Question: Match the following. Answers may be used

> A decrease in selling and administrative expenses would impact what ratio? a. Fixed asset turnover ratio. b. Times interest earned ratio. c. Debt-to-equity ratio. d. Current ratio.

> Given the following ratios for four companies, which company is least likely to experience problems paying its current liabilities promptly? Receivable Quick Ratio Turnover Ratio а. 1.2 58 b. 1.2 25 с. 1.0 55 d. .5 60

> The inventory turnover ratio for Natural Foods Stores is 14.6. The company reported cost of goods sold in the amount of $1,500,000 and total sales of $2,500,000. What is the average amount of inventory for Natural Foods? a. $102,740 c. $100,000 b. $

> A company has quick assets of $300,000 and current liabilities of $150,000. The company purchased $50,000 in inventory on credit. After the purchase, the quick ratio would be a. 2.0 c. 1.5 b. 2.3 d. 1.75

> Positive financial leverage indicates a. Positive cash flow from financing activities. b. A debt-to-equity ratio higher than 1. c. A rate of return on assets exceeding the interest rate on debt. d. A profit margin in one year exceeding the previous year’

> Positive financial leverage indicates a. Positive cash flow from financing activities. b. A debt-to-equity ratio higher than 1. c. A rate of return on assets exceeding the interest rate on debt. d. A profit margin in one year exceeding the previous year’

> Which of the following ratios is used to analyze liquidity? a. Earnings per share. c. Current ratio. b. Debt-to-equity ratio. d. Both (a) and (c).

> Which of the following would not change the receivables turnover ratio for a retail company? a. Increases in the retail prices of inventory. b. A change in credit policy. c. Increases in the cost incurred to purchase inventory. d. None of the above.

> A company has total assets of $500,000 and noncurrent assets of $400,000. Current liabilities are $40,000. What is the current ratio? a. 12.5 b. 10.0 c. 2.5 d. Cannot be determined without additional information.

> You have the opportunity to invest $10,000 in one of two companies from a single industry. The only information you have is below. Which company would you select? Justify your choice. Industry Average Ratios for Current Year Company A Company B Curre

> James Company purchased $800,000, 8 percent bonds issued by Heidi Company on January 1 of the current year. The purchase price of the bonds was $900,000. Interest is payable semiannually each June 30 and December 31. Record the purchase of the bonds on J

> What are the typical cash inflows from financing activities? What are the typical cash outflows from financing activities?

> What are the typical cash inflows from investing activities? What are the typical cash outflows from investing activities?

> Under the indirect method, depreciation expense is added to net income to report cash flows from operating activities. Does depreciation cause an inflow of cash?

> What are the typical cash inflows from operating activities? What are the typical cash outflows from operating activities?

> Which of the following transactions qualify as noncash investing and financing activities? _____ Purchase of building with mortgage payable. _____ Additional short-term borrowing from bank. _____ Dividends paid in cash. _____ Purchase of equipment with s

> Telstra, Australia’s largest telecommunications and media company, has net revenue of more than $26 billion (Australian). Some of the items included in its recent annual consolidated statement of cash flows presented using the direct method are listed he

> Indicate whether each item would be added (+) or subtracted (−) in the computation of cash flow from operating activities using the indirect method. _____ 1. Accrued expenses (increase). _____ 2. Inventories (increase). _____ 3. Accounts receivable (decr

> MillerCoors Brewing Company is the world’s fifth largest brewer. In the United States, its tie to the magical appeal of the Rocky Mountains is one of its most powerful trademarks. Some of the items included in its recent annual consolidated statement of

> The total change in cash as shown near the bottom of the statement of cash flows for the year should agree with which of the following? a. The difference in retained earnings when reviewing the comparative balance sheet. b. Net income or net loss as foun

> Consider the following: Issued common stock for $18,000, sold office equipment for $1,200, paid cash dividends of $4,000, purchased investments for $2,000, purchased new equipment for $4,000. What was the net cash inflow (outflow) from investing activiti

> During December of the current year, James Company acquired some of the 50,000 outstanding shares of the common stock, par $12, of Andrew Corporation as available-for-sale investments. The accounting period for both companies ends December 31. Give the j

> Consider the following: Issued common stock for $18,000, sold office equipment for $1,200, paid cash dividends of $4,000, purchased investments for $2,000, paid accounts payable of $4,000. What was the net cash inflow (outflow) from financing activities?

> Which of the following is not added to net income when computing cash flows from operations under the indirect method? a. The net increase in accounts payable. b. The net decrease in accounts receivable. c. Depreciation expense reported on the income sta

> Which of the following items would not appear in the financing section of the statement of cash flows? a. The repurchase of the company’s own stock. b. The receipt of dividends. c. The repayment of debt. d. The payment of dividends.

> Which of the following would not appear in the investing section of the statement of cash flows? a. Purchase of inventory. b. Sale of obsolete equipment used in the factory. c. Purchase of land for a new office building. d. All of the above would appear

> Consider the following: Net income = $10,000, depreciation expense = $2,000, accounts receivable increased by $800, inventory decreased by $100, and accounts payable increased by $500. Based on this information alone, what is cash flow from operating act

> If the balance in prepaid expenses has increased during the year, what action should be taken on the statement of cash flows when following the indirect method, and why? a. The change in the account balance should be subtracted from net income because th

> Total cash inflow in the operating section of the statement of cash flows should include which of the following? a. Cash received from customers at the point of sale. b. Cash collections from customer accounts receivable. c. Cash received in advance of r

> In what order do the three sections of the statement of cash flows usually appear when reading from top to bottom? a. Financing, Investing, Operating c. Operating, Financing, Investing b. Investing, Operating, Financing d. Operating, Investing, Fin

> Your parents have just retired and have asked you for some financial advice. They have decided to invest $100,000 in a company very similar to Whole Foods. The company has issued both common and preferred stock. Describe the differences between common st

> Conceptually, does a 2-for-1 stock dividend immediately increase an investor’s personal wealth? a. No, because the stock price per share drops by half when the number of shares doubles. b. Yes, because the investor has more shares. c. Yes, because the in

> Dollar General Corporation operates general merchandise stores that feature quality merchandise at low prices. All stores are located in the United States, predominantly in small towns in 24 mid western and southeastern states. In the current year, the c

> When treasury stock is purchased with cash, what is the impact on the balance sheet equation? a. No change: The reduction of the asset cash is offset with the addition of the asset treasury stock. b. Assets decrease and stockholders’ equity increases. c.

> Which statement regarding dividends is false? a. Dividends represent a distribution of corporate profits to owners. b. Both stock and cash dividends reduce retained earnings. c. Cash dividends paid to stockholders reduce net income. d. None of the above

> A company has net income of $225,000 and declares and pays dividends in the amount of $75,000. What is the net impact on retained earnings? a. Increase of $225,000 c. Increase of $150,000 b. Decrease of $75,000 d. Decrease of $150,000

> Which of the following dates does not require a journal entry? a. Date of declaration. c. Date of payment. b. Date of record. d. A journal entry is recorded on all of these dates.

> A company issued 100,000 shares of common stock with a par value of $1 per share. The stock sold for $20 per share. By what amount will stockholders’ equity increase? a. $100,000 c. $2,000

> Which order best describes the largest number of shares to the smallest number of shares? a. Shares authorized, shares issued, shares outstanding. b. Shares issued, shares outstanding, shares authorized. c. Shares outstanding, shares issued, shares autho

> Which of the following statements about stock dividends is true? a. Stock dividends are reported on the statement of cash flows. b. Stock dividends are reported on the statement of stockholders’ equity. c. Stock dividends increase total equity. d. Stock

> Which statement regarding treasury stock is false? a. Treasury stock is considered to be issued but not outstanding. b. Treasury stock has no voting, dividend, or liquidation rights. c. Treasury stock reduces total equity on the balance sheet. d. None of

> Katz Corporation has issued 400,000 shares of common stock and holds 20,000 shares in treasury. The charter authorized the issuance of 500,000 shares. The company has declared and paid a dividend of $1 per share of common stock. What is the total amount

> You are the president of a very successful Internet company that has had a remarkably profitable year. You have determined that the company has more than $10 million in cash generated by operating activities not needed in the business. You are thinking a

> Assume current assets totaled $120,000 and the current ratio was 1.5 before the following independent transactions: (1) Purchased merchandise for $40,000 on short-term credit. (2) Purchased a delivery truck for $25,000. Paid $3,000 cash and signed a two-

> Refer to the financial statements of Urban Outfitters in Appendix C at the end of this book Financial statements of Urban Outfitters: Required: 1. What is the balance in short-term and long-term marketable securities reported by the company on January

> Luther Company obtained a charter from the state in January of this year. The charter authorized 1,000,000 shares of common stock with a par value of $5. During the year, the company earned $429,000. Also during the year, the following selected transacti

> When one company acquires control of another, how are the acquired company’s assets and liabilities recorded?

> Under the fair value method, when and how does the investor company measure revenue?

> Explain how bonds held to maturity are reported on the balance sheet.

> Company W purchases 10 percent of Company Z and Company W intends to hold the stock for at least five years. At the end of the current year, how would Company W’s investment in Company Z be reported on Company W’s December 31 (year-end) balance sheet? a.

> Company X owns 40 percent of Company Y and exercises significant influence over the management of Company Y. Therefore, Company X uses what method of accounting for reporting its ownership of stock in Company Y? a. The amortized cost method. b. The equit

> Lamichael Company purchased 100 percent of the outstanding voting shares of Darrell Corporation in the open market for $230,000 cash and Darrell was merged into Lamichael Company. On the date of acquisition, the fair value of Darrell Corporation’s proper

> Which of the following is true regarding the economic return from investing ratio? a. This ratio is used to evaluate how efficiently a company manages its total assets. b. This ratio is used to evaluate the efficiency of a company given the capital contr

> Bott Company acquired 500 shares of stock of Barus Company at $53 per share as a long-term investment. This represents 40 percent of the outstanding voting shares of Barus. During the year, Barus paid stockholders $3 per share in dividends. At year-end,

> Match each ratio or percentage with its computation. Ratios or Percentages Definitions 1. Net profit margin 2. Inventory turnover ratio A. Net Income + Net Sales Revenue 3. Average days to collect receivables 4. Dividend yield ratio 5. Return on equi

> Bott Company acquired 500 shares of stock of Barus Company at $53 per share as a long-term investment. This represents 10 percent of the outstanding voting shares of Barus. During the year, Barus paid stockholders $3 per share in dividends. At year-end,

> When using the equity method of accounting, when is revenue recorded on the books of the investor company? a. When a dividend is received from the affiliate. b. When the fair value of the affiliate stock increases. c. When the affiliate company reports n

> When recording dividends received from a stock investment accounted for using the equity method, which of the following statements is true? a. Total assets are increased and net income is increased. b. Total assets are increased and total stockholders’ e

> Realized gains and losses are recorded on the income statement for which of the following transactions in trading securities and available-for-sale securities? a. When adjusting a trading security to its fair value. b. Only when recording the sale of a t

> Dividends received from stock that is reported as an available-for-sale security in the long-term assets section of the balance sheet are reported as which of the following? a. An increase to cash and a decrease to the investment in stock account. b. An

> You have the opportunity to invest $10,000 in one of two companies from a single industry. The only information you have is below. Which company would you select? Justify your choice. Industry Average Ratios for Current Year Company A Company B Curre

> Working together as a team, select an industry to analyze. Yahoo Finance provides lists of industries at biz.yahoo.com/p/industries.html. Click on an industry for a list of companies in that industry. Alternatively, go to Google Finance at www.google.com

> Explain how a company’s accounting policy choices can affect its ratios

> What do market ratios focus on? What is an example of a market ratio and how is it computed?

> What do solvency ratios focus on? What is an example of a solvency ratio and how is it computed? Exhibit 13.3:

> Compute the component percentages for Lowe’s income statement below. Discuss any trends you observe. LOWE'S COMPANIES, INC. Consolidated Statements of Earnings (in millions, except per share and percentage data) Fiscal Years Ended o

> What do liquidity ratios focus on? What is an example of a liquidity ratio and how is it computed?

> What do turnover ratios focus on? What is an example of a turnover ratio and how is it computed?

> What do profitability ratios focus on? What is an example of a profitability ratio and how is it computed?

> What are component percentages? Why are they useful?

> Explain why rapid growth in total sales might not necessarily be a good thing for a company.

> Company A uses the FIFO method to account for inventory and Company B uses the LIFO method. The two companies are exactly alike except for the difference in inventory cost flow assumptions. Costs of inventory items for both companies have been rising ste

> Use the data in Problem 5 for Prince Company. Assume that the stock price per share is $28 and that dividends in the amount of $3.50 per share were paid during Year 2. Compute the following ratios: · Earnings per share · Current ratio

> Use the data given in Problem 5 for Prince Company. Data from Problem 5: The comparative financial statements for Prince Company are below: Required: 1. Compute component percentages for Year 2. 2. Compute the ratios in the DuPont model for Year 2.

> The comparative financial statements for Prince Company are below: Required: 1. Complete the following columns for each item in the preceding comparative financial statements: INCREASE (DECREASE) from Year 1 to Year 2 Amount Percent 2. By what amoun

> The current year financial statements for Blue Water Company and Prime Fish Company are presented below. Both companies are in the fish catching and manufacturing business. Both have been in business approximately 10 years, and each has had steady growth

> The following selected financial data pertain to four unidentified companies: The above financial information pertains to the following companies: a. Full-line department store b. Wholesale fish company c. Automobile dealer (low-priced used cars) d. Rest

> Using the financial information presented in Exhibit 13.1, calculate the following ratios for The Home Depot: · Return on equity · Return on assets · Total asset turnover · Inventory turnover · Current ratio · Quick ratio · Cash coverage ratio · Debt-to-

> You have the opportunity to invest $10,000 in one of two companies from a single industry. The only information you have is below. Which company would you select? Justify your choice. Ratios for Current Year Company A Company B Industry Average Curre

> Company X and Company Y are two giants of the retail industry. Both offer full lines of moderately priced merchandise. In the last fiscal year, annual sales for Company X totaled $53 billion and annual sales for Company Y totaled $20 billion. Compare the

> California Pizza Kitchen opened its first restaurant in Beverly Hills in 1985. Almost immediately after the first location opened, it expanded from California to more than 250 locations in more than 30 states and 11 countries. California Pizza Kitchen co

> Ramesh Company has prepared preliminary financial results that are now being reviewed by the accountants. You notice that the current ratio is 2.4 and the quick ratio is 3.7. You recognize that this is unusual. Does it imply that a mistake has been made?

> Youngstown Corporation is considering changing its inventory method from FIFO to LIFO. Assume that inventory prices have been increasing. All else equal, what impact would you expect the change to have on the following ratios: net profit margin, fixed as

> Compute the component percentages for Lowe’s income statement below. Discuss any trends you observe. LOWE'S COMPANIES, INC. Consolidated Statements of Earnings (in millions, except per share and percentage data) Fiscal Years Ended o

> The following selected financial data pertain to four unidentified companies: The above financial information pertains to the following companies: a. Full-line department store b. Wholesale fish company c. Automobile dealer (low-priced used cars) d. Res

> The following selected financial data pertain to four unidentified companies: The above financial information pertains to the following companies: a. Cable TV company b. Grocery store c. Accounting firm d. High-end jewelry store Required: Match each co

> The following selected financial data pertain to four unidentified companies: The above financial information pertains to the following companies: a. Travel agency b. Hotel c. Meat processing company d. Drug company Required: Match each company with it

> The following selected financial data pertain to four unidentified companies: The above financial information pertains to the following companies: a. Cable TV company b. Grocery store c. Accounting firm d. High-end jewelry store Required: Match each co

> The following selected financial data pertain to four unidentified companies: The above financial information pertains to the following companies: a. High-end clothing store b. Advertising agency c. Wholesale candy company d. Car manufacturer Required:

> Dollar General Corporation operates general merchandise stores that feature quality merchandise at low prices. All stores are located in the United States, predominantly in small towns in 24 mid western and southeastern states. In the current year, the c

> Assume current assets totaled $120,000 and the current ratio was 1.5 before the following independent transactions: (1) Purchased merchandise for $40,000 on short-term credit. (2) Purchased a delivery truck for $25,000. Paid $3,000 cash and signed a two-

> Match each ratio or percentage with its computation. Ratios or Percentages Definitions 1. Net profit margin 2. Inventory turnover ratio A. Net Income + Net Sales Revenue 3. Average days to collect receivables 4. Dividend yield ratio 5. Return on equi

> From DuPont model. Using that framework, find the missing amount in each of the following cases: Case 1: ROE is 10 percent; net income is $200,000; the total asset turnover ratio is 5; and net sales are $1,000,000. What is the amount of average stockhold

> In this chapter, we discussed the importance of analyzing financial results based on an understanding of the company’s business strategy. Using the DuPont model, we illustrated how different strategies could earn high returns for investors. Assume that t

> Barton Company requested a large loan from First Federal Bank to acquire a tract of land for future expansion. Barton reported current assets of $1,900,000 ($430,000 in cash) and current liabilities of $1,075,000. First Federal denied the loan request fo

> Refer to the financial statements of American Eagle (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book. Compute the following ratios for fiscal 2014: return on equity, basic earnings per shar

> The following selected financial data pertain to four unidentified companies: The above financial information pertains to the following companies: a. Travel agency b. Hotel c. Meat processing company d. Drug company Required: Match each company with it

> Refer to the financial statements of Urban Outfitters given in Appendix C at the end of this book. Compute the following ratios for fiscal 2014: return on equity, basic earnings per share, net profit margin, inventory turnover, current ratio, debt-to-equ

> Refer to the financial statements of American Eagle Outfitters given in Appendix B at the end of this book. Compute the following ratios for fiscal 2014: return on equity, basic earnings per share, net profit margin, inventory turnover, current ratio, de

> The comparative financial statements for Summer Corporation are below: Required: 1. Complete the following columns for each item in the preceding comparative financial statements: INCREASE (DECREASE) from Year 1 to Year 2 Amount Percent 2. By what am