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Exam 13: Analyzing Financial Statements

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Question 51

Multiple Choice

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The cash payment of a previously declared dividend increases which of the following ratios?

A) Debt-to-equity.
B) Earnings per share.
C) Price/earnings ratio.
D) Asset turnover.

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

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Question 52

Multiple Choice

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

A) Collecting an account receivable.
B) Purchasing inventory on account.
C) Accruing revenue earned at year-end.
D) Selling inventory on account at the cost of the inventory.

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

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Question 53

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Finding comparable companies in order to compare performance is important because ratios in isolation are difficult to evaluate.

The quality of income ratio increases when net income increases.

At the end of 2014, Doran Corporation reported net income of $70,000, gross sales revenue of $1,525,000, and sales returns of $125,000. Required: Calculate the profit margin ratio.

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

Purchasing treasury stock increases the return on equity ratio.

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

The following data were reported for Favre Company: $\begin{array} { l l } \text { Net income } & \$ 275,000 \\\text { Total dividends declared and paid on common stock } & \$ 0.60 \text { per share } \\\text { Common stock, par } \$ 10 & \$ 1,750,000 \\\text { Market price } & \$ 20.00 \text { per share } \\\text { Cash flows from operating activities } & \$ 280,000\end{array}$ Required: Calculate each of the following ratios. Round your answers to two decimal places. A. Dividend yield B. Price/earnings ratio C. Quality of income

A very high current ratio and low quick ratio may indicate the company is not collecting its accounts receivables in a timely manner.

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

Which of the following is false?

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

Which of the following statements is incorrect?

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

The records of Marshall Company include the following: $\begin{array} { l r } \text { Average total assets } & \$ 3,500,000 \\\text { Average total liabilities } & 1,220,000 \\\text { Total revenue } & 4,580,000 \\\text { Total expense (including income tax) } & 4,100,000 \\\text { Interest expense (included in total expenses) } & 90,000 \\\text { Income tax rate } 40 \% &\end{array}$ The return on equity is closest to:

Polk Corporation reported the following information related to its common stock (par $10) outstanding and net income: $\begin{array} { l r } \text { Total stockholders' equity (no preferred stock) } & \$ 125,000 \\\text { Current market price per share of common stock } & \$ 40.00 \\\text { Dividends declared and paid during 2015 } & \$ 10,000 \\\text { Balance in the common stock account } & \$ 40,000 \\\text { Net income } & \$ 35,000\end{array}$ Required: Calculate each of the following ratios. Round your answers to two decimal places. A. Price/earnings ratio B. Dividend yield

Which of the following is not a measure of solvency?

Cromwell Company began the year with a balance in inventory of $110,000 and ended the year with a balance of $102,000. The net sales for the year were $983,000 with a gross profit on sales of $295,000. The inventory turnover ratio is closest to:

Which ratio reflects the stock market's assessment of a company's future performance?