Finance 301 Quiz 2

Created by rwo5033 

Upgrade to
remove ads

Which of the following is true regarding balance sheets?
A. They report, for a certain interval of time, the net assets generated, the net assets consumed, and the net income.
B. They report, for a certain interval of time, the resources of a company, the obligations of a company, and the equity of the owners.
C. They report, for a certain interval of time, the amount of cash generated and consumed by a company.
D. They report, as of a certain point in time, the resources of a company, the obligations of a company, and the equity of the owners.
E. They report, as of a certain point in time, the resources and net income of a company.

D. They report, as of a certain point in time, the resources of a company, the obligations of a company, and the equity of the owners.

Which of the following is true regarding income statements?
A. They report, as of a certain point in time, the company's assets, liabilities, and net income
B. They report, for a certain interval of time, the net assets generated, the net assets consumed, and the net income
C. They report, as of a certain point in time, the amount of cash and net income generated
D. They report, as of a certain point in time, the net assets generated, the net assets consumed, and the net income
E. They report, for a certain interval of time, the resources of a company, the obligations of a company, and the equity of the owners

B. They report, for a certain interval of time, the net assets generated, the net assets consumed, and the net income

The Matching Principle in GAAP:
A. Matches sales to inventory shipments
B. Matches the expenses related to a sale in the same period
C. Matches ROE to a firm's capital investment
D. Matches costs of goods sold with the inventory on the balance sheet
E. Matches revenues with profits on the income statement

B. Matches the expenses related to a sale in the same period

According to the Revenue Recognition Principle in GAAP:
A. Dividends can be paid only after taxable income is positive
B. Expenses can be realized when cash payment is made
C. Companies can realize revenue only if the transaction is profitable
D. Revenue is recognized when a good or service is provided, not when the money is received
E. Companies can realize certain gains on their operating books, while omitting them from their tax books

D. Revenue is recognized when a good or service is provided, not when the money is received

Given the following data, identify the correct gross profit and operating profit. Assume no outside information other than that which is provided.
Sales: $2000
Depreciation: $100
Interest Expense: $200
Cost of Goods Sold: $1100
SG&A: $300
Taxes: $100
A. Gross Profit = $900, Operating Profit = $500
B. Gross Profit = $900, Operating Profit = $300
C. Gross Profit = $600, Operating Profit = $200
D. Gross Profit = $600, Operating Profit = $300
E. Gross Profit = $800, Operating Profit = $200

A. Gross Profit = $900, Operating Profit = $500

Which of the following statements regarding the cash flow statement is true?
A. Working capital changes are accounted for as cash flows from operating activities.
B. Financing activities include ONLY long-term borrowings.
C. A typical company has a positive cash flow from investing activities.
D. The purchase of property, plant, and equipment is classified as a financing activity.
E. Accounts Payable is classified as a cash flow from financing activities.

A. Working capital changes are accounted for as cash flows from operating activities.

Which of the following statements regarding the cash flow statement is true?
A. Changes in accounts receivables is a financing activity
B. The disposal or acquisition of plant, property & equipment is classified as an investing activity.
C. Depreciation is classified as an investing activity.
D. Investing activities are the main source of a company's positive cash flow.
E. Changes in cash flow perfectly match with a company's net income.

B. The disposal or acquisition of plant, property & equipment is classified as an investing activity.

A common size income statement expresses all accounts as a percentage of _______?
A. Cost of Goods Sold
B. Net Income
C. Operating Income
D. Expenses
E. Net Sales

E. Net Sales

A common size balance sheet expresses all accounts as a percentage of______?
A. Revenues
B. Total Assets
C. Retained Earnings
D. Total Current Liabilities
E. Cash

B. Total Assets

11. Which current asset is omitted when calculating the Quick Ratio?
A. Cash
B. Accounts Receivable
C. Inventory
D. Short Term Investments
E. Property, Plant & Equipment

C. Inventory

Which of the following a measure of profitability?
A. Operating Margin
B. Days Sales Outstanding
C. Days Payables Outstanding
D. Fixed Asset Turnover
E. Current Ratio

A. Operating Margin

Which of the following is a measure of company's liquidity?
A. Fixed Assets Turnover
B. Profit Margin
C. Return on Equity
D. Quick Ratio
E. Return on Assets

D. Quick Ratio

On the income statement, which of the following line-items represents the amount the company's suppliers receive?
A. Revenue
B. Selling, general, and administrative expenses
C. Interest expense
D. Cost of goods sold
E. Taxes

D. Cost of goods sold

On the income statement, which of the following line-items represents the amount the company's creditors receive?
A. Selling, general, and administrative expenses
B. Interest expense
C. Cost of goods sold
D. Profit before taxes
E. Taxes

B. Interest expense

If lenders want to assess the likelihood of borrowers being able to make interest payments, they would most likely look at which ratios?
A. Activity ratios
B. Liquidity ratios
C. Inventory ratios
D. Profitability ratios
E. Receivables ratios

B. Liquidity ratios

If investors want to assess how efficient a company is at using its productive resources, they would most likely look at which ratios?
A. Activity ratios
B. Leverage ratios
C. Liquidity ratios
D. Profitability ratios
E. Inventory ratios

A. Activity ratios

Given the following information from Chase Corporation's Balance Sheet, calculate its Current Liabilities.
Current Assets = $250,000
Fixed Assets = $900,000
Long-term debt = $350,000
Shareholder's equity = $700,000
A. $50,000
B. $100,000
C. $150,000
D. $200,000
E. $250,000

B. $100,000

On the Balance Sheet, what reflects that owners residual interest in the firm?
A. Current Assets
B. Fixed Assets
C. Current Liabilities
D. Long Term Debt
E. Shareholder Equity

E. Shareholder Equity

On the Income Statement, what is the difference between revenues and cost of goods sold during a particular accounting period?
A. Gross Margin
B. Net Income
C. Income Tax Expense
D. Non-Operating Expense
E. Operating Margin (EBIT)

A. Gross Margin

Calculate the ROE using the DuPont Model for a company with the following data:
Profit margin= 15%
Total Asset Turnover= 2.0
Inventory Turnover= 1.5
Equity Multiplier=1.2
Current Ratio = .5
A. 36%
B. 30%
C. 45%
D. 7.5%
E. 54%

A. 36%

Calculate cash flows from operations for Company ABC during 2010 given the following information (all values in millions):
Revenue: $850
Cost of Goods Sold: $450
Gross Profit Margin: $400
Sales, General & Administrative Expense (SG&A): $100
Depreciation: $50
Operating Profit: $250
Taxes: $100
Net Income: $150

A. $50 mn
B. $150 mn
C. $200 mn
D. $250 mn
E. $300 mn

C. $200 mn

In general, a stock with a high P/E ratio as compared to other companies in the same industry implies:
A. that investors have high growth expectations for the company
B. that investors believe the company's stock is overpriced
C. that investors have low growth expectations for the company
D. that the company's stock is inexpensive compared to its earnings
E. that investors are only willing to pay a low price for the stock

A. that investors have high growth expectations for the company

Which of the following activities is classified as Operating Activities on the Statement of Cash Flows?
A. Dividends Received
B. Sale of Plant
C. Proceeds from Stock Issuance
D. Sale of Long-Term Assets
E. Dividend Payments to Shareholders

A. Dividends Received

2. Which of the following activities is classified as Investing Activities on the Statement of Cash Flows?
A. Dividends Received
B. Payments to Suppliers
C. Proceeds from Stock Issuance
D. Sale of Long-Term Assets
E. Dividend Payments to Shareholders

D. Sale of Long-Term Assets

33. The annual report publicly traded companies must file with the SEC is the _______
A. 10Q
B. 8K
C. 4C
D. 10K
E. 401K

D. 10K

34. The quarterly report publicly traded companies must file with the SEC is the _______
A. 10Q
B. 8K
C. 4C
D. 10K
E. 401K

A. 10Q

Calculate the Times Interest Earned ratio for a company with the following data:
Sales: $1,000,000
EBIT: $250,000
Net Income: $50,000
Interest expense: $125,000
Tax expense: $75,000
A. 2
B. 8
C. 20
D. 4
E. 3.33

A. 2

EBIT/Interest Expense

A general rule used by companies in determining whether or not to make an investment is:
A. Invest when cost of capital is equal to expected return on investment.
B. Invest when there is a positive expected return on investment.
C. Invest when cost of capital is greater than return on investment.
D. Invest when net present value of cash flows is negative.
E. Invest when expected return on investment is greater than cost of capital.

E. Invest when expected return on investment is greater than cost of capital.

Given the following information, which company collects payments from its customers the fastest?
Barnes & Royalty: Inventory Turnover = 4; Days Sales Outstanding = 25; Profit Margin = 5%
JC Quarters: Inventory Turnover = 2.75; Days Sales Outstanding = 45; Profit Margin = 3.3%
Motherboard City: Inventory Turnover = 10; Days Sales Outstanding = 30; Profit Margin = 7.5%
Bullseye: Inventory Turnover = 25; Days Sales Outstanding = 50; Profit Margin = 12%
American Hawk: Inventory Turnover = 75; Days Sales Outstanding = 35; Profit Margin = 15%
A. Barnes & Royalty
B. JC Quarters
C. Motherboard City
D. Bullseye
E. American Hawk

A. Barnes & Royalty

Given the following information, which company collects manages its inventory the best?
Barnes & Royalty: Inventory Turnover = 4; Days Sales Outstanding = 25; Profit Margin = 5%
JC Quarters: Inventory Turnover = 2.75; Days Sales Outstanding = 45; Profit Margin = 3.3%
Motherboard City: Inventory Turnover = 10; Days Sales Outstanding = 30; Profit Margin = 7.5%
Bullseye: Inventory Turnover = 40; Days Sales Outstanding = 50; Profit Margin = 12%
American Hawk: Inventory Turnover = 15; Days Sales Outstanding = 35; Profit Margin = 15%
A. Barnes & Royalty
B. JC Quarters
C. Motherboard City
D. Bullseye
E. American Hawk

D. Bullseye

Highest Inventory Turnover

Given the following information, which company is the most liquid?
CNP Bank: Current Ratio = 2.25; Asset Turnover = 1.25; Debt/Equity Ratio = 1.5
Wells Dakota: Current Ratio = 2.75; Asset Turnover = 3; Debt/Equity Ratio = 1
MetroBank: Current Ratio = .75; Asset Turnover = 4.5; Debt/Equity Ratio = 2.5
PJWebb Chase: Current Ratio = 1.25; Asset Turnover = .75; Debt/Equity Ratio = .5
Bank of the States: Current Ratio = 1; Asset Turnover = .25; Debt/Equity Ratio = 2.25
A. CNP Bank
B. Wells Dakota
C. MetroBank
D. PJWebb Chase
E. Bank of the States

B. Wells Dakota

Given the following information, which company is the best at generating income from its assets?
CNP Bank: Current Ratio = 2.25; Asset Turnover = 1.25; Debt/Equity Ratio = 1.5
Wells Dakota: Current Ratio = 2.75; Asset Turnover = 3; Debt/Equity Ratio = 1
MetroBank: Current Ratio = .75; Asset Turnover = 4.5; Debt/Equity Ratio = 2.5
PJWebb Chase: Current Ratio = 1.25; Asset Turnover = .75; Debt/Equity Ratio = .5
Bank of the States: Current Ratio = 1; Asset Turnover = .25; Debt/Equity Ratio = 2.25
A. CNP Bank
B. Wells Dakota
C. MetroBank
D. PJWebb Chase
E. Bank of the States

C. MetroBank

Highest Asset turnover

Using the following data, calculate the gross margin:
Sales: $800,000
Cost of Goods Sold: $400,000
Interest Expense: $25,000
Operating Expenses: $75,000
Tax expense: $100,000
A. 25%
B. 40%
C. 30%
D. 20%
E. 50%

E. 50%

You are analyzing the financial statements of Dell and notice that the company's receivables turnover ratio has increased over time. What might you conclude from this observation?
A. This is good because it indicates suppliers are getting paid faster.
B. This is good because it suggests that less funds are invested in inventories
C. This is bad because it indicates that customers cannot pay their bills
D. This is bad because it indicates detrimental cash flow for the company
E. This is good because it indicates that customers are paying their bills faster

E. This is good because it indicates that customers are paying their bills faster

Company A has a D/E ratio of 2 and Company B has a D/E ratio of 0.5. Based on that information, which of the following is true regarding their financing decisions?
A. Company B is more highly leveraged than Company A.
B. Company A has assumed less risk than Company B.
C. Company A and B assume the same level of risk
D. Company A is more highly leveraged than Company B.
E. Company A is raising more capital through stock than debt.

D. Company A is more highly leveraged than Company B.

Company A has a D/E ratio of 2 and Company B has a D/E ratio of 0.5. Based on that information, which of the following is true regarding their financing decisions?
A. Company A is raising more capital through stock, so it can expect higher upside potential than Company B.
B. Company A is raising more capital through debt, so it can expect higher upside potential than Company B.
C. Company B is raising more capital through debt, so it is inherently riskier than company A.
D. Company B is less attractive to creditors than Company A.
E. Both Companies A and B have the same level of financial leverage.

B. Company A is raising more capital through debt, so it can expect higher upside potential than Company B.

Given the following information for PSU Credit Union, calculate its Total Assets Turnover
Net Sales = $25,000,000
Net Profit = $15,000,000
Total Assets = $125,000,000
Shareholder's equity = $25,000,000
A. 0.12
B. 0.2
C. 0.4
D. 2.0
E. 10.0

B. 0.2

Net Sales/Total Assets

Which statement is the most accurate given the following table:

A B C
Current Ratio 2.2 0.9 1.0
Inventory Turnover 5.1 6.3 6.4
Days Sales Outstanding 93.1 12.5 167.9
Total Asset Turnover 0.64 0.54 0.74
Profit Margin 28.4% 7.1% 1.7%
Return on Assets 18.0% 4.0% 1.0%
Return on Equity 31.4% 8.1% 7.0%
Debt/Equity 0.17 0.21 1.22
Price/Earnings Ratio 23.3 18.9 10.2

A. Company A manages its inventories best
B. Company B uses more debt than company C
C. Company C is expected to grow faster than A or B
D. Company B has better overall performance than company A
E. Company B collects payments for goods sold faster than A or C

E. Company B collects payments for goods sold faster than A or C

Which statement is the most accurate given the following table:

A B C
Current Ratio 2.2 0.9 1.0
Inventory Turnover 5.1 6.3 6.4
Days Sales Outstanding 93.1 12.5 167.9
Total Asset Turnover 0.64 0.54 0.74
Profit Margin 28.4% 7.1% 1.7%
Return on Assets 18.0% 4.0% 1.0%
Return on Equity 31.4% 8.1% 7.0%
Debt/Equity 0.17 0.21 1.22
Price/Earnings Ratio 23.3 18.9 10.2

A. Company A manages its inventories best
B. Company B uses more debt than company C
C. Company C generates the least income for every dollar of assets
D. Company B has better overall performance than company A
E. Company C collects payments for goods sold faster than A or B

C. Company C generates the least income for every dollar of assets

Which statement is the most accurate given the following table:

A B C
Current Ratio 2.2 0.9 1.0
Inventory Turnover 5.1 6.3 6.4
Days Sales Outstanding 93.1 12.5 167.9
Total Asset Turnover 0.64 0.54 0.74
Profit Margin 28.4% 7.1% 1.7%
Return on Assets 18.0% 4.0% 1.0%
Return on Equity 31.4% 8.1% 7.0%
Debt/Equity 0.17 0.21 1.22
Price/Earnings Ratio 23.3 18.9 10.2

A. Company C has the highest profitability
B. Company B has the highest liquidity
C. Company A is the best at managing inventory
D. Company C is the best at collecting its accounts receivables
E. Company A is the best at generating Income from its assets

E. Company A is the best at generating Income from its assets

Which statement is the most accurate given the following table:

A B C
Current Ratio 2.2 0.9 1.0
Inventory Turnover 5.1 6.3 6.4
Days Sales Outstanding 93.1 12.5 167.9
Total Asset Turnover 0.64 0.54 0.74
Profit Margin 28.4% 7.1% 1.7%
Return on Assets 18.0% 4.0% 1.0%
Return on Equity 31.4% 8.1% 7.0%
Debt/Equity 0.17 0.21 1.22
Price/Earnings Ratio 23.3 18.9 10.2

A. Company A has the lowest profitability
B. Company B has the highest liquidity
C. Company A is the best at managing inventory
D. Company B is the worst at collecting its accounts receivables
E. Company C is the best at generating Sales from its assets

E. Company C is the best at generating Sales from its assets

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions above and try again

Example:

Reload the page to try again!

Reload

Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

NEW! Voice Recording

Create Set