Question

1)Sometimes called the coverage ratio, this ratio measures the risk that interest payments will not be made if earnings decrease.

a. Number of days' sales in inventory

b. Times interest earned ratio

c. Ratio of fixed assets to long-term liabilities

d. Ratio of liabilities to stockholders' equity

2)The balance sheets at the end of each of the first two years of a company's operations indicate the following:

	Year 2	Year 1
Total current assets	$600,000	$580,000
Total investments	80,000	40,000
Total property, plant, and equipment	935,000	755,000
Total current liabilities	175,000	155,000
Total long-term liabilities	350,000	250,000
Preferred 9% stock, $100 par	100,000	100,000
Common stock, $10 par	600,000	600,000
Paid-in capital in excess of par—common stock	60,000	60,000
Retained earnings	330,000	210,000

If net income is $145,000 and interest expense is $30,000 for Year 2, what is the return on total assets for Year 2?

a. 10.8%

b. 11.7%

c. 19.3%

d. 29.7%

3) Which two reports on internal control are sometimes combined into a single report on internal control?

a. The income statement and the balance sheet

b. The unqualified audit opinion report and the qualified audit opinion report

c. One report by management and one report by a public accounting firm regarding the adequacy of internal controls

d. The MD&A and the Report of Independent Registered Public Accounting Firm

4)given the following information, which company's stockholders received the highest return in the form of dividends?

	Company W	Company X	Company Y	Company Z
Earnings per share	$4.35	$4.75	$4.20	$5.25
Price-earnings ratio	25.1	17.2	18.3	22.0
Dividend yield	3.0%	3.2%	0.0%	2.8%

a. Company W

b. Company Z

c. Company X

d. Company Y

Answer 1

1-	Sometimes called the coverage ratio, this ratio measures the risk that interest payments will not be made if earnings decrease	B	Times interest earned ratio	EBIT/Interest
2-	return on assets = EBIT/total average assets	175000/1495000	11.7%
	EBIT = 145000+30000	175000
	total assets year 2	1615000
	total assets year 1	1375000
	average assets = (1615000+1375000)/2	1495000
3-	Answer is C	One report by management and one report by a public accounting firm regarding the adequacy of internal controls	report of public accountant and management on internal control is combined
4-	Answer is A	company W	Dividend is 3.28
		Market price = PE ratio*EPS	PE ratio	EPS
	W	109.185	25.1	4.35
	X	81.7	17.2	4.75
	Y	76.86	18.3	4.2
	Z	115.5	22	5.25
		Dividend = dividend yield*market price	Dividend Yield	market price
	W	3.28	3%	109.185
	X	2.61	3.20%	81.7
	Y	0.00	0%	76.86
	Z	3.23	2.80%	115.5