Question :
111. Why might a firm use the quick ratio instead of : 1230589
111. Why might a firm use the quick ratio instead of the current ratio in its liquidity analysis? A. it wants to target long-term debt instead of short term debtB. its accounts receivable are greater than its cashC. its inventory is not very liquidD. it considers the cash flow amount in the quick ratio more important than the other liquidity ratiosE. its notes receivable are greater than its cash
112. Ramer Company and Matson CompanyAssume the following information for Ramer Company, Matson Company, and for their common industry for a recent year.
Ramer
Matson
Industry Average
Current ratio
3.50
2.80
3.00
Accounts receivable turnover
5.00
8.10
6.00
Inventory turnover
6.20
8.00
6.10
Interest coverage ratio
9.00
12.30
10.40
Debt-equity ratio
0.70
0.40
0.55
Return on investment
0.15
0.12
0.15
Dividend payout ratio
0.80
0.60
0.55
Earnings per share
$3.00
$ 2.00
–
(CMA adapted, Jun 90 #19) Refer to the Ramer Company and Matson Company example. Which one of the following is correct if both companies have the same total assets and the same sales? (CMA adapted, Jun 90 #19) Refer to the Ramer Company and Matson Company example. Which one of the following is correct if both companies have the same total assets and the same sales? A. Ramer has more cash than MatsonB. Ramer has fewer current liabilities than MatsonC. Matson has less shareholders’ equity than Ramer.D. Matson has a shorter operating cycle than Ramer.E. none of the above
113. Ramer Company and Matson CompanyAssume the following information for Ramer Company, Matson Company, and for their common industry for a recent year.
Ramer
Matson
Industry Average
Current ratio
3.50
2.80
3.00
Accounts receivable turnover
5.00
8.10
6.00
Inventory turnover
6.20
8.00
6.10
Interest coverage ratio
9.00
12.30
10.40
Debt-equity ratio
0.70
0.40
0.55
Return on investment
0.15
0.12
0.15
Dividend payout ratio
0.80
0.60
0.55
Earnings per share
$3.00
$ 2.00
–
(CMA adapted, Jun 90 #19) Refer to the Ramer Company and Matson Company example. Which one of the following is correct if both companies have the same total assets and the same sales? (CMA adapted, Jun 90 #20) Refer to the Ramer Company and Matson Company example. The attitudes of both Ramer and Matson concerning risk are best explained by the A. current ratio, accounts receivable turnover, and inventory turnoverB. return on investment and dividend payout ratioC. current ratio and earnings per shareD. debt-equity ratio and interest coverage ratioE. none of the above
114. Ramer Company and Matson CompanyAssume the following information for Ramer Company, Matson Company, and for their common industry for a recent year.
Ramer
Matson
Industry Average
Current ratio
3.50
2.80
3.00
Accounts receivable turnover
5.00
8.10
6.00
Inventory turnover
6.20
8.00
6.10
Interest coverage ratio
9.00
12.30
10.40
Debt-equity ratio
0.70
0.40
0.55
Return on investment
0.15
0.12
0.15
Dividend payout ratio
0.80
0.60
0.55
Earnings per share
$3.00
$ 2.00
–
(CMA adapted, Jun 90 #19) Refer to the Ramer Company and Matson Company example. Which one of the following is correct if both companies have the same total assets and the same sales? (CMA adapted, Jun 90 #21) Refer to the Ramer Company and Matson Company example. Some of the ratios and data for Ramer and Matson are affected by income taxes. Assuming no interperiod income tax allocation, which of the following items would be directly affected by income taxes for the period. A. debt-equity ratio and dividend payout ratioB. current ratio and debt-equity ratioC. return on investment and earnings per shareD. interest coverage ratio and current ratioE. none of the above
115. (CMA adapted, Jun 90 #18) If a company is profitable and is effectively using leverage, which one of the following ratios is likely to be the largest? A. return on total assetsB. return on operating assetsC. return on common equityD. return on investmentE. none of the above
116. (CMA adapted, Dec 93 #17) Norton Inc. has a 2 to 1 current ratio. This ratio would increase to more than 2 to 1 if A. a previously declared stock dividend were distributedB. the company wrote off an uncollectible receivableC. the company sold merchandise on open account that earned a normal gross marginD. the company purchased inventory on open accountE. none of the above
117. Mother’s Company has current assets of $900,000 and current liabilities of $1,000,000. Mother’s Company’s current ratio would be increased by A. borrowing $100,000 on a line-of-credit (short-term loan)B. purchase of merchandise inventory costing $100,000 cashC. purchase of marketable equity securities for $100,000 cashD. paying $100,000 of wages payableE. none of the above
118. A measure of short-term debt paying ability is a company’s A. return on shareholders’ equityB. return on assetsC. quick ratioD. profit margin ratioE. none of the above
119. (CMA adapted, Dec 87 #1) When a balance sheet amount is related to an income statement amount in computing a ratio, A. the balance sheet amount should be converted to an average for the yearB. the income statement amount should be converted to an average for the yearC. both amounts should be converted to market valueD. the ratio loses its historical perspective because a beginning-of-the-year amount is combined with an end-of-the-year amountE. none of the above
120. King Products CorporationKing Products CorporationStatement of Financial Position(in thousands)
June 30
Year 6
Year 5
Cash
$ 60
$ 50
Marketable securities (at market)
40
30
Accounts receivable (net)
90
60
Inventories (at lower of cost or market)
120
100
Prepaid items
30
40
Total current assets
$ 340
$280
Long-term investments (at cost)
50
40
Land (at cost)
150
150
Building (net)
160
180
Equipment (net)
190
200
Patents (net)
70
34
Goodwill (net)
40
26
Total long-term assets
$ 660
$630
Total assets
$1,000
$910
Notes payable
$ 46
$ 24
Accounts payable
94
56
Accrued interest
30
30
Total current liabilities
$ 170
$110
Notes payable, 10% due 12/31/Year 12
20
20
Bonds payable, 12% due 6/30/Year 15
30
30
Total long-term debt
$ 50
$ 50
Total liabilities
$ 220
$160
Preferred stock-5% cumulative, $100 par, non-participating, authorized, issued and outstanding, 2,000 shares
200
200
Common stock-$10 par, 40,000 shares authorized, 30,000 shares issued and outstanding
300
300
Additional paid-in capital–common
150
150
Retained earnings
130
100
Total shareholders’ equity
$ 780
$750
Total liabilities and shareholders’ equity
$1,000
$910
King Products CorporationIncome StatementFor the year ended June 30(in thousands)
Year 6
Net sales
$600
Costs and expenses
Cost of goods sold
440
Selling, general, and administrative
60
Interest expense
10
Income before taxes
$ 90
Income taxes
45
Net income
$ 45
(CMA adapted, Dec 96 #15) Refer to the King Products Corporation example. King Products Corporation’s inventory turnover for the fiscal year ended at June 30, Year 6, was A. 3.7B. 4.0C. 4.4D. 5.0E. none of the above
