Exam II Material

Question 1

What is a Liquidity Ratio?

Answer 1

This measures a company’s capacity to pay its debts as they come due. There are only two liquidity ratios.

Question 2

Define a current ratio.

Answer 2

gauges how able a business is to pay current liabilities by using current assets only.

Question 3

How do you find current ratio?

Answer 3

Total Current Assets/Total current liabilities

Question 4

Define quick ratio.

Answer 4

Indicates the extent to which you could pay current liabilities without relying on the sale of inventory.

Question 5

How do you find quick ratio?

Answer 5

Cash+Accounts Receivable+any quick assets/Current Liabilities

Question 6

What are quick assets?

Answer 6

everything that is not inventory or classified under inventory.

Question 7

What are safety ratios?

Answer 7

Indicates a company’s vulnerability to risk–the degree of protection provide for the business debt.

Question 8

What are profitability ratios?

Answer 8

The company’s ability to generate a return on its resources .

Question 9

What are efficiency ratios?

Answer 9

Evaluates how well the company manages its assets.

Question 10

Define accounts receivable turnover.

Answer 10

The number of times accounts receivable are paid and reestablished during the accounting period.

Question 11

How to you find accounts receivable turnover?

Answer 11

Total net sales(Revenue)/Average accounts receivable

Question 12

Define accounts receivable collection period.

Answer 12

Reveals how many days it takes to collect all accounts receivable.

Question 13

How do you fine accounts receivable collection period?

Answer 13

365 Days/Accounts receivable

Question 14

How do you find accounts receivable turnover?

Answer 14

Sales of that year/the average of sales that year minus the average of sales the previous year.

Question 15

Define Inventory Turnover.

Answer 15

Shows how many times in one accounting period the company turns over (sells) its inventory. How many times you buy something sell it then buy it again.

Question 16

How do you find inventory turnover?

Answer 16

Cost of goods sold/average inventory

Question 17

How do you find average inventory?

Answer 17

Beginning of the year+end of the year/2

Question 18

Define inventory turnover in days.

Answer 18

The average length of time in days t takes the inventory to turn over.

Question 19

How do you find inventory turnover in days?

Answer 19

365 Days/Inventory turnover

Question 20

What does ROT mean?

Answer 20

Return on investment

Question 21

How do you find the ROI?

Answer 21

Net income after tax/total owners equity.

Question 22

What is the break even point?

Answer 22

when you are at zero

Question 23

How do you find CMU or Contribution Margin Per Unit

Answer 23

Price of 1 - Variable Cost

Question 24

What is contribution margin?

Answer 24

A cost accounting concept that allows a company to determine the profitability.

Question 25

Units (price-var cost per unit)-fixed cost= ?

Answer 25

Net Income

Question 26

Units(CMU)-fixed= ?

Answer 26

Net Income

Question 27

Fixed+Net Income= ?

Answer 27

Units (CMU)

Question 28

What is fixed cost behavior?

Answer 28

A cost that does not change with an increase or decrease in the amount of goods or services produced.

Question 29

Total Cost

Answer 29

Does not change regardless of volume.

Question 30

Variable Cost is

Answer 30

The total cost does not change with volume.

Question 31

(Variable Cost per unit*Units)+fixed cost= ?

Answer 31

Total Cost

Question 32

How do you find the break even point?

Answer 32

Price (for 1)-variable cost(per unit)