* = ($280 $18)÷$1.30)] = $308 **Average total assets = ($2.100 ÷ 16 = $68.60% *Average common stockholders' equity = ($1. 9/e . Book value per share = Common stockholders' equity ÷ Number of common shares outstanding* = $1.00 ÷ $230.990) ÷ 2 = $2.065 = 24.000 e.065 f. ................ 50............ of which $5....... net ... 9/e 224 .......000 $500........000 25..000 100....000 Net income .000 Net income before income taxes ......000 Accounts payable ...... 10.000 Additional paidin capital..000 75..000 Bonds payable ...000 Less operating expenses ...... 90.000 Accounts receivable ......... $10 par . Medium Condensed financial statements of Miller Company at the beginning and at the end of the current year are given below: Miller Company Balance Sheet End of Beginning of Current Year Current Year Cash ..188.... 280. 90..000 during the year.. 40...................... $ 80..000 Inventories . 300.. 175. Managerial Accounting.. 75........000 140..000 Net operating income ....000 50...000 Marketable securities .000 110.... $650.................000 100.000 Less cost of goods sold ........... The market price of a share of common stock at the end of the year was $30.000 50... 20.. 100....000 Miller Company Condensed Income Statement For the Current Year Sales (all on account) ...............................000 Gross margin . $ 50. 200....000 Total assets . 100............ $ 10.000 $500..000 Plant and equipment..000 Common stock.....000 Less interest expense ...000 were to preferred stockholders..... 350....000 22.......000 The company paid total dividends of $15...000 Preferred stock... $100 par 50.000 $ 8......000 Accrued shortterm liabilities 20.000 260....... common stock ......000 Retained earnings .000 Total liabilities and equity $550.........000 Less income taxes ...... 10%... 150..000 $ 60... $550............... The inventory turnover for the year would be computed by dividing _______________ by _________________.000 b. $307. d. $350.000.000.Required: On the basis of the information given above. $100. $125. f. c. $375. h. The acidtest (quick) ratio at the end of the current year would be computed by dividing _______________ by _________________. 9/e . fill in the blanks with the appropriate figures. $30 225Managerial Accounting. 10. Answer: a.000. The debttoequity ratio at the end of the current year would be computed by dividing _______________ by _________________.000 a.000 f. $175. $100.000 g. $650. g. $ 45. $ 10. $ 45.000. The accounts receivable turnover for the year would be computed by dividing _______________ by _________________. b. $120. The dividend yield would be computed by dividing _______________ by _________________. $1.000 c. The times interest earned for the year would be computed by dividing _______________ by _________________. e.000 by $100.000.000. The return on common stockholders' equity for the year would be computed by dividing _______________ by _________________.000 shares e. Example: The current ratio at the end of the current year would be computed by dividing $270.000.500 h. The earnings per share of common stock would be computed by dividing _______________ by _________________. $100.000 d. Raritron has submitted financial data for the past several years. Identify the two ratios from the above list that would be of most interest to longterm creditors... 10....15 38.70 2.. Industry 1993 1992 1991 Average Return on common stockholders’ equity . a manufacturer of construction equipment is considering the purchase of one of its suppliers.. Identify the two ratios from the above list that would be of most interest to shortterm creditors..25 7...78 Current ratio ........23 11.56 Priceearnings ratio ... 3. Shelzo's controller has analyzed Raritron's financial statements and prepared the following ratio analysis comparing Raritron's performance with the industry averages.. 0.06 2.. and several discussions have taken place between the management of both companies. 2.28 3..65 1.189. 2.. i.? Answer: A.. 2. 1.. The current ratio is calculated by dividing current assets by current liabilities.54 Debttoequity ratio .50 0.83 7. 6..... 3.e. the ability to meet current obligations..96 11. 2.. 3..02 12....03 13.46 3. Hard CMA adapted Shelzo Inc. What do these two ratios indicate about Shelzo Inc..29 42...? C... Explain what these two ratios measure..25 Required: Using the information provided above for Raritron Industries: A.98 7. This ratio measures the length of time it takes on average to sell inventory and is a gauge of how well the company manages its inventory. What do these two ratios indicate about Shelzo Inc..98 12.16 47.....12 2..30 Dividend yield ratio . 3.39 11.. 1..46 0.... Two ratios that would be of most interest to shortterm creditors would be the average sale period and the current ratio.. Explain what these two ratios measure.96 Average sale period . The average sale period relates the average amount of inventory to the cost of goods sold.? B. 2.08 2.87 3. The purchase has been given preliminary approval by Shelzo's Board of Directors.63 Times interest earned .. Managerial Accounting. Explain what these three ratios measure.... 1... 13.48 0. 1. Raritron Industries..95 1...... Identify the three ratios from the above list that would be of most interest to stockholders. This ratio measures shortrun solvency... 1..... 9/e 226 . What do these three ratios indicate about Shelzo Inc... 51....57 Accounts receivable turnover .... the priceearnings ratio.. the company will be able to refinance or obtain new funds at reasonable rates. The lower the level of the debttoequity ratio. while the current ratio has been below the industry average. The dividend yield ratio tells us what proportion of the company’s profits are paid out as cash dividends to common stockholders. The return on common stockholders’ equity is a measure of how effectively the company has used the stockholders’ investment in the company to generate profits. and the dividend yield ratio. times interest earned has been improving and is currently above the industry average. If stable. 3. These three ratios are close to the industry averages and there are no discernible significant trends. the more favorable the future looks for the company. The price earnings ratio provides a measure of how the stock market perceives the company’s future earnings prospects. Times interest earned is earnings before interest expense and taxes divided by interest expense. B. the more security longterm debtors have. The higher the ratio. 2. 1. The two ratios that would be of most interest to long term creditors are times interest earned and the debtto equity ratio. The debttoequity ratio measures the relative proportions of debt and equity in the company’s capital structure. 3. For Shelzo Inc. Both of these ratios indicate that there may be problems with the company’s liquidity position.. indicating that the company should be able to borrow additional funds if needed. For Shelzo Inc. the average sale period has been increasing and is well above the industry average. 2. The three ratios that would be of most interest to common stockholders are the return on common stockholders’ equity. 227Managerial Accounting. 9/e . 3. 1. This ratio measures debt paying ability. The company’s debttoequity ratio is below the industry average which also indicates the company has the capacity to perhaps take on additional debt. C. This could be caused by poor inventory control. . 162 150 Land.............. Acidtest (quick) ratio....... 195 170 Retained earnings ............ 22 Net income ...................... $ 71 Operating expenses (including interest expense of $5..... $ 538 $ 430 Accounts payable .....000)............ $ 36 $ 40 Notes payable................. 67 60 Longterm investments..000 for the year.. 24 30 Bonds payable................ f........... $ 45 $ 30 Accounts receivable.... Medium Financial statements for Lowe Company appear below: Lowe Company Statement of Financial Position December 31...............12%. 128 100 Building......... 55 Income taxes (40%) ....... 9/e 228 .............................................................................. Inventory turnover.................... c........ e..... 48 40 Total liabilities & stockholders' equity............ Year 2 (dollars in thousands) Sales (all on account) .. 16 Net income before taxes ..... short term .................000 was paid to the preferred stockholder... of which $12...... 100 0 Preferred stock...................................................... 38 40 Inventory ........................................... d..... Return on total assets............. Current ratio..................... $ 33 Dividends totaled $25..... 98 50 Total assets.. g..............................190.......................... Timesinterestearned ratio............... net . $145 Cost of goods sold ..... $ 538 $ 430 Lowe Company Income Statement For the Year Ended December 31..... 100 100 Common stock... b.... Average collection period (age of receivables)................... Debttoequity ratio. Year 2 and Year 1 (dollars in thousands) Year 2 Year 1 Cash... Required: Compute the following for Year 2: a... Managerial Accounting....... 35 50 Mortgage payable. 74 Gross margin ................... 72 = 98.5 = 1.00 times g.38 to 1 *Quick assets = Cash + Current receivables = $45 + $38 = $83 c. Current ratio = Current assets ÷ Current liabilities = ($45 + $38 + $67) ÷ ($36 + $24) = 2. f. 9/e . Return on total assets = ((Net income + (Interest expense x (1 tax rate))  Average total assets = (($33 + ($5 x (1 0.5 to 1 b.Answer: a. Accounts receivable turnover = Sales on account ÷ Average accounts receivable* = $145 ÷ $39 = 3.40))  (($538 + $430)/2)) = $36  $484 = 7.72 times *Average accounts receivable = ($38 + $40) ÷ 2 = $39 Average collection period = 365 days ÷ Accounts receivable turnover = 365 ÷ 3.57 to 1 229Managerial Accounting. Times interest earned = Earnings before interest and taxes ÷ Interest expense = ($55 + $5) ÷ $5 = 12.5 e.1 days d. Inventory turnover = Cost of goods sold ÷ Average inventory* = $74 ÷ $63.4%. Acidtest ratio = Quick assets* ÷ Current liabilities = $83 ÷ ($36 + $24) = 1. Debttoequity ratio = Liabilities ÷ Stockholders' equity = ($36 + $24 + $35 + $100) ÷ ($100 + $195 + $48) = $195 ÷ $343 = 0.17 times *Average inventory = ($67 + $60) ÷ 2 = $63. The tax rate is 40%..000 each year before interest and taxes.. b. Assuming that the estimates are correct...000 Deduct income taxes (40%). c.000 $135. $175..000 o Net income to common stockholders..10 x $400.. Why do methods B and C provided a greater return on common equity than does method A? Why does method C provide a greater return on common equity than method B? Answer: a... $175... $105.... All $800..000 $175..000 with the other $400.000 Income before taxes.. c.. Three methods are available to finance the new company: a. Net income available to common stockholders: Method A Method B Method C Income before interest and taxes. l0% preferred stock...000 could be obtained through the issuance of common stock. The investors are confident that the company could earn $175.000 54.000 $ 65.. Common stock could be issued to provide $40...000 $175. The investors feel that $800. Medium Several investors are in the process of organizing a new company.... 9/e 230 .....000........000 $ 81.000 $105..... Required: a....000 $175.....000 Deduct interest expense: 0.000 Net income.....000 obtained by issuing $100 par value............000 obtained by issuing bonds with an interest rate of 10%.000 Managerial Accounting.. Common stock could be issued to provide $400.000 with the other $400. o 40... 70. compute the net income available to common stockholders under each of the three financing methods proposed above.191. $105..000 Deduct preferred dividends: 0. Using the income data computed in (a) above.000 would be adequate to finance the new company's operations..000 70.. ________ ________ 40.......000 $ 81.10 x $400....... b. compute the return on common stockholders’ equity under each of the three methods.000...... 25% 20.. 9/e . Methods B and C provide a greater return on common equity than Method A due to the effect of positive leverage..000 Return on common equity.. 13. Method C uses debt and provides more leverage than Method B in which preferred stock is issued.000 Common stockholders' investment.000 $400.b. $800..000 $400.. Methods B and C each contain sources of funds that require a fixed annual return on the funds provided.. with the difference going to common stockholders... 231Managerial Accounting. The difference is due to the deductibility for tax purposes of the interest on debt. whereas dividends on preferred stock are not deductible for tax purposes.000 $ 81.25% c... This fixed annual return is less than what is being earned on the assets of the company. Return on common equity: Method A Method B Method C Net income to common stockholders $105.10% 16...000 $ 65. .............................................. $ 224 Managerial Accounting.......330 Gross margin ................... 260 260 Retained earnings . net ............................... $2.................. 110 110 Total current liabilities . $ 140 $ 140 Accounts receivable. net .........040 $2........................ and 194 are different versions of the same question.........010 Raridan Company Income Statement For the Year Ended December 31........... 550 560 Stockholders' equity: Preferred stock........... 280 300 Total liabilities ... $10 par .... 1............................................. 50 40 Notes payable....................... 193..... 1.................................. $ 110 $ 110 Accrued liabilities .... 270 260 Noncurrent liabilities: Bonds payable ....... 5% ............................. 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ... 910 870 Total stockholders' equity ......................... 1.............. 30 Net income before taxes ..... 500 490 Noncurrent assets: Plant & equipment.. 320 Income taxes (30%) .. Financial statements for Raridan Company appear below: Raridan Company Statement of Financial Position December 31..... 190 170 Inventory ....... short term ...... 19X6 (dollars in thousands) Sales (all on account) ..... 120 120 Common stock.......010 Current liabilities: Accounts payable ..... $1. 96 Net income .........040 $2.... Medium NOTE TO THE INSTRUCTOR: Questions 192.... $10 par......... $2.. 350 Interest expense ..........520 Total assets ... 70 70 Total current assets .............900 Cost of goods sold .... 220 Net operating income ..............540 1........ 570 Operating expenses ..... 9/e 232 ...490 1....192....................................................................... 100 110 Prepaid expenses .....450 Total liabilities & stockholders' equity . 200 200 Additional paidin capitalcommon stock ........... Required: Compute the following for 19X6: a. Current ratio. b. Acidtest (quick) ratio. c. Average collection period (age of receivables). d. Inventory turnover. e. Times interest earned. f. Debttoequity ratio. Answer: a. Current ratio = Current assets ÷ Current liabilities = $500 ÷ $270 = 1.85 to 1 b. Acidtest ratio = Quick assets* ÷ Current liabilities = $330 ÷ $270 = 1.22 to 1 *Quick assets = Cash + Marketable securities + Current receivables = $140 + $190 = $330 c. Accounts receivable turnover = Sales on account ÷ Average accounts receivable* = $1,900 ÷ $180 = 10.56 times *Average accounts receivable = ($190 + $170) ÷ 2 = $180 Average collection period = 365 days ÷ Accounts receivable turnover = 365 ÷ 10.56 = 34.6 days d. Inventory turnover = Cost of goods sold ÷ Average inventory* = $1,330 ÷ $105 = 12.67 times *Average inventory = ($100 + $110) ÷ 2 = $105 e. Times interest earned = Net operating income ÷ Interest expense = $350 ÷ $30 = 11.67 times f. Debttoequity ratio = Liabilities ÷ Stockholders' equity = $550 ÷ $1,490 = 0.37 to 1 233Managerial Accounting, 9/e 193. Medium NOTE TO THE INSTRUCTOR: Questions 192, 193, and 194 are different versions of the same question. Financial statements for Rarig Company appear below: Rarig Company Statement of Financial Position December 31, 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ............ $ 210 $ 190 Accounts receivable, net .................. 160 150 Inventory ................................. 190 180 Prepaid expenses .......................... 30 30 Total current assets .................... 590 550 Noncurrent assets: Plant & equipment, net .................... 1,500 1,470 Total assets ................................ $2,090 $2,020 Current liabilities: Accounts payable .......................... $ 170 $ 190 Accrued liabilities ....................... 60 60 Notes payable, short term ................. 80 120 Total current liabilities .............. 310 370 Noncurrent liabilities: Bonds payable ............................. 460 500 Total liabilities ....................... 770 870 Stockholders' equity: Preferred stock, $5 par, 15% .............. 100 100 Common stock, $5 par ...................... 160 160 Additional paidin capital—common stock .. 110 110 Retained earnings ......................... 950 780 Total stockholders' equity .............. 1,320 1,150 Total liabilities & stockholders' equity .... $2,090 $2,020 Rarig Company Income Statement For the Year Ended December 31, 19X6 (dollars in thousands) Sales (all on account) ................... $1,800 Cost of goods sold ....................... 1,260 Gross margin ............................. 540 Operating expenses ....................... 210 Net operating income ..................... 330 Interest expense ......................... 50 Net income before taxes .................. 280 Income taxes (30%) ....................... 84 Net income ............................... $ 196 Managerial Accounting, 9/e 234 Required: Compute the following for 19X6: a. Current ratio. b. Acidtest (quick) ratio. c. Average collection period (age of receivables). d. Inventory turnover. e. Times interest earned. f. Debttoequity ratio. Answer: a. Current ratio = Current assets ÷ Current liabilities = $590 ÷ $310 = 1.90 to 1 b. Acidtest ratio = Quick assets* ÷ Current liabilities = $370 ÷ $310 = 1.19 to 1 *Quick assets = Cash + Marketable securities + Current receivables = $210 + $160 = $370 c. Accounts receivable turnover = Sales on account ÷ Average accounts receivable* = $1,800 ÷ $155 = 11.61 times *Average accounts receivable = ($160 + $150) ÷ 2 = $155 Average collection period = 365 days ÷ Accounts receivable turnover = 365 ÷ 11.61 = 31.4 days d. Inventory turnover = Cost of goods sold ÷ Average inventory* = $1,260 ÷ $185 = 6.81 times *Average inventory = ($190 + $180) ÷ 2 = $185 e. Times interest earned = Net operating income ÷ Interest expense = $330 ÷ $50 = 6.60 times f. Debttoequity ratio = Liabilities ÷ Stockholders' equity = $770 ÷ $1,320 = 0.58 to 1 235Managerial Accounting, 9/e 194. Medium NOTE TO THE INSTRUCTOR: Questions 192, 193, and 194 are different versions of the same question. Financial statements for Rarity Company appear below: Rarity Company Statement of Financial Position December 31, 19X6 and 19X5 (dollars in thousands) 19X6 19X5 Current assets: Cash and marketable securities ............ $ 210 $ 180 Accounts receivable, net .................. 130 120 Inventory ................................. 90 110 Prepaid expenses .......................... 70 70 Total current assets .................... 500 480 Noncurrent assets: Plant & equipment, net .................... 1,440 1,400 Total assets ................................ $1,940 $1,880 Current liabilities: Accounts payable .......................... $ 180 $ 170 Accrued liabilities ....................... 60 80 Notes payable, short term ................. 240 240 Total current liabilities .............. 480 490 Noncurrent liabilities: Bonds payable ............................. 480 500 Total liabilities ....................... 960 990 Stockholders' equity: Preferred stock, $10 par, 5% .............. 100 100 Common stock, $5 par ...................... 220 220 Additional paidin capitalcommon stock .. 200 200 Retained earnings ......................... 460 370 Total stockholders' equity .............. 980 890 Total liabilities & stockholders' equity .... $1,940 $1,880 Rarity Company Income Statement For the Year Ended December 31, 19X6 (dollars in thousands) Sales (all on account) ................... $1,100 Cost of goods sold ....................... 770 Gross margin ............................. 330 Operating expenses ....................... 130 Net operating income ..................... 200 Interest expense ......................... 50 Net income before taxes .................. 150 Income taxes (30%) ....................... 45 Net income ............................... $ 105 Managerial Accounting, 9/e 236 f. Times interest earned = Net operating income ÷ Interest expense = $200 ÷ $50 = 4.98 to 1 237Managerial Accounting. Answer: a.00 times f.80 times *Average accounts receivable = ($130 + $120) ÷ 2 = $125 Average collection period = 365 days ÷ Accounts receivable turnover = 365 ÷ 8. Current ratio. Inventory turnover. Acidtest ratio = Quick assets* ÷ Current liabilities = $340 ÷ $480 = 0.100 ÷ $125 = 8.5 days d. Times interest earned.80 = 41. c.70 times *Average inventory = ($90 + $110) ÷ 2 = $100 e. e. 9/e . Current ratio = Current assets ÷ Current liabilities = $500 ÷ $480 = 1. Debttoequity ratio = Liabilities ÷ Stockholders' equity = $960 ÷ $980 = 0.Required: Compute the following for 19X6: a. Average collection period (age of receivables).71 to 1 *Quick assets = Cash + Marketable securities + + Current receivables = $210 + $130 = $340 c. Debttoequity ratio. Inventory turnover = Cost of goods sold ÷ Average inventory* = $770 ÷ $100 = 7.04 to 1 b. d. Accounts receivable turnover = Sales on account ÷ Average accounts receivable* = $1. Acidtest (quick) ratio. b. 9/e 238 .Managerial Accounting.

Test Bank - Chapter18 FS Analysis

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