Professional Documents
Culture Documents
(123doc) Test Bank With Answers For Financial Accounting 6e by Libby Chapter 14
(123doc) Test Bank With Answers For Financial Accounting 6e by Libby Chapter 14
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
2. The only way an investor will get a return on stock while they own the shares is for the
corporation to distribute a dividend.
TRUE
3. Return on equity (ROE) is a function of three ratios: net profit margin, return on assets, and
financial leverage.
FALSE
4. Time series analysis is where we compare information for a specific company over a period
of time to determine changes in operations.
TRUE
14-1
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
7. Negative financial leverage occurs when a company has more debt than stockholders'
equity.
FALSE
14-2
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
9. A company that has a high level of inventory and other assets above their investment in
property, plant and equipment, should calculate the total asset turnover ratio in addition to the
fixed asset turnover ratio.
TRUE
10. A company with a high amount of inventory will have a much lower fixed asset turnover
ratio when compared to its total asset turnover ratio.
FALSE
11. The current ratio is sometimes called the working capital ratio.
TRUE
12. The average days' supply in inventory is computed by dividing the days in the year by the
ending balance of inventory.
FALSE
14-3
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
13. A very high current ratio and low quick ratio may indicate the company is not collecting
its accounts receivables in a timely manner.
FALSE
14. The current ratio is a more stringent test of liquidity than the quick ratio.
FALSE
15. A low inventory turnover ratio can indicate high sales and/or low inventory levels.
FALSE
16. The quality of income computation is a test of the solvency of the company.
FALSE
17. Times interest earned gives an indication of the margin of protection for creditors.
TRUE
14-4
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
18. Many companies use high levels of debt to finance their assets because of financial
leverage benefits provided to investors when return on assets (ROA) exceeds the after tax cost
of interest.
TRUE
19. Dividend yield is calculated by dividing dividends per share by earnings per share and
measures the current dividend return to investors.
FALSE
20. A high price earnings ratio usually indicates the market is optimistic about the company's
future earnings potential.
TRUE
14-5
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
22. There are several fundamental purposes decision makers consider when they use financial
data. Which of the following statements is not one of those fundamental purposes?
A. Measurement of the current condition of the business.
B. Measurement of past performance of the business.
C. Measurement of the book value of the assets of the business to predict future dividends.
D. Prediction of future potential of the business.
23. When considering an investment, which of the following is not one of the three critical
factors used to evaluate future earning potential of that investment?
A. Financial analysts' reports.
B. Economy wide factors.
C. Industry factors.
D. Individual company factors.
14-6
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
25. Which of the following companies is most likely pursuing a product differentiation
strategy?
A. Wal-Mart
B. Kia
C. McDonalds
D. Cadillac
26. Which of the following is most likely pursuing a cost advantage strategy?
A. Cadillac
B. Tiffany
C. Wal-Mart
D. Mercedes
14-7
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
14-8
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
14-9
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
33. In 2010, Home Style's cost of goods sold percentage was 68.2% and its selling and store
operating costs was 19.3% of sales. In 2009, their cost of goods sold percentage was 68.9%
while its selling and store operating costs was 19.2% of sales. What effect would the change
in these percentages have on 2010's gross margin percentage and profit margin percentage?
A. Cost of goods sold would increase gross margin and profit margin percentages but selling
and store operating costs would decrease gross margin and profit margin percentages.
B. Cost of goods sold would decrease gross margin and profit margin percentages but selling
and store operating costs would increase gross margin and profit margin percentages.
C. Cost of goods sold would increase gross margin and profit margin percentages but selling
and store operating costs would decrease the profit margin percentage.
D. Cost of goods sold would decrease gross margin and profit margin percentages but selling
and store operating costs would increase profit margin percentage.
34. Which of the following ratios usually is not considered to be a test of profitability?
A. Current ratio.
B. Profit margin.
C. Return on assets.
D. Earnings per share.
35. Which of the following items is not a category of commonly used financial ratios?
A. Tests of solvency.
B. Tests of liquidity.
C. Tests of timing.
D. Tests of profitability.
14-10
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
14-11
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
39. Maxwell Company's return on equity was 18% and the financial leverage percentage was
13% (positive). Return on assets was
A. 31%.
B. 18%.
C. 13%.
D. 5%.
14-12
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
40. Trenton Company has outstanding shares as follows: common stock, no par, 150,000
shares and preferred stock, par $10, 25,000 shares. The number of shares that should be used
in the denominator to compute earnings per share should be
A. 150,000.
B. 175,000.
C. 125,000.
D. 100,000.
41. Cecilia Company reported net income of $1,200,000. Their average total liabilities were
$4,300,000 and average total stockholders' equity was $5,200,000. Interest expense was
$100,000 and they are in a 30% tax bracket. Their return on assets is
A. 12.6%.
B. 16.3%.
C. 13.3%.
D. 13.7%.
42. The use of borrowed funds to enhance the return to the stockholders is known as
A. liquidity.
B. factoring.
C. discounting.
D. financial leverage.
14-13
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
45. A company with a very high gross profit ratio would most likely be
A. an advertising agency.
B. a CPA firm.
C. a local grocery store.
D. a Porsche dealership.
14-14
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
46. If a company's return on equity (ROE) ratio increases from one year to the next, the most
likely cause is
A. an increase in net income.
B. a reduction in total expenses as a percentage of sales.
C. an increase in stockholders' equity.
D. an increase in net income and/or a reduction in total expenses as a percentage of sales.
47. If a company's return on assets (ROA) stays the same from one year to the next but its
financial leverage ratio increases, then the most likely cause is
A. an increase in the debt to equity ratio.
B. a decrease in net income.
C. an increase in total assets.
D. an increase in stockholders' equity.
14-15
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
50. An important measure of the average movement of goods "on and off the shelf" of a
company is the
A. profit margin.
B. price/earnings ratio.
C. inventory turnover ratio.
D. gross inventory ratio.
51. Teague Company's working capital was $40,000 and total current liabilities were 1/4 of
that amount. The current ratio was
A. 1 to 1.
B. 3 to 1.
C. 5 to 1.
D. 7 to 1.
14-16
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
53. If the current ratio is 2 to 1, the payment of a cash dividend, which was recorded as a
liability on the date of declaration, will
A. increase the current ratio.
B. decrease the current ratio.
C. have no effect on the current ratio.
D. invalidate earnings per share.
14-17
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
54. Which of the following transactions would increase the current ratio of a company if the
ratio is currently more than 1 to 1?
A. Paid the principal on a long-term note payable.
B. Borrowed cash on a short-term note.
C. Sold inventory for more than cost.
D. Purchased supplies with cash.
55. Potaw Company reported the following data at the end of 2010:
14-18
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
58. Cromwell Company began the year with a balance in inventory of $110,000 and ended the
year with a balance of $102,000. The net sales for the year were $983,000 with a gross profit
on sales of $295,000. What was the inventory turnover ratio?
A. 2.78 times.
B. 9.27 times.
C. 6.49 times.
D. 2.89 times.
59. Thomas Company had income before interest and taxes of $120,000. Interest expense for
the period was $17,000 and income taxes amounted to $28,500. The average stockholders'
equity was $680,000. What is Thomas Company's return on equity (ROE)?
A. 17.65%.
B. 15.15%.
C. 13.46%.
D. 10.96%.
14-19
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
60. Wildlife Co. reported net income of $8.3 million, interest expense of $.5 million and they
are in a 30% tax rate bracket. Their average total assets are $65.8 million and average
stockholders' equity is $48.6 million. What is Wildlife Co.'s financial leverage percentage?
A. 3.7%
B. 4.5%
C. 4.0%
D. 4.7%
14-20
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
63. Which of the following companies is most likely to have the highest inventory turnover
ratio?
A. Taco Bell franchises.
B. Publix food supermarkets.
C. Wal-Mart.
D. Mercedes Benz dealership.
14-21
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
66. The following ratio would be used to evaluate the long-term risk and capital structure of a
company:
A. debt/equity ratio.
B. quick ratio.
C. profit margin.
D. cash ratio.
67. The accounting ratio which considers the importance of cash flows relating to required
interest payments is the
A. times interest earned ratio.
B. debt/equity ratio.
C. cash coverage ratio.
D. receivable turnover ratio.
14-22
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
70. Which ratio reflects the stock market's assessment of a company's future performance?
A. price/earnings ratio.
B. dividend yield ratio.
C. book value per share.
D. cash coverage ratio.
71. The Apple Pie Company had net income of $47,500 and earnings per share of $3.17
during 2010. On December 31, 2010, the stock had a market price of $18.50 per share. What
is Apple Pie Company's price/earnings ratio?
A. 25.70.
B. 8.11.
C. 5.84.
D. 0.17.
14-23
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
72. Main Street Company paid out $2.30 in dividends per share during 2010. The market
price of the stock on December 31, 2010 was $21.00 per share. There were 15,000 shares of
stock outstanding for the entire year. The dividend yield as of December 31, 2010 was
A. 16.43%.
B. 10.95%.
C. 9.13%.
D. 913.04%.
73. MusicPod's earnings per share ratios were $2.47 and $2.07 respectively for 2010 and
2009. MusicPod's stock was trading at $53.00 and $41.50 per share in 2010 and 2009
respectively. The company paid cash dividends per share of $.85 in 2010 and $.63 in 2009.
Total stockholders' equity was $13,572 million and $11,896 million in 2010 and 2009
respectively. The common shares outstanding were approximately 1,782,000 in both 2010 and
2009.
Calculate MusicPod's price earnings ratio for 2010 and 2009 respectively.
A. 21.5 and 0.20 times.
B. 1.0% and 2.9%.
C. 21.5% and 20.0%.
D. 21.5 and 20.0 times.
14-24
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
74. MusicPod's earnings per share ratios were $2.47 and $2.07 respectively for 2010 and
2009. MusicPod's stock was trading at $53.00 and $41.50 per share in 2010 and 2009
respectively. The company paid cash dividends per share of $.85 in 2010 and $.63 in 2009.
Total stockholders' equity was $13,572 million and $11,896 million in 2010 and 2009
respectively. The common shares outstanding were 1,782,000 in both 2010 and 2009.
Calculate MusicPod's dividend yield for 2010 and 2009 respectively.
A. 39.1% and 39.1%.
B. 39.3% and 33.8%.
C. 1.6% and 1.5%.
D. 3.2% and 1.1%.
75. A new company with a high property, plant, and equipment balance would most likely be
A. a cell phone retailer.
B. a hotel.
C. a pizza take-out company.
D. a hot dog vendor on an airport concourse.
76. A company with a high merchandise inventory balance would most likely be
A. a hotel.
B. a travel agency.
C. a jewelry store.
D. a law firm.
14-25
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
77. In 2010, Price's Pizzas return on owners' equity (ROE) was 32.3%, and return on assets
(ROA) was 17.0%. In 2010, Carlos' Calzones return on owners' equity (ROE) was 33.1%
while return on assets (ROA) was 16.3%. Which of the following statements is true?
A. Price's Pizzas return on assets (ROA) indicates better performance than does Carlos'
Calzones ROA.
B. Price's Pizzas ROE was 103% greater than their ROA while Carlos' Calzones ROE was
only 90% greater than their ROA. This difference is caused by Price's Pizzas higher use of
debt financing to leverage their assets.
C. Carlos' Calzones provided higher positive financial leverage for their stockholders
compared to Price's Pizzas.
D. None of the other answers are true.
78. In 2010, Carlos' Calzones gross profit percentage was 65.2% and their profit margin was
22.1%. In 2010, Price's Pizzas gross profit percentage was 54.2% and their profit margin was
14.4%. Which of the following is false?
A. Carlos' Calzones cost of goods sold was a lower percentage of sales than Price's Pizzas.
B. In 2010, Carlos' Calzones profit margin was 53% greater than Price's Pizzas which would
contribute to a higher return on total investment.
C. The major reason for Price's Pizzas lower profit margin is that their selling, general and
administrative expenses were double the percentage of sales compared to Carlos' Calzones
percentage.
D. All of these are false.
14-26
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
79. In 2010, Carlos' Calzones accounts receivable turnover ratio and days' sales in receivables
was 10.31 times and 35.4 days. In 2010, Price's Pizzas accounts receivable turnover ratio and
days' sales in receivables was 10.04 times and 36.4 days. Which of the following statements is
true?
A. Both companies have a similar turnover ratio.
B. Price's Pizzas higher turnover ratio has a direct relationship to its days' sales tied up in
receivables.
C. Price's Pizzas management has done a better job of managing their receivables.
D. All of the answers are true.
80. Information which is known by accountants or other employees of a company prior to its
public release is called
A. insider information.
B. public information.
C. financial information.
D. secure information.
14-27
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
Essay Questions
81. Complete the following income statement (both dollar amounts and component percents):
14-28
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
83. Packers Corporation reported the following data for the year ended December 31, 2009:
14-29
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
84. At the end of 2009, Jagged Corporation reported a return on assets of 16%; net income of
$42,000; average total assets of $365,000, and average total liabilities of $165,000. Compute
the financial leverage percentage.
85. At the end of 2010, Doran Corporation reported net income of $70,000, gross sales
revenue of $1,525,000, and sales returns of $125,000. Compute profit margin.
14-30
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
14-31
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
87. The 2010 financial statements of Companies Y and Z showed the following:
Part A: For each company, compute the items listed in the following tabulation.
Part B: Assuming both Company Y and Company Z are in the same industry, which company
(Y or Z) appears to be the better investment and why?
Part A:
Part B: Company Y appears to be a better investment. Company Y's return on equity and
return on assets are both higher than Company Z's. Also, financial leverage is greater for
Company Y. The fact that Company Y's net income is lower is not necessarily a critical
factor.
14-32
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
88. The following return on investment ratios were computed for Steven Company:
Required:
A. Compute financial leverage percentage for each year.
B. Explain briefly the stockholders' advantage or disadvantage for each year.
14-33
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
89. The following data were shown in the records of Victoria Company at the end of 2010:
14-34
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
91. Compete Corporation reported a quick ratio of 1.75, current assets of $50,000 and a
current ratio of 2.
A. Compute the total amount of quick assets.
B. What is another name for the quick ratio?
C. Describe what type of assets is considered quick assets and give some examples.
D. How does the quick ratio compare to the current ratio?
14-35
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
14-36
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
93. Walkers World Company gathered the following information for 2010:
14-37
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
94. De Carlo Company had the following data available from the balance sheets and income
statements:
14-38
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
95. Indicate the effect of each item on the ratios given below in the following manner: if an
item would cause an increase in the ratio, place a check in the + column; if a decrease place a
check in - column; and if no change, check the 0 column. Each item is independent of the
others.
14-39
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
14-40
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
97. Carolina Company computed the following ratios for a two year period:
Required:
Comment on the trend of each of the ratios from 2009 to 2010. State concerns or possible
implications for the future of each.
A. The current ratio has decreased to half of the 2009 ratio. The company's liquidity is taking
a down turn. Currently due bills may not be able to be paid in a timely manner.
B. ROE decreased. The profitability of the company may be of concern.
C. The quality of income ratio went from above one to below one. The 2010 earnings are of
lower quality than those of 2009.
D. Cash coverage has plummeted. One might be concerned about the declining amount of
cash from operations to pay interest payments.
E. Since the profit margin declined from 2009 to 2010, less of each sales dollar is realized in
income.
Note: Overall, the company is experiencing unfavorable trends.
14-41
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
98. The following financial data are available for Murphy Company:
14-42
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
A. 3.0% (.60/20)
B. EPS = $275,000 175,000 shares = $1.57
PE = $20 $1.57 = 12.74
C. $280,000 275,000 = 1.02
14-43
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
100. Polk Corporation reported the following information related to its common stock (par
$10) outstanding and net income:
14-44
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
101. MNF Corporation gathered the following data at the end of the accounting period,
December 31, 2009:
Part 1.
A. $60,000 $1,200,000 = 5%
B. $60,000 $300,000 = 20%
C. $60,000 50,000 shares = $1.20
D. ($22,500 50,000 shares) $9 = 5%
E. $9.00 $1.20 = 7.5
F. [$60,000 + ($25,000 .60)] $500,000 = 15%
G. 20% 15% = 5%
Part 2. The advantage is favorable to the stockholders if the ratio is positive, and it is
unfavorable to the stockholders if the ratio is negative because of the difference between
earnings on total assets and the cost of debt (interest expense net of income tax). For MNF
Corporation, the company's stockholders are benefiting from financial leverage because the
cost of borrowing is less than the return to the shareholders.
14-45
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
Matching Questions
14-46
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e
To
Todownload
downloadmore
moreslides,
slides,ebook,
ebook,solutions
solutionsand
andtest
testbank,
bank,visit
visithttp://downloadslide.blogspot.com
http://downloadslide.blogspot.com
14-47
©2009 McGraw-Hill Inc. Test Bank to accompany Libby Financial Accounting 6/e