Question : 118.On January 1 of the current year, Jimmy’s Sandwich Company, : 1258610

 

 

118.On January 1 of the current year, Jimmy’s Sandwich Company, Inc. reported stockholders’ equity totaling $122,500. During the current year, total revenues were $96,000 while total expenses were $85,500. Also, during the current year the business paid $20,000 to the stockholders. No other changes in equity occurred during the year. If, on December 31 of the current year, total assets are $196,000, the change in stockholders’ equity during the year was:    

A. A decrease of $9,500.

 

B. An increase of $9,500.

 

C. An increase of $30,500.

 

D. A decrease of $30,500.

 

E. An increase of 73,500.

Beg. Stockholders’ Equity + Revenues – Expenses – Dividends = End. Stockholders’ Equity$122,500 + $96,000 – $85,500 – $20,000 = Ending Stockholders’ EquityEnding Stockholders’ Equity = $113,000Change in Equity = Beginning Stockholders’ Equity – Ending Stockholders’ EquityChange in Equity = $122,500 – $113,000 = $9,500 Decrease

 

 

 

119.Andrea Apple opened Apple Photography, Inc. on January 1 of the current year. During January, the following transactions occurred and were recorded in the company’s books:1. Andrea, the stockholder, invested $13,500 cash in the business.2. Andrea contributed $20,000 of photography equipment to the business.3. The company paid $2,100 cash for an insurance policy covering the next 24 months.4. The company received $5,700 cash for services provided during January.5. The company purchased $6,200 of office equipment on credit.6. The company provided $2,750 of services to customers on account.7. The company paid cash of $1,500 for monthly rent.8. The company paid $3,100 on the office equipment purchased in transaction #5 above.9. Paid $275 cash for January utilities.Based on this information, the balance in the cash account at the end of January would be:    

A. $41,450.

 

B. $12,225.

 

C. $18,700.

 

D. $15,250.

 

E. $13,500.

Ending Cash Balance = $13,500 (#1) – $2,100 (#3) + $5,700 (#4) – $1,500 (#7) – $3,100 (#8) – $275 (#9) = $12,225

 

 

 

120.Andrea Apple opened Apple Photography, Inc. on January 1 of the current year. During January, the following transactions occurred and were recorded in the company’s books:1. Andrea, the stockholder, invested $13,500 cash in the business.2. Andrea contributed $20,000 of photography equipment to the business.3. The company paid $2,100 cash for an insurance policy covering the next 24 months.4. The company received $5,700 cash for services provided during January.5. The company purchased $6,200 of office equipment on credit.6. The company provided $2,750 of services to customers on account.7. The company paid cash of $1,500 for monthly rent.8. The company paid $3,100 on the office equipment purchased in transaction #5 above.9. Paid $275 cash for January utilities.Based on this information, the balance in the stockholders’ equity reported on the Balance Sheet at the end of the month would be:    

A. $31,400.

 

B. $39,200.

 

C. $31,150.

 

D. $40,175.

 

E. $30,875.

Ending Stockholders’ Equity = $13,500 (#1) + $20,000 (#2) + $5,700 (#4) + $2,750 (#6) – $1,500 (#7) – $275 (#9) = $40,175

 

 

 

121.The debt ratio is used:   

A. To measure the ratio of equity to expenses.

 

B. To assess the risk associated with a company’s use of liabilities.

 

C. Only by banks when a business applies for a loan.

 

D. To determine how much debt a firm should pay off.

 

E. To determine how much debt a company should borrow.

 

 

 

 

122.Identify the correct formula below used to calculate the debt ratio.   

A. Total Equity/Total Liabilities.

 

B. Total Liabilities/Total Equity.

 

C. Total Liabilities/Total Assets.

 

D. Total Assets/Total Liabilities.

 

E. Total Equity/Total Assets.

 

 

 

 

123.Lu Lu’s Catering has a debt ratio equal to .3 and its competitor, Able’s Bakery, has a debt ratio equal to .7. Determine the statement below that is correct.    

A. Able’s Bakery has a smaller percentage of its assets financed with liabilities as compared to Lu Lu’s.

 

B. Able’s Bakery’s financial leverage is less than Lu Lu’s.

 

C. Able’s Bakery’s financial leverage is greater than Lu Lu’s.

 

D. Lu Lu’s has a higher risk from its financial leverage.

 

E. Higher financial leverage involves lower risk.

 

 

 

 

124.Identify the statement that is incorrect.   

A. Higher financial leverage involves higher risk.

 

B. Risk is higher if a company has more liabilities.

 

C. Risk is higher if a company has higher assets.

 

D. The debt ratio is one measure of financial risk.

 

E. Lower financial leverage involves lower risk.

 

 

 

 

125.The debt ratio of Company A is .31 and the debt ratio of Company B is .21. Based on this information, an investor can conclude:   

A. Company B has more debt than Company A.

 

B. Company B has a lower risk from its financial leverage.

 

C. Company A has a lower risk from its financial leverage.

 

D. Company A has 10% more assets than Company B.

 

E. Both companies have too much debt.

 

 

 

 

126.The debt ratio of Jackson’s Shoes is .9 and the debt ratio of Billy’s Catering is 1.0. Based on this information, an investor can conclude:   

A. Billy’s Catering finances a relatively lower portion of its assets with liabilities than Jackson’s Shoes.

 

B. Billy’s Catering has a lower risk from its financial leverage.

 

C. Jackson’s Shoes has a higher risk from its financial leverage.

 

D. Billy’s Catering has the exact same dollar amount of total liabilities and total assets.

 

E. Jackson’s Shoes has less equity per dollar of assets than Billy’s Catering.

 

 

 

 

127.Gi Gi’s Bakery has total assets of $425 million. Its total liabilities are $110 million. Its equity is $315 million. Calculate the debt ratio.   

A. 38.6%.

 

B. 13.4%.

 

C. 34.9%.

 

D. 25.9%.

 

E. 14.9%.

Debt Ratio = Total Liabilities/Total AssetsDebt Ratio = $110 million/$425 million; Debt Ratio = 0.2588 = 25.9%