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Results Reporter
Out of 10 questions, you answered 3 correctly with a final grade of 30% 3 correct (30%) 7 incorrect (70%) 0 unanswered (0%)

Your Results:
The correct answer for each question is indicated by a .

1 INCORRECT

The following data have been taken from Alexandria Company's financial records for the current year:

The price­earnings ratio is: A) 1.67 to 1. B) 7.0 to 1. C) 9.0 to 1. D) 15.0 to 1. Feedback: The correct answer is C: Learning Objective 2 – Determine the price­earnings ratio as follows: Price­earnings ratio = Market price per share ÷ Earnings per share Price­earnings ratio = $180 ÷ $20 = 9.0 to 1

2 CORRECT

The market price of the common stock of Tanner Company dropped from $50 to $42 per share. The dividend paid per share remained unchanged. The company's dividend payout ratio would: A) be unchanged. B) increase. C) decrease. D) be impossible to determine without more information. Feedback: The correct answer is A: Learning Objective 2 – The dividend payout ratio is determined by dividing dividends per share by earnings per share. As such, a change in the market price per share has no impact on the dividend payout ratio.

3 INCORRECT

Financial leverage is negative when: A) the return on total assets is less than the rate of return on common stockholders' equity. B) the return on total assets is less than the rate of return demanded by creditors. C) total liabilities are less than stockholders' equity. D) total liabilities are less than total assets. Feedback: The correct answer is B: Learning Objective 2 – Negative financial leverage occurs when the fixed return to a company's creditors and preferred stockholders is greater than the return on total assets (or, in other words, the return on total assets is less than the rate of return demanded by creditors).

4 INCORRECT

If Zambia Company converts a short­term note payable into a long­term note payable, this transaction would: A) decrease the current ratio and decrease the acid­test ratio. B) decrease working capital and increase the current ratio. C) decrease working capital and decrease the current ratio. D) increase working capital and increase the current ratio. Feedback: The correct answer is D: Learning Objective 3 – Working capital is determined by subtracting current liabilities from current assets. The current ratio is determined by dividing current assets by current liabilities. The conversion of a short­term note payable into a long­term note payable would decrease current liabilities but have no effect on current assets. The company's working capital and its current ratio would both increase as a result of this transaction.

5 CORRECT

Which of the following accounts should be included in the calculation of the acid­test ratio?

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A) A B) B C) C D) D Feedback: The correct answer is B: Learning Objective 3 – The acid­test (quick) ratio is determined by dividing quick assets by current liabilities. Quick assets include cash, marketable securities, and current receivables.

6 CORRECT

Hypercision Company reported net income of $225,000 last year and its interest expense was $30,000. Total assets at the beginning of the year were $1,950,000 and total assets at the end of the year were $1,830,000. The company's income tax rate was 30%. The company's return on total assets for the year was closest to: A) 11.9%. B) 12.4%. C) 13.0%. D) 13.5%. Feedback: The correct answer is C: Learning Objective 2 – Determine the company's return on total assets for the year as follows: Return on total assets = [Net income + (Interest expense x (1 – Tax rate)] ÷ Average total assets Return on total assets = [$225,000 + ($30,000 x (1 – .30)] ÷ [($1,950,000 + $1,830,000) ÷ 2] Return on total assets = ($225,000 + $21,000) ÷ $1,890,000 = 13.0%

7 INCORRECT

Selected account balances for Abbey Company appear below:

During the year, the company paid dividends of $30,000 on its preferred stock. The company's net income for the year was $360,000. The company's return on common stockholders' equity for the year is closest to: A) 17%. B) 19%. C) 23%. D) 25%. Feedback: The correct answer is C: Learning Objective 2 – Determine the company's return on common stockholders' equity for the year as follows: Return on common stockholders' equity = (Net income – Preferred dividends) ÷ Average common stockholders' equity Return on common stockholders' equity = ($360,000 – $30,000) ÷ [(($1,200,000 + $555,000) + ($900,000 + $225,000)) ÷ 2] Return on common stockholders' equity = $330,000 ÷ [(($1,755,000 + $1,125,000) ÷ 2] Return on common stockholders' equity = $330,000 ÷ $1,440,000 = 22.92% (rounded to 23%)

8 INCORRECT

The following account balances have been provided for the end of the most recent year:

The book value per share of common stock is: A) $20. B) $22. C) $25. D) $28. Feedback: The correct answer is B: Learning Objective 2 – Determine the book value per share of common stock as follows: Book value per share of common stock = Common stockholders' equity ÷ Number of shares of common stock outstanding Book value per share of common stock = (Total stockholders' equity – Preferred stock) ÷ Number of shares of common stock outstanding Book value per share of common stock = ($240,000 – $20,000) ÷ 10,000 = $22

9 INCORRECT

Selected year­end data for the Jonas Company are presented below:

The company has no prepaid expenses and inventories remained unchanged during the year. Based on these data, the company's inventory turnover ratio for the year was closest to:

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A) 1.20 times. B) 1.67 times. C) 2.33 times. D) 2.40 times. Feedback: The correct answer is B: Learning Objective 3 – First, determine the amount of current assets using the current ratio as follows: Current ratio = Current assets ÷ Current liabilities 3.0 = Current assets ÷ $1,800,000 Current assets = $5,400,000 Next, determine the amount of quick assets using the acid­test (or quick) ratio as follows: Acid­test ratio = Quick assets ÷ Current liabilities 2.5 = Quick assets ÷ $1,800,000 Quick assets = $4,500,000 Since there are no prepaid expenses in this situation, inventories would be the difference between current assets and quick assets as follows: Inventory = Current assets – Quick assets Inventory = $5,400,000 – $4,500,000 = $900,000 Finally, determine the inventory turnover ratio as follows: Inventory turnover ratio = Cost of goods sold ÷ Average inventories Inventory turnover ratio = $1,500,000 ÷ [($900,000 + $900,000) ÷2] Inventory turnover ratio = $1,500,000 ÷ $900,000 = 1.67 times

10 INCORRECT

Kyra Company had $540,000 in sales on account last year. The beginning accounts receivable balance was $30,000 and the ending accounts receivable balance was $54,000. The company's average collection period (age of receivables) was closest to: A) 20.3 days. B) 28.4 days. C) 36.5 days. D) 56.8 days. Feedback: The correct answer is B: Learning Objective 3 – First, determine the accounts receivable turnover as follows: Accounts receivable turnover = Sales ÷ Average accounts receivable Accounts receivable turnover = $540,000 ÷ [($30,000 + $54,000) ÷ 2] Accounts receivable turnover = $540,000 ÷ $42,000 = 12.857 Then, determine the company's average collection period (age of receivables) as follows: Average collection period = 365 days ÷ Accounts receivable turnover Average collection period = 365 ÷ 12.857 = 28.389 days (rounded to 28.4 days)

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