Financial And Managerial Accounting Ch 14 Flashcards
Liquidity =
Liquidity =
measures short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash
Ratios include the current ratio, the acid-test ratio, accounts receivable turnover, and inventory turnover.
Profitability =
Profitability =
measures the income or operating success of a company for a given period of time
Ratios include the profit margin, asset turnover, return on assets, return on common stockholders’ equity, earnings per share, price-earnings ratio, and payout ratio.
Solvency =
Solvency =
measures the ability of the company to survive over a long period of time
Debt to Assets and Times Interest Earned are two ratios that provide information about debt-paying ability.
Swiss Clothing Store had a balance in the Accounts Receivable account of €920,000 at the beginning of the year and a balance of €980,000 at the end of the year. Net credit sales during the year amounted to €6,650,000. The average collection period of the receivables in terms of days was:
a. 30 days
b. 50.7 days
c. 53.7 days
d. 52.1 days
Swiss Clothing Store had a balance in the Accounts Receivable account of €920,000 at the beginning of the year and a balance of €980,000 at the end of the year. Net credit sales during the year amounted to €6,650,000. The average collection period of the receivables in terms of days was:
d. 52.1 days
Accounts receivalbles turnover = net credit sales / average net accounts receivable
6650000 / ((920000+980000)/2) = 7
Turn into days: 365 / 7 = 52,1
Net sales are ¥8,000,000, beginning total assets are ¥2,500,000, and the average asset turnover is 4.0 times. What is the ending total asset balance?
a. ¥1,500,000
b. ¥2,800,000
c. ¥2,500,000
d. ¥2,000,000
Net sales are ¥8,000,000, beginning total assets are ¥2,500,000, and the average asset turnover is 4.0 times. What is the ending total asset balance?
a. ¥1,500,000
¥8,000,000 / ((¥2,500,000+x)/2) = 4
x = ¥1,500,000
A company has an average inventory on hand of €60,000 and the days in inventory is 73 days. What is the cost of goods sold?
a. €300,000
b. €4,380,000
b. €2,190,000
d. €600,000
A company has an average inventory on hand of €60,000 and the days in inventory is 73 days. What is the cost of goods sold?
a. €300,000
Calculate inventory turnover: 365 / 73 = 5
inventory turnover = COGS / average inventory
COGS = average inventory x inventory turnover
60000 x 5 = 300 000
If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have onthe ratio?
Short-term Borrowing Collection of Receivable
a. decrease ———- no effect
b. increase ———- increase
c. decrease ———- decrease
d. increase ———- no effect
If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?
Short-term Borrowing Collection of Receivable
a. decrease ———- no effect
acid test ratio = (cash + short term investments + accounts receivable) / current liabilities
A company reported the following on its income statement:
Income before income taxes: HK$600,000
Income tax expense: 150,000
Net income: HK$450,000
An analysis of the income statement revealed that interest expense was HK$60,000. The times interest earned was:
a. 7.5 times
b. 11 times
c. 8.5 times
d. 10 times
A company reported the following on its income statement:
Income before income taxes: HK$600,000
Income tax expense: 150,000
Net income: HK$450,000
An analysis of the income statement revealed that interest expense was HK$60,000. The times interest earned was:
b. 11 times
times interest earned = income before income taxes and interest expense / interest expense
(600 000 + 60 000) / 60 000 = 11
Comparisons of data within a company are an example of the following comparative basis:
a. industry averages
b. intracompany
c. interompany
d. both b. and c.
Comparisons of data within a company are an example of the following comparative basis:
b. intracompany
In horizontal analysis, each item is expressed as a precentage of a:
a. net income amount
b. equity amount
c. total assets amount
d. base year amount
In horizontal analysis, each item is expressed as a precentage of a:
d. base year amount
Horizontal analysis converts each succeeding years balance to a percentage of the base year amount.
Sammy plc reported net sales of 300 000 EUR, 330 000 EUR, and 360 000 EUR in the years 2018, 2019, and 2020 respectively. If 2018 is the base year, what is the trend percentage for 2020?
a. 77%
b. 108%
c. 120%
d. 130%
Sammy plc reported net sales of 300 000 EUR, 330 000 EUR, and 360 000 EUR in the years 2018, 2019, and 2020 respectively. If 2018 is the base year, what is the trend percentage for 2020?
c. 120%
360 000 / 300 000 = 120%
The following schdule is an example of what kind type of analysis?
a. horizontal analysis
b. differential analysis
c. vertical analysis
d. ratio analysis
The following schdule is an example of what kind type of analysis?
c. vertical analysis
The data in the schedule is a display of vertical analysis because the individual asset items are expressed as a percentage of total assets. Horizontal analysis is a technique for evaluating a series of data over a period of time.
In vertical analysis, the base amount for depreciation expense is generally:
a. net sales
b. depreciation expense in a previous year
c. gross profit
d. fixed assets
In vertical analysis, the base amount for depreciation expense is generally:
a. net sales
In vertical analysis, net sales is used as the base amount for income statement items.
Which of the following measures is an evaluation of a firms abilty to pay current liabilities?
a. acid-test ratio
b. current ratio
c. both a. and b.
d. none of the above
Which of the following measures is an evaluation of a firms abilty to pay current liabilities?
c. both a. and b.
a. acid-test ratio
b. current ratio
A measure useful in evaluating the efficiency in managing inventories is:
a. inventory turnover
b. days in inventory
c. both a. and b.
d. none of the above
A measure useful in evaluating the efficiency in managing inventories is:
c. both a. and b.
a. inventory turnover
b. days in inventory
Compute the days in inventory for 2020:
a. 64,4 days
b. 60,8 days
c. 6 days
d. 24 days
Compute the days in inventory for 2020:
b. 60,8 days
inventory turnover = COGS / average inventory
306000 / ((54000 + 48000)/2) = 6
days in inventory = 365 / 6 = 60,8
Compute the current ratio for 2020:
a. 1,26:1
b. 3,0:1
c. 0,8:1
d. 3,75:1
Compute the current ratio for 2020:
b. 3,0:1
current ratio = current assets / current liabilities
81 000 / 27 000 = 3,0:1
Compute the profit margin for 2020:
a. 17,1%
b. 18,1%
c. 37,9%
d. 5,9%
Compute the profit margin for 2020:
a. 17,1%
profit margin = net income / net sales
134000 / 784000 = 17,1%
Compute the return on ordinary shareholders equity for 2020:
a. 47,9%
b. 51,7%
c. 61,2%
d. 59,4%
Compute the return on ordinary shareholders equity for 2020:
d. 59,4%
return on common stockholders equity = net income - preference dividends / average common stockholders equity
134000-4000 / ((240000 + 198000)/2) = 59,4%
Compute the times interest earned for 2020:
a. 11,2 times
b. 65,3 times
c. 14,0 times
d. 13,0 times
Compute the times interest earned for 2020:
c. 14,0 times
times interest earned = income before income taxes and interest expense / interest expense
(134000 + 12000 + 22000) / 12000 = 14,0 times
