Ratios that measure how efficiently a firm’s management uses its assets and equity to generate bottom line net income are known as _______ ratios.
1.
Which one of the following assets is generally the most liquid?
inventory
buildings
accounts receivable
equipment
patents
2.
It is easier to evaluate a firm using its financial statements when the firm:
is a conglomerate.
is global in nature.
uses the same accounting procedures as other firms in its industry.
has a different fiscal year than other firms in its industry.
tends to have onetime events such as asset sales and property acquisitions.
3.
Which one of the following is a current liability?
amount due to a supplier in 18 months
debt payable to a mortgage company in nine months
estimated taxes just paid
loan payment due in 13 months
amount due from a customer in 30 days
4.
Award: 1 out of 2.00 points
During 2015, Rainbow Umbrella Corp. had sales of $740,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $550,000, $90,000, and $95,000, respectively. In addition, the company had an interest expense of $94,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.) 
a.  What is the company’s net income for 2015? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) 
Net income  $ 
b.  What is its operating cash flow? (Do not round intermediate calculations.) 
Operating cash flow  $ 
During 2015, Rainbow Umbrella Corp. had sales of $740,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $550,000, $90,000, and $95,000, respectively. In addition, the company had an interest expense of $94,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.) 
a.  What is the company’s net income for 2015? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) 
b.  What is its operating cash flow? (Do not round intermediate calculations.) 
5.
Which one of these is a correct definition?
Net working capital equals current assets plus current liabilities.
Current liabilities are debts that must be repaid in 18 months or less.
Current assets are assets with short lives, such as inventory.
Longterm debt is defined as a residual claim on a firm’s assets.
Tangible assets are fixed assets such as patents.
6.
Award: 10 out of 10.00 points
Sankey, Inc., has current assets of $5,125, net fixed assets of $25,600, current liabilities of $4,500, and longterm debt of $9,900. (Do not round intermediate calculations.) 
What is the value of the shareholders’ equity account for this firm? 
How much is net working capital? 
Net working capital 
Sankey, Inc., has current assets of $5,125, net fixed assets of $25,600, current liabilities of $4,500, and longterm debt of $9,900. (Do not round intermediate calculations.) 
What is the value of the shareholders’ equity account for this firm? 
Shareholders’ equity  $ 
How much is net working capital? 
Net working capital  $ 
7.
Shelton, Inc., has sales of $390,000, costs of $178,000, depreciation expense of $43,000, interest expense of $24,000, and a tax rate of 40 percent. (Do not round intermediate calculations.) 
What is the net income for the firm? 
8.
During the year, the Senbet Discount Tire Company had gross sales of $1.25 million. The firm’s cost of goods sold and selling expenses were $544,000 and $234,000, respectively. The firm also had notes payable of $990,000. These notes carried an interest rate of 6 percent. Depreciation was $149,000. The firm’s tax rate was 30 percent. 
a.  What was the firm’s net income? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole number, e.g., 32.) 
Net income 
b.  What was the firm’s operating cash flow? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole number, e.g., 32.) 
Operating cash flow 
References
WorksheetSection: 2.2 The Income StatementSection: 2.5 Cash Flow of the Firm
During the year, the Senbet Discount Tire Company had gross sales of $1.25 million. The firm’s cost of goods sold and selling expenses were $544,000 and $234,000, respectively. The firm also had notes payable of $990,000. These notes carried an interest rate of 6 percent. Depreciation was $149,000. The firm’s tax rate was 30 percent. 
a.  What was the firm’s net income? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole number, e.g., 32.) 
Net income  $ 
b.  What was the firm’s operating cash flow? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole number, e.g., 32.) 
Operating cash flow  $ 
9.
Use the following information for Ingersoll, Inc., (assume the tax rate is 40 percent): 
2014  2015  
Sales  $  8,335  $  8,909 
Depreciation  1,175  1,176  
Cost of goods sold  2,746  3,110  
Other expenses  689  584  
Interest  575  653  
Cash  4,159  5,253  
Accounts receivable  5,489  6,177  
Shortterm notes payable  844  796  
Longterm debt  14,010  16,550  
Net fixed assets  34,955  35,877  
Accounts payable  4,416  4,235  
Inventory  9,720  9,988  
Dividends  1,006  1,101  

Prepare an income statement for this company for 2014 and 2015. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)  
Use the following information for Ingersoll, Inc., (assume the tax rate is 40 percent): 
2014  2015  
Sales  $  8,335  $  8,909 
Depreciation  1,175  1,176  
Cost of goods sold  2,746  3,110  
Other expenses  689  584  
Interest  575  653  
Cash  4,159  5,253  
Accounts receivable  5,489  6,177  
Shortterm notes payable  844  796  
Longterm debt  14,010  16,550  
Net fixed assets  34,955  35,877  
Accounts payable  4,416  4,235  
Inventory  9,720  9,988  
Dividends  1,006  1,101  

Prepare an income statement for this company for 2014 and 2015. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.) 
Prepare the balance sheet for this company for 2014 and 2015. (Do not round intermediate calculations. Be sure to list the accounts in order of their liquidity.) 
10.
The total asset turnover ratio measures the amount of:
total assets needed for every $1 of sales.
sales generated by every $1 in total assets.
fixed assets required for every $1 of sales.
net income generated by every $1 in total assets.
net income than can be generated by every $1 of fixed assets.
11.
Al’s Sport Store has sales of $3,190, costs of goods sold of $2,030, inventory of $548, and accounts receivable of $424. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?
97.2
111.1
62.7
109.0
98.5
Inventory turnover = $2,030/$548 = 3.7044 Days in inventory = 365/3.7044 = 98.53 days
12.
A firm has total debt of $1,090 and a debtequity ratio of .32. What is the value of the total assets?
$4,496
$1,439
$3,406
$3,498
$3,200
Total equity = $1,090 / .32 = $3,406
Total assets = $1,090 + $3,406= $4,496
13.
Ratios that measure a firm’s ability to pay its bills over the short run without undue stress are known as:
asset management ratios.
longterm solvency measures.
liquidity measures.
profitability ratios.
market value ratios.
14.
The debtequity ratio is measured as:
total equity divided by longterm debt.
total equity divided by total debt.
total debt divided by total equity.
longterm debt divided by total equity.
total assets minus total debt, divided by total equity.
15.
The Purple Martin has annual sales of $4,800, total debt of $1,210, total equity of $2,500, and a profit margin of 7 percent. What is the return on assets?
7.00 percent
9.06 percent
27.77 percent
13.44 percent
11.74 percent
16.
Ratios that measure how efficiently a firm’s management uses its assets and equity to generate bottom line net income are known as _______ ratios.
asset management
longterm solvency
shortterm solvency
profitability
market value
17.
Which statement expresses all accounts as a percentage of total assets?
pro forma balance sheet
commonsize income statement
statement of cash flows
pro forma income statement
commonsize balance sheet
18.
A firm has a total debt ratio of .47. This means the firm has 47 cents in debt for every:
$1 in total equity.
$.53 in total assets.
$1 in current assets.
$.53 in total equity.
$1 in fixed assets.
19.
The quick ratio is measured as:
current assets divided by current liabilities.
cash on hand plus current liabilities, divided by current assets.
current liabilities divided by current assets, plus inventory.
current assets minus inventory, divided by current liabilities.
current assets minus inventory minus current liabilities.
20.
The current ratio is measured as:
current assets minus current liabilities.
current assets divided by current liabilities.
current liabilities minus inventory, divided by current assets.
cash on hand divided by current liabilities.
current liabilities divided by current assets.
21.
The higher the inventory turnover, the:
less time inventory items remain on the shelf.
higher the inventory as a percentage of total assets.
longer it takes a firm to sell its inventory.
greater the amount of inventory held by a firm.
lesser the amount of inventory held by a firm.
22.
The receivables turnover ratio is measured as:
sales plus accounts receivable.
sales divided by accounts receivable.
sales minus accounts receivable, divided by sales.
accounts receivable times sales.
accounts receivable divided by sales.
References
23.
Galaxy United, Inc. 2009 Income Statement ($ in millions) 

Net sales  $8,550 
Less: Cost of goods sold  7,180 
Less: Depreciation 
400 
Earnings before interest and taxes  970 
Less: Interest paid 
83 
Taxable Income  887 
Less: Taxes 
310 
Net income 
$ 576 
Galaxy United, Inc. 2008 and 2009 Balance Sheets ($ in millions) 

2008 
2009 
2008 
2009 

Cash  $ 130  $ 150  Accounts payable  $1,110  $1,150  
Accounts rec.  940  770  Longterm debt  1,000  1,155  
Inventory 
1,470 
1,520 
Common stock  $3,140  $2,940  
Subtotal  $2,540  $2,440  Retained earnings 
520 
795 

Net fixed assets 
3,230 
3,600 

Total assets 
$5,770 
$6,040 
Total liab. & equity 
$5,770 
$6,040 
What is the return on equity for 2009?
rev: 01_14_2016_QC_CS37830
10 percent
13 percent
16 percent
18 percent
15 percent
24.
If Wilkinson, Inc., has an equity multiplier of 1.57, total asset turnover of 1.7, and a profit margin of 6.7 percent, what is its ROE? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 
ROE 
References
If Wilkinson, Inc., has an equity multiplier of 1.57, total asset turnover of 1.7, and a profit margin of 6.7 percent, what is its ROE? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 
ROE  % 
25.
The financial ratio measured as net income divided by sales is known as the firm’s:
profit margin.
return on assets.
return on equity.
asset turnover.
earnings before interest and taxes.
26.
The financial ratio that measures the accounting profit per dollar of book equity is referred to as the:
profit margin.
priceearnings ratio.
return on equity.
equity turnover.
market profittobook ratio.
27.
Puffy’s Pastries generates five cents of net income for every $1 in equity. Thus, Puffy’s has _______ of 5 percent.
a return on assets
a profit margin
a return on equity
an EV multiple
a priceearnings ratio
28.
If stockholders want to know how much profit the firm is making on their entire investment in that firm, the stockholders should refer to the:
profit margin.
return on assets.
return on equity.
equity multiplier.
earnings per share.
29.
The most effective method of directly evaluating the financial performance of a firm is to compare the financial ratios of the firm to:
the firm?s ratios from prior time periods and to the ratios of firms with similar operations.
the average ratios of all firms within the same country over a period of time.
those of other firms located in the same geographic area that are similarly sized.
the average ratios of the firm?s international peer group.
those of the largest conglomerate that has operations in the same industry as the firm.
30.
Which one of these equations is an accurate expression of the balance sheet?
Assets ? Liabilities −Stockholders? equity
Stockholders? equity ? Assets + Liabilities
Liabilities ? Stockholders? equity −Assets
Assets ? Stockholders? equity −Liabilities
Stockholders? equity ? Assets −Liabilities
31.
The financial statement summarizing a firm’s accounting performance over a period of time is the:
income statement.
balance sheet.
statement of cash flows.
tax reconciliation statement.
statement of equity