Devry FIN 382 Week 8 Final Exam

1) (TCO 5) Szabo Company computed the following data for 2003:

• Days’ sales in receivables: 38.7 days
• Accounts receivable turnover: 9.6 times
• Accounts receivable turnover in days: 35.3 days
• Days’ sales in inventory: 68.5 days
• Merchandise inventory turnover: 5.9 times
• Inventory turnover in days: 58.9 days

The estimated operating cycle for 2003 is: (Points : 20)

2) (TCO 4) Smith Company presents the following data for 2006.

• Inventories, beginning of year: $310,150
• Inventories, end of year: $340,469
• Cost of goods sold: $2,103,696
• Net sales: $8,690,150

The number of days’ sales in inventory is: (Points : 20)

3) (TCO 6) A summarized income statement for Leveraged Inc. is presented below.

• Sales $1,000,000
• Cost of Sales 600,000
• Gross Profit 400,000
• Operating Expenses 250,000
• Operating Income 150,000
• Interest Expense 30,000
• Earnings Before Tax 120,000
• Income Tax 40,000
• Net Income 80,000

The degree of financial leverage is: (Points : 20)

4) (TCO 7) Smith reported the following for 2006.

• Beginning market price $20.00
• Average market price 24.00
• Ending market price 26.00
• Earnings per share:
• Basic 1.80
• Diluted 1.60
• Cash dividends per share 1.00

The price earnings ratio and dividend payout were: (Points : 20)

Question 1. (TCO 7) The assumption that allows accountants to accept some inaccuracy because of incomplete information about the future in exchange for timelier reporting is (Points : 5)

• time period.
• business entity.
• realization.
• materiality.

Question 2. (TCO 7) The most significant, current source of generally accepted accounting principles is the (Points : 5)

• New York Stock Exchange.
• AICPA.
• Accounting Research Studies.
• Financial Accounting Standards Board.

Question 3. (TCO 7) The statement of cash flows includes not only cash, but also (Points : 5)

• long term, highly liquid assets.
• short term, non liquid assets.
• short term, highly liquid investments.
• None of the above

Question 4. (TCO 7) Denver Dynamics has a net income of $2,000,000. Oakland Enterprises has a net income of $2,500,000. Which of the following best compares the profitability of Denver to Oakland? (Points : 5)

• Oakland Enterprises is 25% more profitable than Denver Dynamics.
• Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can’t be quantified.
• Oakland Enterprises is more profitable only if it is smaller than Denver Dynamics.
• Further information is needed for a reasonable comparison.
• Oakland Enterprises is more profitable if it is a larger firm than Denver Dynamics.

Question 5. (TCO 7) Which of the following is a false statement, as it relates to analysis? (Points : 5)

• If merchandise with a 20% markup is sold on credit, it would take ten successful sales of the same amount to make up for one sale not collected.
• Equity capital provides creditors with a cushion against loss.
• There is a difference between the objectives sought by short-term grantors of credit and those sought by long-term grantors of credit.
• The financial structure of the entity is of interest to creditors.

Question 6. (TCO 7) Which of the following can offer a type of comparison in financial statement analysis? (Points : 5)

• Industry averages
• Stand-alone results during the current year
• Forecasts
• None of the above

Question 7. (TCO 1) Which of the following is not a source of industry statistics? (Points : 5)

• The Department of Commerce Financial Report
• Standard and Poor’s Industry Surveys
• Value Line
• Annual Statement Studies
• Mergent Dividend Record

Question 8. (TCO 7) A manufacturing firm will most likely have the heaviest investment in which type of assets? (Points : 5)

• Cash
• Inventory
• Accounts receivable
• Investments
• Plant, property, and equipment

Question 9. (TCO 2) A times interest earned ratio of 0.90 to 1 means (Points : 5)

• that the firm will default on its interest payment.
• that net income is less than the interest expense.
• that the cash flow is less than the net income.
• that the cash flow exceeds the net income.
• None of the above

Question 10. (TCO 2) Which of the following statements best compares long-term borrowing capacity ratios? (Points : 5)

• The debt/equity ratio is more conservative than the debt ratio.
• The debt ratio is more conservative than the debt/equity ratio.
• The debt/equity ratio is more conservative than the debt to tangible net worth ratio.
• The debt to tangible net worth ratio is more conservative than the debt/equity ratio.
• The debt ratio is more conservative than the debt to tangible net worth ratio.

Question 11. (TCO 3) Times interest earned should be computed for a period of three to five years and should be compared to competitors in order to (Points : 5)

• evaluate the adequacy of coverage.
• provide insight on the stability of interest coverage.
• help compare industry averages.
• All of the above

Question 12. (TCOs 2 and 3) The difference between times interest earned and fixed charge coverage is that fixed charge includes (Points : 5)

• none of the operating leases.
• all of the operating leases.
• some of the operating leases.
• operating leases and equipment leases.

Question 13. (TCO 2) Which of the following is included in operating income? (Points : 5)

• Interest income for a manufacturing firm
• Rent income for a leasing subsidiary
• Dividend income for a service firm
• None of the above

Question 14. (TCOs 1 and 2) Which of the following is classified as an extraordinary item on the income statement? (Points : 5)

• Loss from a strike
• Loss on a segment of the business
• Correction of an error related to prior period
• Loss from prohibition of a product

Question 15. (TCO 1) A potential problem that exists when reporting joint ventures is (Points : 5)

• liabilities that do not appear on the balance sheet.
• assets that do not appear on the balance sheet.
• ventures that do not appear on the balance sheet.
• liabilities that do appear on the balance sheet.

 

Question 16. (TCO 3) The most popular depreciation method for financial reporting is (Points : 5)

• straight line.
• double declining.
• units of production.
• sum of the years.

Question 17. (TCO 7) Smith Company had retained earnings of $60,000 at the end of the current year. For the current year, income was $30,000, and dividends were $10,000. What was the balance in retained earnings at the end of the prior year? (Points : 5)

• $40,000
• $20,000
• $60,000
• $20,000

Question 18. (TCO 5) Working capital of a business is (Points : 5)

• the excess of current liabilities over current assets.
• the excess of assets over liabilities.
• the excess of current assets over current liabilities.
• the excess of liabilities over assets.

Question 19. (TCO 5) Which of the following is considered the most indicative of a firm’s short-term debt paying ability? (Points : 5)

• Current ratio
• Acid test
• Cash ratio
• Working capital

Question 20. (TCO 5) A comparison of current assets with current liabilities gives an indication of (Points : 5)

• long-term debt paying ability.
• overall debt paying ability.
• short-term debt paying ability.
• no debt paying ability.

Question 21.  (TCO 5) Investments classified as marketable securities should be (Points : 5)

• temporary.
• long-term.
• permanent.
• None of the above

Question 22. (TCOs 5 and 6) The most important asset in determining the short-term paying ability of a firm is (Points : 5)

• receivables.
• cash.
• inventory.
• current assets.

Question 23. (TCO 6) If days’ sales in receivables are materially longer than the credit terms, this indicates (Points : 5)

• a collection problem.
• a debt problem.
• an asset problem.
• None of the above

Question 24. (TCO 6) Which of the following ratios does not represent some form of comparison between accounts in current assets and accounts in current liabilities? (Points : 5)

• Asset ratio
• Working capital ratio
• Current ratio
• Cash ratio
• Merchandise inventory turnover

Question 25. (TCO 6) When doing external analysis, many of the reasons why the days’ sales in receivables is abnormally high or low cannot be determined without access to (Points : 5)

• external information.
• financial information.
• internal information.
• receivable information.

Question 26. (TCO 6) Statements in which all items are expressed in only relative terms (percentages of a base) are termed (Points : 5)

• vertical statements.
• horizontal statements.
• funds statements.
• common size statements.

Question 27. (TCOs 5 and 6) Book value is of limited use to the investment analyst because it is based on (Points : 5)

• the book numbers.
• the actual numbers.
• the historical numbers.
• the forecasted numbers.

Question 28. (TCO 5) When a stock split occurs, earnings per share must be adjusted (Points : 5)

• proactively.
• retroactively.
• over the next 2 years.
• Nothing needs to be adjusted.

Question 29. (TCO 6) In computing earnings per share, preferred dividends are subtracted from (Points : 5)

• net income.
• gross income.
• net earnings.
• gross earnings.

Question 30. (TCO 6) What is the effect of the exercise of stock options? (Points : 5)

• They generate cash to the issuing firm and, therefore, increase profit per share.
• They are an expense at the time of exercise. This lowers net income.
• They increase debt and lower borrowing capacity but have no effect on profit.
• They increase the numbers of shares outstanding.

Question 31. (TCO 6) What is important to a firm’s long-term debt paying ability? (Points : 5)

• Expenses
• Capital assets
• Long-term debt
• Profitability

Question 32. (TCOs 5 and 6) Earnings per share is computed for (Points : 5)

• common stock.
• non redeemable preferred stock.
• redeemable preferred stock.
• common stock and non redeemable preferred stock.
• common stock and fully diluted preferred stock.

Question 33. (TCO 5) The bond payable account is considered a firm’s (Points : 5)

• asset.
• expense.
• liability.
• cash.