Question

Question 1 of 10

Express net income as a common-size percentage using the following data. Sales - $45,000; cost of goods sold - $29,340; gross profit from sales - $15,660; operating expenses - $10,800; net income - $4,860.

A. 100 percent

B. 31 percent

C. 12 percent

D. 10.8 percent           

Question 2 of 10

The excess of total assets over total liabilities is called working capital.

A. True B. False

Question 3 of 10

Any reputable company has a cash flow liquidity ratio of greater than 1.0.

A. True B. False

Question 4 of 10

Paid short-term portion of notes payable, $60,000. What is the effect on working capital, the current ratio, and the acid-test ratio? Assume the current ratio is 1:1 before this transaction occurred.

A. Decreases working capital, current ratio, and acid-test ratios.

B. Increases working capital, no effect on current and acid-test ratios.

C. Increases working capital, decreases current and acid-test ratios.

D. No effect on all three items.

E. No effect on working capital, increases current ratio and acid-test ratio.

Question 5 of 10

Collections of loans are a financing activity.

A. True B. False

Question 6 of 10

What is the current ratio for the following data? Cash - $34,000; marketable securities - $16,000; accounts and notes receivable, net - $46,000; merchandise inventory - $61,000; prepaid expenses - $3,000; accounts and notes payable, short term - $64,000; accrued liabilities - $16,000.

A. 1:2

B. 2:1

C. 1.2:1

D. 3:1

E. 4:1

Question 7 of 10

A corporation may elect not to prepare a statement of cash flows.

A. True B. False

Question 8 of 10

The former statement of changes in financial position presented information on the flow of financial resources into and out of a business.

A. True B. False

Question 9 of 10

A company must publish a statement of cash flows for each period for which it publishes an income statement.

A. True B. False

Question 10 of 10

What is the rate earned on common stockholders’ equity for the following data? Total current liabilities (noninterest bearing) - $300,000; bonds payable, 5% (issued in 2007, due in 20 years) - $600,000; preferred 6% stock, $200 par - $240,000; common stock, $20 par - $480,000; premium on common stock - $120,000; retained earnings - $420,000. Income before income taxes was $180,000 and income taxes were $78,000 for the current year.

A. 7 percent

B. 8.6 percent

C. 9.1 percent

D. 8.1 percent

E. 6.1 percent

Answer 1

Ans:

1.

Net income percentage = net income / sales

= $4,860 / $45,000 = 10.80%

2.

Yes True, excess of total assets over total liabilities is known as working capital.

3.

Yes a cash flow liquidity ratio is considered good when its greater than 1. So correct answer is True.

4.

On Payment of short term portion of notes payable, There would be no effect on Working capital, Current ratio and Acid test ratio. So correct answer is option D.

5.

True, Loan collection is a part of Financing Activity cycle of cash flows.

6.

Current ratio = current Asset / current liabilities

Current asset = $34,000 + $16,000 + $46,000 + $61,000 + $3,000 = $160,000

Current Liabilities = $64,000 + $16,000 = $80,000

Current Ratio = $160,000 / $80,000 = 2:1

*Please note that upto 4 subparts are required to be answered in one question. As you have not mentioned which 4 subparts to be answered, first 6 are answered.

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