Question :
9.6 Questions
1) Having liabilities classified incorrectly will have a big : 1232346
9.6 Questions
1) Having liabilities classified incorrectly will have a big impact on the company’s current ratio.
2) By NOT accruing warranty expense:
A) reported liabilities will be overstated and net income will be understated.
B) reported expenses will be overstated and reported liabilities will be understated.
C) reported liabilities will be understated and net income will be overstated.
D) reported expenses will be understated and net income will be understated.
3) Mackey Company has a 5-year mortgage for $100,000 which requires 5 equal payments of principal plus interest. In the first year of the mortgage, Mackey will report this liability as a:
A) current liability of $100,000.
B) long-term liability of $100,000.
C) current liability of $80,000 and a long-term liability of $20,000.
D) current liability of $20,000 and a long-term liability of $80,000.
4) One type of liability that is easy to overlook is a(n):
A) tax liability.
B) note payable.
C) account payable.
D) contingent liability.
5) Which current liability is generally listed first?
A) Notes payable
B) Accounts payable
C) Current portions of long-term debt
D) Accrued payables
9.7 Questions
1) The percentage of a company’s total assets that it would take to pay off all of the company’s liabilities is called the debt ratio.
2) The debt ratio equals total assets divided by total liabilities.
3) The debt ratio is an indicator of a company’s profitability.
4) The debt ratio is an indicator of a company’s ability to incur more debt.
5) A debt ratio of 0.50 (50%) would mean that half of a company’s assets would need to be sold to pay off all of its current liabilities.
6) Both the formulas for current ratio and debt ratio use current liabilities in the computation.
7) The interest coverage ratio equals interest expense divided by EBIT.
8) EBIT is also called operating profit.
9) Franklin Industries had total assets of $560,000; total liabilities of $250,000; and total stockholders’ equity of $310,000. Franklin Industries debt ratio is:
A) 55.4%.
B) 80.6%.
C) 44.6%.
D) 28.7%.
10) Haskins, Inc. had total assets of $600,000; total liabilities of $175,000; and total stockholders’ equity of $425,000. Haskin’s debt ratio is:
A) 17.1%.
B) 70.8%.
C) 41.2%.
D) 29.2%.
11) Firefly Lighting has current assets of $56,000; long-term assets of $135,000; current liabilities of $44,000; and long-term liabilities of $90,000. Firefly Lighting’s debt ratio is:
A) 127.3%.
B) 78.6%.
C) 239.3%.
D) 70.2%.
12) Import Auto reported Interest expense of $5,200, Income tax expense of $23,000 and Net income of $78,000. Import Auto’s interest coverage ratio is (rounded to two decimals):
A) 19.42.
B) 0.50.
C) 0.05.
D) 20.42.
13) Advanced Upholstery reported Interest expense of $8,300, Income tax expense of $26,400 and Net income of $88,700. Advanced Upholstery’s interest coverage ratio is (rounded to three decimals):
A) 13.867.
B) 14.867.
C) 0.072.
D) 0.067.
14) Which of the following statements is TRUE regarding the debt ratio?
A) The debt ratio focuses on the total liabilities of an organization.
B) The debt ratio reveals the percentage of a business’ assets financed with liabilities.
C) The debt ratio is used to analyze a business’s ability to pay its current obligations as they come due.
D) Both (A) and (B) are true statements regarding the debt ratio.
