BUSINESS

17) The marginal tax rate represents the rate at which additional income is taxed.

A) True

B) False

 

 

18) Retained earnings represent the cumulative total of all earnings retained and reinvested in the firm since its inception.

A) True

B) False

 

 

19) The stockholder’s annual report must include

A) a statement of cash flows.

B) an income statement.

C) a balance sheet.

D) a statement of retained earnings.

E) all of the above.

 

 

20) Gross profits are defined as

A) operating profits minus depreciation.

B) operating profits minus cost of goods sold.

C) sales revenue minus operating expenses.

D) sales revenue minus cost of goods sold.

 

 

21) A firm had the following accounts and financial data for 2005.

 

 

The firm’s earnings available to common shareholders for 2005 were

A) -$224.25

B) $195.40

C) $302.40

D) $516.60

 

 

22) A firm had the following accounts and financial data for 2005.

 

 

The firm’s net profit after taxes for 2005 was ________.

A) -$206.40

B) $213.80

C) $320.40

D) $206.25

 

 

23) The firm’s creditors are primarily interested in the short-term liquidity of the company and its ability to make interest and principal payments.

A) True

B) False

 

 

24) Ratio analysis merely directs the analyst to potential areas of concern; it does not provide conclusive evidence as to the existence of a problem.

A) True

B) False

 

 

25) In ratio analysis, the financial statements being used for comparison should be dated at the same point in time during the year. If not, the effect of seasonality may produce erroneous conclusions and decisions.

A) True

B) False

 

 

26) ________ analysis involves the comparison of different firms’ financial ratios at the same point in time.

A) Time-series

B) Cross-sectional

C) Marginal

D) Quantitative

 

 

27) The primary concern of creditors when assessing the strength of a firm is the firm’s

A) profitability.

B) leverage.

C) short-term liquidity.

D) share price

 

 

28) The analyst should be careful when conducting ratio analysis to ensure that

A) the overall performance of the firm is not judged on a single ratio.

B) the dates of the financial statements being compared are the same.

C) audited statements are used.

D) the same accounting procedures were used.

E) all of the above.

 

 

29) The current ratio provides a better measure of overall liquidity only when a firm’s inventory cannot easily be converted into cash. If inventory is liquid, the quick ratio is a preferred measure of overall liquidity.

A) True

B) False

 

 

30) The ________ measures the percentage of each sales dollar remaining after ALL expenses, including taxes, have been deducted.

A) net profit margin

B) operating profit margin

C) gross profit margin

D) earnings available to common shareholders

 

 

Table 3.2

 

Dana Dairy Products Key Ratios

 

Income Statement

Dana Dairy Products

For the Year Ended December 31, 2010

 

Balance Sheet

Dana Dairy Products

December 31, 2010

 

31) The current ratio for Dana Dairy Products in 2005 was ________. (See Table 3.2)

A) 1.58

B) 0.63

C) 1.10

D) 0.91

 

 

32) Since 2009, the liquidity of Dana Dairy Products ________. (See Table 3.2)

A) has deteriorated

B) remained the same

C) has improved

D) cannot be determined

 

 

33) The inventory turnover for Dana Dairy Products in 2010 was ________. (See Table 3.2)

A) 43

B) 5

C) 20

D) 25

 

 

34) The average collection period for Dana Dairy Products in 2010 was (See Table 3.2)

A) 32.5 days.

B) 11.8 days.

C) 25.3 days.

D) 35.9 days.

 

 

35) If Dana Dairy Products has credit terms which specify that accounts receivable should be paid in 25 days, the average collection period ________ since 2009. (See Table 3.2)

A) has deteriorated

B) remained the same

C) has improved

D) cannot be determined

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