The measures of the ability of a company to meet its current obligations are called a. ratios. b. liquidity ratios. c. leverage ratios. d. profitability ratios. e. percentage changes.
> Audio Mart is a retailer of radios, stereos, and televisions. The store carries two portable sound systems that have radios, tape players, and speakers. System A, of slightly higher quality than System B, costs $20 more. With rare exceptions, the store a
> Hetrick Dentistry Services operates in a large metropolitan area. Currently, Hetrick has its own dental laboratory to produce porcelain and gold crowns. The unit costs to produce the crowns are as follows: Fixed overhead is detailed as follows: Salary
> Rianne Company produces a light fixture with the following unit cost: Direct materials ………………………………………. $2 Direct labor ……………………………………………….. 1 Variable overhead ……………………………………... 3 Fixed overhead …………………………………………. 2 Unit cost …………………………………………………. $8 Th
> As pointed out earlier in ‘‘Here’s the Real Kicker,’’ Kicker changed banks a couple of years ago because the loan officer at its bank moved out of state. Kicker saw that as an opportunity to take bids for its banking business and to fine-tune the banking
> Heather Alburty purchased a previously owned, 2004 Grand Am for $8,900. Since purchasing the car, she has spent the following amounts on parts and labor: New stereo system $1,200 Trick paint 400 New wide racing tires 800 Total $2,400 Unfortunately, the
> Bozo Inc. manufactures two products from a joint production process. The joint process costs $110,000 and yields 6,000 pounds of LTE compound and 14,000 pounds of HS compound. LTE can be sold at split-off for $55 per pound. HS can be sold at split-off fo
> Jan Shumard, president and general manager of Danbury Company, was concerned about the future of one of the company’s largest divisions. The division’s most recent quarterly income statement follows: Sales ………………………………………………………………………. $3,751,500 Less: C
> Pamela McDonald, chief management accountant and controller for Murray Manufacturing Inc., was having lunch with Roger Branch, manager of the company’s power department. Over the past six months, Pamela and Roger had developed a romantic relationship and
> What is residual income? What is EVA? How does EVA differ from the general definition of residual income?
> Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipmen
> Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipmen
> Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipmen
> Zion Manufacturing had always made its components in-house. However, Bryce Component Works had recently offered to supply one component, K2, at a price of $25 each. Zion uses 10,000 units of Component K2 each year. The cost per unit of this component is
> Zion Manufacturing had always made its components in-house. However, Bryce Component Works had recently offered to supply one component, K2, at a price of $25 each. Zion uses 10,000 units of Component K2 each year. The cost per unit of this component is
> Blasingham Company is currently manufacturing Part Q108, producing 35,000 units annually. The part is used in the production of several products made by Blasingham. The cost per unit for Q108 is as follows: Direct materials ………………………………… $ 6.00 Direct l
> Jason Kemp was torn between conflicting emotions. On the one hand, things were going so well. He had just completed six months as the assistant financial manager in the Electronics Division of Med-Products Inc. The pay was good, he enjoyed his coworkers,
> A company like Kicker performs warranty repair work on speakers in a manufacturing cell. The typical warranty repair involves taking the defective speaker apart, testing the components, and replacing the defective components. The maximum capacity of the
> The following list gives a number of measures associated with the Balanced Scorecard: a. number of new customers b. percentage of customer complaints resolved with one contact c. unit product cost d. cost per distribution channel e. suggestions per emplo
> The theoretical cycle time for a product is 30 minutes per unit. The budgeted conversion costs for the manufacturing cell are $2,700,000 per year. The total labor minutes available are 600,000. During the year, the cell was able to produce 1.5 units of t
> Name and discuss three possible reasons that the payback period is used to help make capital investment decisions.
> Techno via Inc. has two divisions: Auxiliary Components and Audio Systems. Divisional managers are encouraged to maximize ROI and EVA. Managers are essentially free to determine whether goods will be transferred internally and what will be the internal t
> Lansing Electronics Inc. manufactures a variety of printers, scanners, and fax machines in its two divisions: the PSF Division and the Components Division. The Components Division produces electronic components that can be used by the PSF Division. All t
> Green World Inc. is a nursery products firm. It has three divisions that grow and sell plants: The Western Division, the Southern Division, and the Canadian Division. Recently, the Southern Division of Green World acquired a plastics factory that manufac
> Blasingham Company is currently manufacturing Part Q108, producing 35,000 units annually. The part is used in the production of several products made by Blasingham. The cost per unit for Q108 is as follows: Direct materials ………………………………… $ 6.00 Direct l
> The manager of a division that produces add-on products for the automobile industry has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans and minivans. The second is a tu
> Ready Electronics is facing stiff competition from imported goods. Its operating income margin has been declining steadily for the past several years. The company has been forced to lower prices so that it can maintain its market share. The operating res
> Grinnell Lake Gift Shop has decided to price the candles that it sells at cost plus 80%. One type of carved bear-shaped candle costs $12, and huckleberry-scented votive candles cost $1.10 each. Required: 1. What price will Grinnell Lake Gift Shop charge
> Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 2,460 hou
> Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 2,460 hou
> Lasker Company divided its tool production factory into manufacturing cells. Each cell produces one product. The cordless drill cell had the following data for last quarter: Maximum units produced in a quarter: ………….. 90,000 units Actual units produced
> What are margin and turnover? Explain how these concepts can improve the evaluation of an investment center.
> Prakesh Company has the following data for one of its manufacturing cells: Maximum units produced in a month: ……………. 50,000 units Actual units produced in a month: ………………….. 40,000 units Hours of production labor in one month: ………… 10,000 hours Require
> Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms.
> Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms.
> The following information has been gathered for Malette Manufacturing: Required: 1. Compute the return on assets. 2. Compute the return on common stockholders’ equity. 3. Compute the earnings per share. 4. Compute the price-earnings r
> Suppose that you are considering investing in one of two companies, each in the same industry. The most recent income statements for each company and other relevant information are as follows: Required: Note: Round answers to two decimal places. 1. Com
> Based on customer feedback, Ted Pendleton, manager of Gray Company, which produces photo supplies, decided to grant more liberal credit terms. Ted chose to allow customers to have 60 days before full payment of the account was required. From 2010 through
> Albion Inc. provided the following information for its most recent year of operation. The tax rate is 40%. Required: 1. Compute the following: (a) return on sales, (b) return on assets, (c) return on stockholders’ equity, (d) earnings
> Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms.
> Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company’s financial statement
> Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company’s financial statement
> Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company’s financial statement
> The after-tax cost of interest expense is used in calculating which of the following? a. Times-interest-earned b. Return on assets c. Debt ratio d. Inventory turnover ratio e. All of these.
> A small pizza restaurant, founded and owned by the Martinelli sisters, would be expected to have which of the following? a. Low inventory turnover and high gross margin b. Low accounts receivable turnover and low gross margin c. High price-earnings rati
> Fred and Torrie Jones are a retired couple looking for income. They are currently rebalancing their portfolio of stocks to include more with high dividends. Fred and Torrie will be most interested in which of the following? a. Current ratio b. Dividend
> Profitability ratios are used by which of the following groups? a. Company managers b. Creditors c. Lenders d. Investors e. All of these.
> Etchey Company shows that 46% of its assets are financed by creditors. Which of the following shows this result? a. Current ratio b. Times-interest-earned ratio c. Debt ratio d. Inventory turnover in days e. Return on sales
> Pedee Company’s inventory turnover in days is 80 days. Which of the following actions could help to improve that ratio? a. Increase sales price. b. Increase manufacturing costs. c. Reduce cost of goods sold. d. Reduce average inventory. e. All of these.
> Austin Porter is a sophomore at a small Midwestern university (SMWU). He is considering whether to continue at this university or to transfer to one with a nationally recognized engineering program. Austin’s decision-making process included the following
> Fractions or percentages computed by dividing one account or line-item amount by another are called a. returns. b. industry averages. c. common-size statements. d. dividend yields. e. ratios.
> An advantage of common-size analysis is that a. the size of dollar amounts impacts the analysis. b. larger companies will have higher common-size percentages. c. it focuses only on vertical analysis. d. the effects of size are eliminated. e. it focuses
> In examining Luke Company’s current period income statement, you notice that Research and Development expenses are 62% of sales revenue. Luke has most likely provided a. a horizontal analysis. b. a vertical analysis using sales as the base. c. a horizon
> In a JIT manufacturing environment, the current ratio and the quick ratio are virtually the same. Do you agree? Why?
> Explain the significance of the inventory turnover ratio in a JIT manufacturing environment.
> Why would investors and creditors be interested in knowing the dilutive effects of convertible securities on earnings per share?
> Explain how an investor might use the price-earnings ratio to value the stock of a company.
> Assume that you have been given the responsibility to invest some funds in the stock market to provide an annuity to an individual who has just retired. Explain how you might use the dividend yield and the dividend payout ratio to help you with this inve
> Explain why an investor would be interested in a company’s debt ratio.
> Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last year’s results: Washington’s actual cost of capital was 12%. Required: 1. Calculate the
> A manager decided to acquire some expensive equipment through the use of an operating lease even though a capital budgeting analysis showed that it was more profitable to buy than to lease. However, the purchase alternative would have required the issuan
> A loan agreement between a bank and a customer specified that the debt ratio could not exceed 60%. Explain the purpose of this restrictive agreement.
> Suppose that the accounts receivable turnover ratio of a company is low when compared with other firms within its industry. How would this information be useful to the managers of a company?
> What information does the quick ratio supply that the current ratio does not?
> Identify two types of standards used in ratio analysis. Explain why it is desirable to use both types.
> What are liquidity ratios? Leverage ratios? Profitability ratios?
> Name the two major types of financial statement analysis discussed in this chapter.
> In a completed worksheet, a. the debit column contains the cash inflows. b. the debit column contains the cash outflows. c. the credit column contains the cash inflows. d. the credit column contains only operating cash flows. e. None of the above.
> A worksheet approach to preparing the statement of cash flows a. is a useful aid. b. uses a spreadsheet format. c. offers an efficient and logical way of organizing the data. d. allows an easy extraction of the needed data. e. All of these.
> Which method calculates operating cash flows by adjusting the income statement on a line-by-line basis? a. Direct method b. Indirect method c. Working paper approach d. Income method e. None of these.
> Comfy Fit Company manufactures two types of university sweatshirts, the Swoop and the Rufus, with unit contribution margins of $5 and $15, respectively. Regardless of type, each sweatshirt must be fed through a stitching machine to affix the appropriate
> Which of the following is a financing activity? a. Increase in inventories b. Purchase of land c. Increase in accounts receivable d. Issuance of a mortgage e. All of these.
> Which of the following is an investing activity? a. Issuance of a mortgage b. Increase in accounts receivable c. Purchase of land d. Increase in inventories e. All of these.
> The gain on sale of equipment is deducted from net income to arrive at operating cash flows because a. the sale of long-term assets is an operating activity. b. the gain reveals the total cash received. c. all of the cash received from the sale is repor
> An increase in inventories is deducted from net income to arrive at operating cash flow because a. cash payments to customers were larger than the purchases made during the period. b. purchases are larger than the cost of goods sold by the amount that i
> An increase in accounts receivable is deducted from net income to obtain operating cash flows because a. cash collections increased due to increasing sales. b. cash collections from customers were less than the revenues reported. c. cash collections dec
> Which of the following adjustments to net income is needed to obtain cash flows? a. Eliminate gains on sale of equipment. b. Deduct from net income all noncash expenses (e.g., depreciation and amortization). c. Deduct from net income any increases in cu
> Which of the following adjustments helps to convert accrual income to operating cash flows? a. Deduct from net income all noncash expenses. b. Add to net income a decrease in inventories. c. Add to net income a decrease in accounts payable. d. Deduct fr
> The difference between the beginning and ending cash balances shown on the balance sheet a. is added to net income to obtain total cash inflows. b. serves as a control figure for the statement of cash flows. c. is deducted from net income to obtain net
> Uses of cash include a. cash dividends. b. the sale of old equipment. c. the purchase of long-term assets. d. only a and b. e. only a and c.
> Sources of cash include a. profitable operations. b. the issuance of long-term debt. c. the sale of long-term assets. d. the issuance of capital stock. e. all of these.
> Jack’s Lumber Yard receives 8,000 large trees each period that it subsequently processes into rough logs by stripping off the tree bark and leaves (i.e., one tree equals one log). Jack’s then must decide whether to sell its rough logs (for use in log cab
> Raising cash by issuing capital stock is an example of a. a financing activity. b. an investing activity. c. an operating activity. d. a noncash transaction. e. none of these.
> Cash outflows from operating activities come from a. collection of sales revenues. b. payment for operating costs. c. acquisition of operating equipment. d. retirement of bonds. e. none of these.
> Cash inflows from operating activities come from a. payment for raw materials. b. gains on the sale of operating equipment. c. collection of sales revenues. d. issuing capital stock. e. issuing bonds.
> Consider the following independent events: a. Loss on sale of an asset b. Decrease in accounts receivable c. Increase in prepaid insurance d. Depreciation expense e. Decrease in accounts payable f. Uncollectible accounts expense g. Increase in wages paya
> Explain the reasoning for including the payment of dividends in the financing section of the statement of cash flows.
> In computing the period’s net operating cash flows, why are noncash expenses added back to net income?
> In computing the period’s net operating cash flows, why are decreases in liabilities and increases in current assets deducted from net income?
> Explain how a company can report a loss and still have a positive net operating cash flow.
> Explain how a company can report a positive net income and yet still have a negative net operating cash flow.
> Why is it better to report the noncash investing and financing activities in a supplemental schedule rather than to include these activities on the body of the statement of cash flows?
> Shown below is a segmented income statement for Hickory Company’s three wooden flooring product lines: Relevant fixed costs associated with this line include 80% of parquet’s machine rent and all of parquetâ&#
> Explain the all-financial-resources approach to reporting financing and investing activities.
> Of the three categories on the statement of cash flows, which do you think provides the most useful information? Explain.
> The activity format calls for three categories on the statement of cash flows. Define each category.
> What are cash equivalents? How are cash equivalents treated in preparing a statement of cash flows?
> Assume that there are two competing projects, A and B. Project A has a NPV of $1,000 and an IRR of 15%. Project B has an NPV of $800 and an IRR of 20%. Which of the following is true? a. Project A should be chosen because it has a higher NPV. b. Project
> For competing projects, NPV is preferred to IRR because a. maximizing IRR maximizes the wealth of the owners. b. in the final analysis, relative profitability is what counts. c. choosing the project with the largest NPV maximizes the wealth of the share
> Post audits of capital projects are useful because a. they are not very costly. b. they have no significant limitations. c. the assumptions underlying the original analyses are often invalidated by changes in the actual working environment. d. they help
> A post audit a. is a follow-up analysis of a capital project, once implemented. b. compares the actual benefits with the estimated benefits. c. evaluates the overall outcome of the investment. d. proposes corrective action, if needed. e. does all of the
