Question

1. A corporation reports the following year-end balance sheet data. The company's acid-test ratio equals:

Cash	$	56,000		Current liabilities	$	91,000
Accounts receivable		71,000		Long-term liabilities		48,000
Inventory		76,000		Common stock		116,000
Equipment		161,000		Retained earnings		109,000
Total assets	$	364,000		Total liabilities and equity	$	364,000

Multiple Choice

• 0.62

• 1.40

• 2.23

• 0.38

• 0.62

2. A corporation reports the following year-end balance sheet data. The company's debt-to-equity ratio equals:

Cash	$	45,000		Current liabilities	$	80,000
Accounts receivable		60,000		Long-term liabilities		20,000
Inventory		65,000		Common stock		105,000
Equipment		150,000		Retained earnings		115,000
Total assets	$	320,000		Total liabilities and equity	$	320,000

Multiple Choice

• 0.45

• 1.31

• 2.13

• 0.31

• 0.69

3. Refer to the following selected financial information from Texas Electronics. Compute the company’s inventory turnover for Year 2.

	Year 2			Year 1
Cash	$	39,300		$	34,050
Short-term investments		108,000			69,000
Accounts receivable, net		94,500			88,500
Merchandise inventory		130,000			134,000
Prepaid expenses		13,900			11,500
Plant assets		397,000			347,000
Accounts payable		104,400			116,800
Net sales		720,000			685,000
Cost of goods sold		399,000			384,000

Multiple Choice

• 2.98.

• 5.54.

• 3.02.

• 3.61.

• 3.07.

4. Refer to the following selected financial information from Gomez Electronics. Compute the company’s profit margin for Year 2.

	Year 2			Year 1
Net sales	$	482,500		$	427,050
Cost of goods sold		277,100			250,920
Interest expense		10,500			11,500
Net income before tax		68,050			53,480
Net income after tax		46,850			40,700
Total assets		318,700			292,800
Total liabilities		177,400			168,100
Total equity		141,300			124,700

Multiple Choice

• 9.7%.

• 14.1%.

• 33.2%.

• 16.9%.

• 11.9%.

Answer 1

Answer of Part 1: The correct answer is 1.40

Current Assets = Cash + Accounts Receivable + Inventory
Current Assets = $56,000 + $71,000 + $76,000
Current Assets = $203,000

Acid Test Ratio = (Current Assets – Inventory) / Current Liabilities
Acid Test Ratio = ($203,000 - $76,000) / $91,000
Acid Test Ratio = $127,000 / $91,000
Acid Test Ratio = 1.40

Answer of Part 2: The correct answer is 0.45

Debt-Equity Ratio = Total Liabilities / Total Equity
Debt-to-Equity Ratio = ($80,000 + $20,000) / ($105,000 + $115,000)
Debt-to-Equity ratio = $100,000 / $220,000
Debt-to-Equity Ratio= 0.45

Answer of Part 3: The correct answer is 3.02

Average Inventory = (Beginning Inventory + Ending Inventory) /2
Average Inventory = ($134,000 + $130,000) /2
Average Inventory = $132,000

Inventory turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $399,000 / $132,000
Inventory Turnover = 3.02

Answer of Part 4: The correct answer is 9.7%

Profit Margin Ratio = Net Income After Tax / Sales *100
Profit Margin Ratio = $46,850 / $482,500 * 100
Profit Margin Ratio = 9.7%