Comprehensive Exam

Part 2 : FIRST Comprehensive Exam - Section A
Question 1 - ICMA 10.P2.069 - Ratios: Profitability, Market and Profitability Analysis
At the end of its fiscal year on December 31, 20X0, Merit Watches had total shareholders' equity of $24,209,306. Of this
total, $3,554,405 was preferred equity. During the 20X1 fiscal year, Merit's net income after tax was $2,861,003. During
20X1, Merit paid preferred share dividends of $223,551 and common share dividends of $412,917. At December 31,
20X1, Merit had 12,195,799 common shares outstanding and the company did not sell any common shares during the
year. What was Merit Watch's book value per share on December 31, 20X1?
A. $1.91.
B. $1.88.
C. $2.20.
D. $2.17.
Question 2 - CMA 695 2.2 - Ratios: Liquidity, Leverage, Coverage and Activity
CPZ Enterprises had the following account information.

Accounts receivable $200,000
Accounts payable 80,000
Bonds payable, due in ten years 10,000
Cash 100,000
Interest payable, due in three months 10,000
Inventory 400,000
Land 250,000
Notes payable, due in six months 50,000
Prepaid expenses 40,000
The company has an operating cycle of five months.
What is the company's acid test (quick) ratio?
A. 0.68
B. 2.31
C. 1.68
D. 2.14
Question 3 - CMA 692 P2 Q16 - Special Issues
If an entity's books of account are not maintained in its functional currency, the FASB Accounting Standards Codification
requires remeasurement into the functional currency prior to the translation process. An item that should be remeasured
by use of the current exchange rate is
A. an investment in bonds to be held until maturity.

B. the revenue from a long-term construction contract.
C. a plant asset and the associated accumulated depreciation.
D. inventories.
Question 4 - ICMA 10.P2.034 - Ratios: Liquidity, Leverage, Coverage and Activity
All of the following are included when calculating the acid test ratio except
A. six-month treasury bills. B. prepaid insurance. D. 60-day certificates of deposit.
C. accounts receivable. Part 2 : FIRST Comprehensive Exam - Section A
Question 5 - CMA 685 4.13 - Ratios: Profitability, Market and Profitability Analysis
Which one of the following statements about the price-earnings (P-E) ratio is correct?
A. A P-E ratio has more meaning when a firm has abnormally low profits in relation to its asset base. B.
A company with high growth opportunities ordinarily has a high P-E ratio.
C. A P-E ratio expresses the relationship between a firm's market price and its net sales. D.
A P-E ratio has more meaning when a firm has losses than when it has profits.
The following inventory and sales data are available for the current year for Volpone Company. Volpone uses a
365-day year when computing ratios.
November 30, 2010November 30, 2009
Net credit sales $6,205,000
Gross receivables 350,000 320,000
Inventory 960,000 780,000
Cost of goods sold 4,380,000
Volpone Company's average number of days to sell inventory for the current year is
A. 65.00 days.
B. 72.50 days.
C. 51.18 days.
D. 80.00 days.
When reviewing a credit application, the credit manager should be most concerned with the applicant's
A. working capital and return on equity.

B. price-earnings ratio and current ratio.
C. profit margin and return on assets.
D. working capital and current ratio.
Foreign currency transaction gains and losses should usually be included in income
A. if they are foreign currency transactions that are designated as economic hedges of a net investment in a foreign
entity.
B. if they are intercompany foreign currency transactions that are of a long-term investment nature. C.
for the period in which the transaction originated.
D. for the period in which the exchange rate changes.
A company has provided the following data pertaining to one of its products.
YearUnit SalesUnit Sales PriceGross Profit Margin
1 1,000 $50 45%
2 1,200 $55 48%
Which one of the following statements is correct?
A. The percentage increase in the sales price exceeded the percentage increase in the cost per unit sold during year 2. B.
The dollar amount of gross profit increased by 3% during year 2.
C. The cost per unit increased during year 2, in line with the increase in unit sales.
D. The cost per unit sold decreased 3% during year 2.
Question 10 - CIA 595 IV.51 - Ratios: Liquidity, Leverage, Coverage and Activity
Everything else being equal, a <<_____>> highly leveraged firm will have <<_____>> earnings per share.
A. Less; Higher
B. More; Less volatile
C. More; Lower
D. Less; Less volatile
The data presented below shows actual figures for selected accounts of McKeon Company for the fiscal year ended May 31,
20X0, and selected budget figures for the 20X1 fiscal year. McKeon's controller is in the process of reviewing the 20X1
budget and calculating some key ratios based on the budget. McKeon Company monitors yield or return ratios using the
average financial position of the company. (Round all calculations to three decimal places if necessary.)
May 31, 20X1 May 31, 20X0
Current assets $210,000$180,000 Noncurrent
assets 275,000 255,000 Current liabilities 78,000
85,000 Long-term debt 75,000 30,000 Common
stock ($30 par value) 300,000 300,000 Retained
earnings 32,000 20,000
20X1 Operations
Sales* $350,000 Cost of goods sold 160,000
Interest expense 3,000 Income taxes (40% rate)
48,000
Dividends declared and paid in 20X1 60,000

Administrative expense 67,000
*All sales are credit sales.
Composition of Current Assets

May 31, 20X1 May 31, 20X0
Cash $ 20,000$ 10,000
Accounts receivable 100,000 70,000
Inventory 70,000 80,000
Other 20,000 20,000
$210,000$180,000
McKeon Company's debt to total asset ratio for 20X1 is
A. 0.352
B. 0.237
C. 0.264
D. 0.315
To determine the operating cycle for a wholesaler, which one of the following pairs of items is needed?
A. Asset turnover and return on sales.

B. Cash turnover and net sales.
C. Days' sales in accounts receivable and average merchandise inventory.
D. Accounts receivable turnover and inventory turnover.
The FASB Accounting Standards Codification provides specific guidelines for translating foreign currency financial
statements. The translation process begins with a determination of whether a foreign affiliate's functional currency is also its
local reporting currency. Which one of the following factors indicates that a foreign affiliate's functional currency is the U.S.
dollar?
A. Labor, materials, and other costs consist primarily of local costs to the foreign affiliate.
B. Sales prices are responsive to short-term changes in exchange rates and worldwide competition. C.
Financing is primarily obtained from local foreign sources and from the affiliate's operations. D. Cash
flows are primarily in foreign currency and do not affect the parent's cash flows.
Shown below are beginning and ending balances for certain of Grimaldi Inc.'s accounts.
January 1December 31
Cash $ 48,000 $ 62,000
Marketable securities 42,000 35,000
Inventory 125,000 138,000

Plant & equipment 325,000 424,000
Accounts payable 32,000 84,000
Accrued liabilities 14,000 11,000
7% bonds payable 95,000 77,000
Grimaldi's acid test ratio or quick ratio at the end of the year is
A. 1.02.
B. 1.52.
C. 0.83.
D. 1.15.
Selected information regarding Dyle Corporation’s outstanding equity is shown below.

Common stock, $10 par value,
350,000 shares outstanding $3,500,000
Preferred stock, $100 par value,
10,000 shares outstanding 1,000,000
Preferred stock dividend paid 60,000
Common stock dividend paid 700,000
Earnings per common share 3
Market price per common share 18
Dyle's yield on common stock is
A. 20.00%.
B. 16.88%.
C. 16.66%.
D. 11.11%.
Dedham Corporation has decided to include certain financial ratios in its year-end annual report to shareholders.
Selected information relating to its most recent fiscal year is provided below.
Cash $ 10,000
Accounts receivable 20,000
Inventory 30,000
Available-for-sale securities classified as current assets
At cost 9,000
Fair value at year end 12,000
Notes payable (due in 90 days) 25,000
Bonds payable (due in 10 years) 35,000
Dedham's quick (acid-test) ratio at year end is
A. 1.05 to 1.
B. 1.925 to 1.
C. 1.80 to 1.
D. 2.00 to 1.
Question 17 - CMA 0681 P3 Q17 - Ratios: Profitability, Market and Profitability Analysis
James Corporation reported earnings for calendar year 20X6 of $3 per common share based on net income of
$3,000,000 and 1,000,000 average shares of common stock outstanding. There were 1,000,000 common shares
outstanding on December 31, 20X6. In 20X7 the common stock was split on a two-for-one basis, and a 20% stock
dividend was distributed in 20X8. The Basic EPS reported for 20X6 in the 20X9 annual report should be reported as:
A. $2.50.
B. $1.50.
C. $3.00.
D. $1.25.
A higher degree of operating leverage compared with the industry average implies that the firm
A. Is more profitable.
B. Has higher variable costs.
C. Has profits that are more sensitive to changes in sales volume.
D. Is less risky.
The following information concerning Arnold Company's common stock was included in the company's financial reports for
the last two years.
Year 2 Year 1
Market price per share on December 31 $60 $50
Par value per share 10 10
Earnings per share 3 3
Dividends per share 1 1
Book value per share on December 31 36 34
Arnold's dividend yield in Year 2
A. has declined compared to Year 1.

B. is the same as Year 1.
C. has increased compared to Year 1.
D. is indicative of the company's failure to provide a positive return to the investors.
Assume that a company's total debt to total assets (debt-to-asset) ratio is currently 50%. It plans to purchase fixed
assets either by using borrowed funds for the purchase or by entering into an operating lease. The company's
debt-to-asset ratio as measured by the balance sheet will
A. Increase if the assets are purchased, and remain unchanged if the assets are leased.
B. Increase if the assets are purchased, and decrease if the assets are leased.
C. Increase whether the assets are purchased or leased.
D. Remain unchanged whether the assets are purchased or leased.
Transnational Motors has decided to make an additional investment in its operating assets which are financed by debt.
Assuming all other factors remain constant, this increase in investment will have which of the following effects?
Operating Return on Turnover
Total Asset Profit Margin Assets
I.Increase No ChangeIncrease
II.No Change Decrease Decrease
III.No Change Increase Decrease
IV.Decrease Decrease Decrease
A. IV.
B. II.
C. III.
D. I.
Carlisle Company currently sells 400,000 bottles of perfume each year. Each bottle costs $0.84 to produce and sells for
$1.00. Fixed costs are $28,000 per year. The firm has annual interest expense of $6,000, preferred stock dividends of
$2,000 per year, and a 40% tax rate. Carlisle uses the following formulas to determine the company's leverage.
Operating leverage = [Q(S − VC)] ÷ [Q(S − VC) − FC]
Financial leverage = EBIT ÷ {EBIT − I − [P / (1 − T)]}
Total leverage = Q(S − VC) ÷ {Q(S − VC) − FC − I − [P / (1 − T)]}
Where:
Q=Quantity
FC=Fixed Cost
VC=Variable Cost
S=Selling Price
I=Interest Expense
P=Preferred Dividends
T=Tax Rate
EBIT=Earnings Before Interest and Taxes
The degree of operating leverage for Carlisle Company is
A. 2.4
B. 1.78
C. 1.35
D. 1.2
Question 23 - CIA 586 IV.24 - Ratios: Profitability, Market and Profitability Analysis
Return on investment may be calculated by multiplying total asset turnover by
A. Debt ratio.
B. Profit margin.
C. Fixed-charge coverage.
D. Average collection period.
Question 24 - CMA 1295 2.21 - Comparative Financial Statement Analysis
In assessing the financial prospects for a firm, financial analysts use various techniques. An example of vertical,
common-size analysis is
A. Advertising expense increased by 3% over the previous year.
B. Advertising expense is 4% of sales.
C. An assessment of the relative stability of a firm's level of vertical integration.
D. A comparison in financial ratio form between two or more firms in the same industry.
Assume the information below for Ramer Company, for Matson Company, and for their common industry represents a
recent year.
Industry
RamerMatson
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
Times interest earned 9.00 12.30 10.40
Debt-to-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 --
The attitudes of both Ramer and Matson concerning risk are best explained by the
A. Dividend payout ratio and earnings per share.

B. Current ratio, accounts receivable turnover, and inventory turnover.
C. Debt/equity ratio and times interest earned.
D. Current ratio and earnings per share.
Information concerning Hamilton's common stock is presented below for the fiscal year ended May 31, 2005.
Common shares outstanding: 750,000
Stated value per share: $15.00 Market price per share: $45.00 Part 2 : FIRST Comprehensive Exam - Section A
Year 1 dividends paid per share: $4.50

Year 2 dividends paid per share: $7.50
Basic earnings per share: $11.25
Diluted earnings per share: $9.00
The price-earnings ratio for Hamilton's common stock is
A. 5.0 times.
B. 3.0 times.
C. 6.0 times.
D. 4.0 times.
Devlin Inc. has 250,000 shares of $10 par value common stock outstanding. For the current year, Devlin paid a cash
dividend of $3.50 per share and had earnings per share of $4.80. The market price of Devlin's stock is $34 per share.
Devlin's price/earnings ratio is
A. 7.08.
B. 2.85.
C. 9.71.
D. 2.08.
A summary of the Income Statement of Sahara Company is shown below.

Sales $15,000,000
Cost of sales 9,000,000
Operating expenses 3,000,000
Interest expense 800,000
Taxes 880,000
Net income $ 1,320,000
Based on the above information, Sahara's degree of financial leverage is
A. 1.36.
B. 1.61.
C. 2.27.
D. 0.96.
Selected data from Sheridan Corporation's year-end financial statements are presented below. The difference between
average and ending inventory is immaterial.
Current ratio 2.0
Quick ratio 1.5
Current liabilities $120,000
Inventory turnover (based on cost of goods sold) 8 times

Gross profit margin 40%
Sheridan's net sales for the year were
A. $240,000
B. $480,000
C. $800,000
D. $1,200,000
Lisa, Inc.
Statement of Financial Position
December 31, 20X4
(in thousands)
20X420
Assets
Current assets:
Cash $ 30 $
Trading securities 20 15
Accounts receivable (net) 45 30
Inventories (at lower of cost of market) 60 50
Prepaid items 15 20
Total Current Assets $170

$140
Long-term assets:
Long-term investments:
Available-for-sale investments $ 25 $
Property, plant & equipment:
Land (at cost) 75 75
Building (net) 80 90
Equipment (net) 95
100
Intangible assets:
Patents (net) 35 17
Goodwill (net) 20 13
Total Long-Term Assets $330

$315
Total Assets $500

$455
Liabilities and Equity
Current liabilities:
Notes payable $ 23 $
Accounts payable 47 28
Accrued interest $ 15 $
Total current liabilities $ 85 $
Long-term liabilities:
Long-term Notes payable 10% due 12/31/20X6 $ 10 $
Bonds payable 12% due 12/31/20X9 15 15
Total long-term debt $ 25 $
Total liabilities $110 $

Shareholders' Equity
Preferred stock - 5% cumulative, $100 par, nonparticipating
authorized, issued and outstanding, 1,000 shares $100

$100
Common stock - $10 par 20,000 shares authorized, 15,000
shares issued and outstanding 150

150
Additional paid-in capital - common 75 75
Retained earnings 65 50
Total Equity $390

$375
Total Liabilities & Equity $500

$455
Lisa Inc.'s acid test (quick) ratio at December 31, 20X4 was
A. 0.6
B. 2.0
C. 1.1
D. 1.8
Which one of the following items would likely increase earnings per share (EPS) of a corporation?
A. Purchase of treasury stock.

B. An increase in the common stock shares authorized to be issued.
C. Declaration of a stock dividend.
D. Declaration of a stock split.
The dividend yield ratio is calculated by which one of the following methods?
A. Dividends per share divided by earnings per share

B. Market price per share divided by dividends per share.
C. Earnings per share divided by dividends per share.
D. Dividends per share divided by market price per share.
Easton Bank has received loan applications from three companies in the computer service business and will grant a long-
term loan to the company with the best prospect of fulfilling the loan obligations. Specific data, shown below, has been
selected from these applications for review and comparison with industry averages. CompGo Astor SysGen Industry
Total sales (millions) $4.27 $3.91 $4.86 $4.30
Net profit margin 9.55% 9.85% 10.05% 9.65%
Current ratio 1.82 2.02 1.96 1.95
Return on assets 12.0% 12.6% 11.4% 12.4%
Debt/equity ratio 52.5% 44.6% 49.6% 48.3%
Financial leverage 1.30 1.02 1.56 1.33
Based on the information above, select the strategy that would fulfill Easton's objective.
A. Grant the loan to CompGo as all the company’s data approximate the industry average. B. Easton should not grant any
loans as none of these companies represents a good credit risk. C. Grant the loan to Astor as both the debt/equity ratio and
degree of financial leverage are below the industry average. D. Grant the loan to SysGen as the company has the highest
net profit margin and degree of financial leverage.
Roy Company had 120,000 common shares and 100,000 preferred shares outstanding at the close of the prior year. During
the current year Roy repurchased 12,000 common shares on March 1, sold 30,000 common shares on June 1, and sold an
additional 60,000 common shares on November 1. No change in preferred shares outstanding occurred during the year.
The number of shares of stock outstanding to be used in the calculation of basic earnings per share at the end of the current
year is
A. 198,000.
B. 137,500.
C. 298,000.
D. 100,000.
Question 35 - ICMA 10.P2.001 - Comparative Financial Statement Analysis
Gordon has had the following financial results for the last four years.
Year 1 Year 2 Year 3 Year 4
Sales $1,250,000$1,300,000$1,359,000$1,400,000
Cost of goods sold 750,000 785,000 825,000 850,000
Gross profit $ 500,000$ 515,000$ 534,000$ 550,000
Inflation factor 1.00 1.03 1.07 1.10
Gordon has analyzed these results using vertical common-size analysis to determine trends. The performance of
Gordon can best be characterized by which one of the following statements?
A. The common-size trend in sales is increasing and is resulting in an increasing trend in the common-size gross profit
margin.
B. The increased trend in the common-size gross profit percentage is the result of both the increasing trend in sales and
the decreasing trend in cost of goods sold.
C. The common-size gross profit percentage has decreased as a result of an increasing common-size trend in cost of
goods sold.
D. The common-size trend in cost of goods sold is decreasing which is resulting in an increasing trend in the
common-size gross profit margin.
The use of debt in the capital structure of a firm
A. increases its operating leverage.

B. decreases its financial leverage.
C. increases its financial leverage.
D. decreases its operating leverage.
A change from the sum-of-the-years'-digits depreciation method to the straight-line depreciation method is an example of
a(n)
A. prior-period adjustment.
B. error correction.
C. accounting principle change.
D. accounting estimate change.
May 31, 20X1 May 31, 20X0
earnings 32,000 20,000
20X1 Operations
48,000 Dividends declared and paid in 20X1
60,000 Administrative expense 67,000 *All sales
are credit sales.

May 31, 20X1 May 31, 20X0
Cash $ 20,000$ 10,000 Accounts
receivable 100,000 70,000 Inventory
70,000 80,000 Other 20,000 20,000
$210,000$180,000
The 20X1 return on assets for McKeon Company is
A. 0.148
B. 0.156
C. 0.261
D. 0.166
CPZ Enterprises had the following account information.

Accounts receivable $200,000
Bonds payable, due in ten years 10,000
Cash 100,000
Interest payable, due in three months 10,000
Inventory 400,000
Land 250,000
Notes payable, due in six months 50,000
The company has an operating cycle of five months.
What will happen to the current and quick ratios if CPZ Enterprises uses cash to pay 50 percent of the accounts
payable?
A. Both ratios will decrease.

B. The current ratio will decrease and the quick ratio will increase.
C. Both ratios will increase.
D. The current ratio will increase and the quick ratio will decrease.
Question 40 - ICMA 10.P2.104 - Special Issues
Finer Foods Inc., a chain of supermarkets specializing in gourmet food, has been using the average cost method to value its
inventory. During the current year, the company changed to the first-in, first-out method of inventory valuation. The president
of the company reasoned that this change was appropriate since it would more closely match the flow of physical goods.
The correct method of reporting this change on the financial statements is
A. disclosed in a note to the financial statements.

B. prospectively.
C. restatement.
D. retrospective application.
Peggy Monahan, controller, has gathered the following information regarding Lampasso Company.
Beginning of the yearEnd of the year
Inventory $6,400 $7,600
Accounts receivable $2,140 $3,060
Accounts payable $3,320 $3,680
Total sales for the year were $85,900, of which $61,400 were credit sales. The cost of goods sold was $24,500.
Lampasso's inventory turnover ratio for the year was
A. 8.9 times.
B. 3.5 times.
C. 8.2 times.
D. 3.2 times.
Which one of the following ratios would be most affected by miscellaneous or non-recurring income?
A. Net profit margin.

B. Gross profit margin.
C. Operating profit margin.
D. Debt-to-equity ratio.
The following information was obtained from a company’s financial statements.

Beginning of the
Year End of the Year

Inventory $6,400 $7,600
Accounts payable 3,320 3,680
Total sales for the year were $85,900, of which $62,400 were credit sales. The cost of goods sold was $24,500. The
company's payable turnover was
A. 17.8 times.
B. 6.7 times.
C. 7.0 times.
D. 16.9 times.
Question 44 - CMA 1292 1.12 - Special Issues
The definition of economic cost is
A. the difference between all implicit and explicit costs of the business firm.
B. the opportunity cost of all inputs minus the dollar cost of those inputs.
C. all the dollar costs employers pay for all inputs purchased.
D. the sum of all explicit and implicit costs of the business firm.
Norton, Inc. has a 2-to-1 current ratio. This ratio would increase to more than 2 to 1 if
A. The company purchased inventory on open account.

B. The company wrote off an uncollectible receivable.
C. The company sold merchandise on open account that earned a normal gross margin.
D. A previously declared stock dividend was distributed.
A change in the estimate for bad debts should be
A. treated as affecting only the period of the change.

B. considered as an extraordinary item.
C. treated as an error.
D. handled retroactively.
For the year just ended, Beechwood Corporation had income from operations of $198,000 and net income of $96,000.
Additional financial information is given below.
January 1 December 31
7% bonds payable $ 95,000 $ 77,000
Common stock ($10 par value) 300,000 300,000
Reserve for bond retirement 12,000 28,000
Retained earnings 155,000 206,000
Beechwood has no other equity issues outstanding. Beechwood's return on shareholders' equity for the year just ended is
A. 19.2%.
B. 32.0%.
C. 19.9%.
D. 39.5%.
The purchase of treasury stock with a firm's surplus cash
A. Increases a firm's interest-coverage ratio.

B. Increases a firm's assets.
C. Increases a firm's equity.
D. Increases a firm's financial leverage.
Marble Savings Bank has received long-term loan applications from three companies in the auto parts manufacturing
business and currently has the funds to grant only one of these requests. Specific data, shown below, has been selected
from these applications for review and comparison with industry averages.
Bailey Nutron Sonex Industry

Current ratio 1.82 2.02 1.96 1.95
Return on assets 12.0% 12.6% 11.4% 12.4%
Based on the information above, select the strategy that should be the most beneficial to Marble Savings.
A. Grant the loan to Nutron as both the debt/equity ratio and degree of financial leverage are below the industry average B.
Grant the loan to Bailey as all the company’s data approximate the industry average.
C. Marble Savings Bank should not grant any loans as none of these companies represents a good credit risk. D.
Grant the loan to Sonex as the company has the highest net profit margin and degree of financial leverage.
A company is considering the early retirement of its 10%, 10-year bonds payable. Before retiring the bonds, the
company's capital structure was
Current liabilities $125,000
Long-term liabilities: Notes payable (due in 5 years) 200,000
Bonds payable 300,000
Premium on bonds payable 25,000
Owner's equity: Common stock ($5 par value) 150,000
Paid-in capital in excess of par 50,000
Retained earnings 450,000
If the bonds can be retired at 103.5%, the
A. Asset turnover ratio will decrease.

B. Debt-equity ratio will increase.
C. Financial leverage will decrease.
D. Return on owner's equity will decrease.
The following financial information is given for Anjuli Corporation (in millions of dollars).
Prior YearCurrent Year
Sales $10 $11
Cost of goods sold 6 7
Current Assets:
Cash 2 3
Accounts receivable 3 4
Inventory 4 5
Between the prior year and the current year, did the days sales in inventory and days sales in receivables for Anjuli
increase or decrease? Assume a 365-day year.
A. Days sales in inventory increased; days sales in receivables decreased.

B. Days sales in inventory decreased; days sales in receivables increased.
C. Days sales in inventory increased; days sales in receivables increased.
D. Days sales in inventory decreased; days sales in receivables decreased.
Financial information for Arbat Inc. for two years of operation is shown below.
Year 1 Year 2
Sales $4,000,000$4,400,000
Total operating costs 3,200,000 3,440,000
Earnings before interest and taxes $ 800,000 $ 960,000
Interest payments 320,000 275,000
Income taxes 245,000 354,000
Net income $ 235,000 $ 331,000
Earnings per share $ 2.35 $ 3.31
The degree of operating leverage for Arbat Inc. is
A. 2.67.
B. 0.75.
C. 4.09.
D. 2.00.
The capital structure of four corporations is as follows.

Corporation
SterlingCooperWarwick Pane
Short-term debt 10% 10% 15% 10%
Long-term debt 40% 35% 30% 30%
Preferred stock 30% 30% 30% 30%
Common equity 20% 25% 25% 30%
Which corporation is the most highly leveraged?
A. Pane.
B. Cooper.
C. Warwick.
D. Sterling.
The following information concerning Arnold Company's common stock was included in the company's financial reports for
the last two years.
Year 2 Year 1
Market price per share on December 31 $60 $50
Par value per share 10 10
Earnings per share 3 3
Dividends per share 1 1
Book value per share on December 31 36 34
Based on the price-earnings information, investors would most likely consider Arnold's common stock to
A. be overvalued at the end of Year 2.

B. show a positive trend in growth opportunities in Year 2 compared to Year 1.
C. show a decline in growth opportunities in Year 2 compared to Year 1.
D. indicate inferior investment decisions by management in Year 2.
The assets of Moreland Corporation are presented below.

January 1 December 31
Cash $ 48,000 $ 62,000
Marketable securities 42,000 35,000
Inventory 125,000 138,000
Plant & equipment
(net of accumulated depreciation) 325,000 424,000
For the year just ended, Moreland had net income of $96,000 on $900,000 of sales. Moreland's total asset turnover ratio
is
A. 1.48.
B. 1.37.
C. 1.27.
D. 1.50.
All of the following are affected when merchandise is purchased on credit except
A. total current liabilities.
B. total current assets.
C. net working capital.
D. current ratio.
Sands, Inc. uses a calendar year for financial reporting. The company is authorized to issue 5,000,000 shares of $10 par
common stock. At no time has Sands issued any potentially dilutive securities. Listed below is a summary of Sands'
common stock activities.
Number of common shares issued and outstanding at Dec. 31, 20X6:1,000,000
Shares issued as a result of a 10% stock dividend on Sept. 30, 20X7: 100,000
Shares issued for cash on March 31, 20X8: 1,000,000
Number of common shares issued and outstanding at Dec. 31, 20X8:2,100,000
A two-for-one stock split of Sands' common stock took place on March 31, 20X9.
The weighted-average number of common shares used in computing earnings per common share for 20X8 on the
20X9 comparative income statement was:
A. 1,850,000.
B. 2,100,000.
C. 4,200,000.
D. 3,700,000.
A change in realizability of accounts receivable is an example of a(n)
A. accounting estimate change.

B. accounting principle change.
C. prior period adjustment.
D. accounting method change.
The ratio that measures a firm's ability to generate earnings from its resources is
A. Asset turnover.
B. Sales to working capital.
C. Days' sales in inventory.
D. Days' sales in receivables.
Selected data from Ostrander Corporation's financial statements for the years indicated are presented in thousands.
20X2 Operations
Net sales $4,175
Cost of goods sold 2,880
Interest expense 50
Income tax 120
Gain on disposal of a segment (net of tax) 210
Net income 385
December 31, 20X2

20X2 20X1
Cash $ 32$ 28
Merchandise inventory 440 420
Tangible fixed assets 480 440
Total assets 1,397 1,320
Current liabilities 370 368
Total liabilities 790 750
Common stock outstanding 226 210
The total debt-to-equity ratio for Ostrander Corporation in 20X2 is
A. 2.07
B. 1.30
C. 1.85
D. 3.49
Question 61 - CMA 1289 P4 Q13 - Ratios: Liquidity, Leverage, Coverage and Activity
Excerpts from the statement of financial position for Landau Corporation as of September 30 of the current year are
presented as follows.
Cash $ 950,000
Accounts receivable (net) 1,675,000
Inventories 2,806,000
Total current assets $5,431,000
Accounts payable $1,004,000
Accrued liabilities 785,000
Total current liabilities $1,789,000
The board of directors of Landau Corporation met on October 4 of the current year and declared the regular quarterly cash
dividend amounting to $750,000 ($0.60 per share). The dividend is payable on October 25 of the current year to all
shareholders of record as of October 12 of the current year.
Assume that the only transactions to affect Landau Corporation during October of the current year are the dividend
transactions and that the closing entries have been made.
Landau Corporation's working capital was
A. Decreased by the dividend declaration and unchanged by the dividend payment.

B. Unchanged by either the dividend declaration or the dividend payment.
C. Unchanged by the dividend declaration and decreased by the dividend payment.
D. Decreased by the dividend declaration and increased by the dividend payment.

Interstate Motors has decided to make an additional investment in its operating assets which are financed by debt.
Assuming all other factors remain constant, this increase in investment will have which one of the following effects?
A. Operating income margin will not change; operating asset turnover will decrease; and return on operating assets will
decrease.
B. Operating income margin will increase; operating asset turnover will not change; and return on operating assets will
increase.
C. Operating income margin will decrease; operating asset turnover will decrease; and return on operating assets will
decrease.
D. Operating income margin will not change; operating asset turnover will increase; and return on operating assets will
decrease.
The days' sales in receivables ratio will be understated if the company
A. Uses average receivables in the ratio calculation.

B. Does not use average receivables in the ratio calculation.
C. Uses a natural business year for its accounting period.
D. Uses a calendar year for its accounting period.
Question 64 - CMA 1289 P4 Q17 - Ratios: Liquidity, Leverage, Coverage and Activity
Excerpts from the statement of financial position for Landau Corporation as of September 30 of the current year are
presented as follows.
Cash $ 950,000
Accounts receivable (net) 1,675,000
Inventories 2,806,000
Total current assets $5,431,000
Accounts payable $1,004,000
Accrued liabilities 785,000
Total current liabilities $1,789,000
The board of directors of Landau Corporation met on October 4 of the current year and declared the regular quarterly cash
dividend amounting to $750,000 ($0.60 per share). The dividend is payable on October 25 of the current year to all
shareholders of record as of October 12 of the current year.
Assume that the only transactions to affect Landau Corporation during October of the current year are the dividend
transactions and that the closing entries have been made.
If the dividend declared by Landau Corporation had been a 10% stock dividend instead of a cash dividend, Landau's total
shareholders' equity would have been
A. Unchanged by the dividend declaration and increased by the dividend distribution.

B. Unchanged by either the dividend declaration or the dividend distribution.
C. Increased by the dividend declaration and unchanged by the dividend distribution.
D. Decreased by the dividend declaration and increased by the dividend distribution.
The financial statements of Lark Inc. for last year are shown below.
Income Statement ($000)
Revenue $4,000
Cost of sales 2,900
Gross margin 1,100
General & administrative 500
Interest 100
Taxes 150
Net income $ 350
Balance Sheet ($000)
Current assets $ 800Current liabilities$ 500
Plant & equipment 3,200Long-term debt $1,000
Common equity 2,500
Totals $4,000 Totals $4,000
If Lark's book values approximate market values and if the opportunity costs of debt and equity are 10% and 15%,
respectively, what was the economic profit for Lark last year?
A. ($125,000).
B. $350,000.
C. $0.
D. ($25,000).
Question 66 - CIA 1193 P4 Q45 - Special Issues
At December 31, a company has total assets at book value of $300,000. Liabilities are $120,000. Also, on December 31,
the stock is selling at $20 per share, and there are 10,000 shares outstanding. As a result, the company should take the
difference between the carrying amount and market value of the stock and
A. capitalize as an asset (and amortize over the estimated useful life), with the offset to revenue. B.
not capitalize any asset, record any revenue, or change equity at this time.
C. capitalize as an asset (and amortize over the estimated useful life not to exceed 40 years), with the offset to equity. D.
capitalize as an asset (and amortize over 5 years), with the offset to equity.
A growing company is assessing current working capital requirements. An average of 58 days is required to convert raw
materials into finished goods and to sell them. Then an average of 32 days is required to collect on receivables. If the
average time the company takes to pay for its raw materials is 15 days after they are received, then the total cash
conversion cycle for this company is:
A. 11 days.
B. 41 days.
C. 90 days.
D. 75 days.
Both the current ratio and the quick ratio for Spartan Corporation have been slowly decreasing. For the past two years, the
current ratio has been 2.3 to 1 and 2.0 to 1. During the same time period, the quick ratio has decreased from 1.2 to 1 to 1.0
to 1. The disparity between the current and quick ratios can be explained by which one of the following?
A. The cash balance is unusually low.

B. The current portion of long-term debt has been steadily increasing.
C. The accounts receivable balance has decreased.
D. The inventory balance is unusually high.
Which of the following costs, when subtracted from total revenue, yields economic profit?
A. Variable costs.
B. Recurring operating costs.
C. Opportunity costs of all inputs.
D. Fixed and variable costs.
Baldwin Corporation's inventory expressed as a percentage of current assets increased from 25% last July to 35% this July.
The factor that is least likely to cause this increase is that Baldwin
A. has inventory that is becoming obsolete.

B. is beginning to experience high growth.
C. used a material amount of cash from selling its short-term investments to purchase land. D.
is a seasonal company with traditionally higher activity in the summer months.
The financial statements of a foreign subsidiary are to be measured by use of the subsidiary's functional currency. The
functional currency of an entity is defined as the currency of the
A. geographic location in which the entity's headquarters are located.

B. primary economic environment in which the entity operates.
C. parent company.
D. United States.
Given an acid test ratio of 2.0, current assets of $5,000, and inventory of $2,000, the value of current liabilities is
A. $2,500
B. $1,500
C. $3,500
D. $6,000
Broomall Corporation has decided to include certain financial ratios in its year-end annual report to shareholders.
Selected information relating to its most recent fiscal year is provided below.
Cash $ 10,000
Inventory 30,000
Available-for-sale securities classified as current assets
At cost 9,000
Fair value at year end 12,000
Notes payable (due in 90 days) 25,000
Bonds payable (due in 10 years) 35,000
Net credit sales for year 220,000
Cost of goods sold 140,000
Broomall's working capital at year end is
A. $28,000.
B. $40,000.
C. $10,000.
D. $37,000.
Question 74 - CIA 1194 IV.16 - Ratios: Profitability, Market and Profitability Analysis
A company has a 50% gross margin, general and administrative expenses of $50, interest expense of $20, and net
income of $10 for the year just ended. If the corporate tax rate is 50%, the level of sales revenue for the year just ended
was
A. $90
B. $150
C. $180
D. $135
Foreign currency gains and losses included in the other comprehensive income section of a consolidated balance
sheet represent
A. foreign currency transaction gains and losses.

B. remeasurement gains and losses.
C. the amount resulting from translating foreign currency financial statements into the reporting currency. D.
accounting not in accordance with generally accepted accounting principles.
When compared to a debt-to-assets ratio, a debt to equity ratio would
A. Be higher than the debt to assets ratio.

B. Be lower than the debt to assets ratio.
C. Be about the same as the debt to assets ratio.
D. Have no relationship at all to the debt to assets ratio.
May 31, 20X1 May 31, 20X0
earnings 32,000 20,000
20X1 Operations
are credit sales.

May 31, 20X1 May 31, 20X0
Cash $ 20,000$ 10,000
Inventory 70,000 80,000
Other 20,000 20,000
$210,000$180,000
McKeon Company's total asset turnover for 20X1 is
A. 0.348
B. 0.761
C. 0.722
D. 0.805
May 31, 20X1 May 31, 20X0
earnings 32,000 20,000
20X1 Operations
are credit sales.

May 31, 20X1 May 31, 20X0
Cash $ 20,000$ 10,000
Inventory 70,000 80,000
Other 20,000 20,000
$210,000$180,000
Using a 365-day year, McKeon's days of sales in inventory is

A. 78 days.
B. 160 days.
C. 183 days.
D. 171 days.
Question 79 - CMA 1293 2.13 - Ratios: Liquidity, Leverage, Coverage and Activity In
computing inventory turnover, the base to use is the
A. Cost of sales base because it eliminates any changes due solely to sales price changes. B.
Sales base because it provides turnover rates that are considerably higher. C. Sales base
because it is more likely to reflect a change in trend.
D. Sales base because it more clearly represents operational activity.
The following financial information is given for Niska Corporation.

Year 1 Year 2
Book value of assets $18,000 $26,000
Market value of equity 18,000 60,000
12 months ended Year 1 12 months

ended Year 2
Sales $1,000 $1,300 Cost of goods sold 500
700 Operating income $ 500 $ 600
Depreciation expense 200 200 Interest expense
100 100 Pretax income $ 200 $ 300 Income tax
expense 80 120
Net income $ 120 $ 180
Using a common-size income statement, did operating income and net income for Niska increase or decrease?
A. Operating income decreased; Net income increased.

B. Operating income increased; Net income increased.
C. Operating income decreased; Net income decreased.
D. Operating income increased; Net income decreased.
A measure of its long-term debt-paying ability is a company's
A. Times interest earned.

B. Length of the operating cycle.
C. Return on assets.
D. Inventory turnover.
A condensed comparative balance sheet for a company appears below:
12-31-Year 112-31-Year 2
Cash $ 40,000 $ 30,000
Inventory 200,000 300,000
Property, plant & equipment 500,000 550,000
Accumulated depreciation (280,000) (340,000)
Total assets $580,000 $640,000
Current liabilities $60,000 $100,000
Long-term liabilities 390,000 420,000
Stockholders' equity 130,000 120,000
Total liabilities and equity $580,000 $640,000
In looking at liquidity ratios at both balance sheet dates, what happened to the (1) current ratio and (2) acid-test (quick)
ratio?
A. (1) Increased (2) Increased

B. (1) Increased (2) Decreased
C. (1) Decreased (2) Increased
D. (1) Decreased (2) Decreased
Zubin Corporation experiences a decrease in sales and the cost of good sold, an increase in accounts receivable, and no
change in inventory. If all else is held constant, what is the total effect of these changes on the receivables turnover and
inventory ratios?
A. Inventory turnover decreased; receivables turnover decreased.

B. Inventory turnover increased; receivables turnover increased.

C. Inventory turnover increased; receivables turnover decreased.
D. Inventory turnover decreased; receivables turnover increased.
A drop in the market price of a firm's common stock will immediately affect its
A. Dividend yield.
B. Dividend payout ratio.
C. Debt to net worth ratio.
D. Return on equity.
At the beginning of the fiscal year, June 1, 20X0, Boyd Corporation had 80,000 shares of common stock outstanding. Also
outstanding was $200,000 of 8% convertible bonds that had been issued at $1,000 par. The bonds were convertible into
20,000 shares of common stock; however, no bonds were converted during the year. The company's tax rate is 34%, and
the Aa bond interest rate has been 10%. Boyd's net income for the year was $107,000. The diluted earnings per share
(DEPS - rounded to the nearest cent) of Boyd common stock for the fiscal year ended May 31, 20X1 was:
A. $1.20
B. $1.18
C. $1.07
D. $1.12
Accounts receivable turnover will normally decrease as a result of
A. A significant sales volume decrease near the end of the accounting period.
B. An increase in cash sales in proportion to credit sales.
C. The write-off of an uncollectible account (assume the use of the allowance for doubtful accounts method). D. A
change in credit policy to lengthen the period for cash discounts.
Depoole Company is a manufacturer of industrial products and employs a calendar year for financial reporting purposes.
Assume that total quick assets exceeded total current liabilities both before and after the transaction described. Further
assume that Depoole has positive profits during the year and a credit balance throughout the year in its retained earnings
account.
The issuance of new shares in a five-for-one split of common stock
A. Increases total shareholders' equity.

B. Decreases total shareholders' equity.

C. Increases the book value per share of common stock.
D. Decreases the book value per share of common stock.
Using the data presented below, calculate the cost of sales for the Beta Corporation for the past year.
Current ratio 3.5
Acid test ratio 3.0
Current liabilities at year end$600,000
Beginning inventory $500,000
Inventory turnover 8.0
A. $1,600,000
B. $2,400,000
C. $6,400,000
D. $3,200,000
Colonie Inc. expects to report net income of at least $10 million annually for the foreseeable future. Colonie could increase
its return on equity by taking which of the following actions with respect to its inventory turnover and the use of equity
financing?
A. Increase inventory turnover; increase use of equity financing.

B. Decrease inventory turnover; increase use of equity financing.
C. Increase inventory turnover; decrease use of equity financing.
D. Decrease inventory turnover; decrease use of equity financing.
Borglum Corporation is considering the acquisition of one of its parts suppliers and has been reviewing the pertinent
financial statements. Specific data, shown below, has been selected from these statements for review and comparison with
industry averages.
Bond Rockland Western Industry
Current ratio 1.32 2.02 1.96 1.95
Return on assets 11.0% 12.6% 11.4% 12.4%
Borglum's objective for this acquisition is assuring a steady source of supply from a stable company. Based on the
information above, select the strategy that would fulfill Borglum's objective.
A. Acquire Bond as both the debt/equity ratio and degree of financial leverage exceed the industry average. B.
Acquire Western as the company has the highest net profit margin and degree of financial leverage. C. Borglum
should not acquire any of these firms as none of them represents a good risk.
D. Acquire Rockland as both the debt/equity ratio and degree of financial leverage are below the industry average.
Baylor Company paid out one-half of last year's earnings in dividends. This year, Baylor's earnings increased by 20%, and
the amount of its dividends increased by 15%. Baylor's dividend payout ratio for the current year is
A. 57.5%
B. 47.9%
C. 78%
D. 50%
Lisa, Inc.
Statement of Financial Position
December 31, 20X4
(in thousands)
20X420
Assets
Current assets:
Cash $ 30 $
Inventories (at lower of cost of market) 60 50
Prepaid items 15 20
Total Current Assets $170

$140
Long-term assets:
Long-term investments:
Available-for-sale investments $ 25 $
Property, plant & equipment:
Land (at cost) 75 75
Building (net) 80 90
Equipment (net) 95
100
Intangible assets:
Patents (net) 35 17
Goodwill (net) 20 13
Total Long-Term Assets $330

$315
Total Assets $500

$455
Liabilities and Equity
Current liabilities:
Notes payable $ 23 $
Accounts payable 47 28
Accrued interest $ 15 $
Total current liabilities $ 85 $

Long-term liabilities:
Long-term Notes payable 10% due 12/31/20X6 $ 10 $ 10

Bonds payable 12% due 12/31/20X9 15 15
Total long-term debt $ 25 $
Total liabilities $110 $
Shareholders' Equity
Preferred stock - 5% cumulative, $100 par, nonparticipating
authorized, issued and outstanding, 1,000 shares $100

$100
Common stock - $10 par 20,000 shares authorized, 15,000
shares issued and outstanding 150

150
Additional paid-in capital - common 75 75
Total Equity $390

$375
Total Liabilities & Equity $500

$455
Assume net credit sales and cost of goods sold for 20X4 were $300,000 and $220,000 respectively. Lisa Inc.'s
accounts receivable turnover for 20X4 was
A. 4.9 times.
B. 8.0 times.
C. 6.7 times.
D. 5.9 times.
A retail company has experienced rapid growth in sales during the current year. An analyst has calculated the following
ratios for this company.
Prior YearCurrent Year
Inventory Turnover 5.4 9.3
Receivables turnover 4.2 3.5
Fixed asset turnover 2.4 3.6
Quick ratio 1.5 1.2
Based on the above, the analyst may conclude that sales increased due to more
A. stores open in current year.

B. favorable credit policies.
C. control over inventory levels.
D. competitive pricing.
Depoole Company is a manufacturer of industrial products and employs a calendar year for financial reporting purposes.
Assume that total quick assets exceeded total current liabilities both before and after the transaction described. Further
assume that Depoole has positive profits during the year and a credit balance throughout the year in its retained earnings
account.
The early liquidation of a long-term note with cash affects the
A. Current ratio but not the quick ratio.

B. Current ratio to a greater degree than the quick ratio.
C. Current and quick ratio to the same degree.

D. Quick ratio to a greater degree than the current ratio.
The FASB requires that, in a highly inflationary economy, the financial statements of a foreign entity be remeasured as if the
functional currency were the reporting currency. For this requirement, a highly inflationary economy is one that has
A. an inflation rate of at least 100% in the most recent past year.

B. an inflation rate of at least 50% in the most recent past year.
C. a cumulative inflation rate of at least 100% over a 3-year period.
D. an inflation rate of at least 33% in the most recent past year.
The interest expense for a company is equal to its earnings before interest and taxes (EBIT). The company's tax rate is 40%.
The company's times-interest earned ratio is equal to
A. 1.0.
B. 0.6.
C. 1.2.
D. 2.0.
Globetrade is a retailer that buys virtually all of its merchandise from manufacturers in a country experiencing significant
inflation. Globetrade is considering changing its method of inventory costing from first-in, first-out (FIFO) to last-in, first-out
(LIFO). What effect would the change from FIFO to LIFO have on Globetrade’s current ratio and inventory turnover ratio?
A. The current ratio would decrease but the inventory turnover ratio would increase.
B. The current ratio would increase but the inventory turnover ratio would decrease.
C. Both the current ratio and the inventory turnover ratio would increase.
D. Both the current ratio and the inventory turnover ratio would decrease.
A change from one generally accepted accounting principle to another generally accepted accounting principle should be
accounted for in comparative reports by
A. only a footnote disclosure in the current period.

B. pro forma amounts for key figures shown supplementary on the income statement for all periods presented. C. a
line item below extraordinary items on the current income statement.
D. a cumulative adjustment to carrying amounts of assets and liabilities as of the beginning of the first period presented,
an offsetting adjustment to the opening balance of retained earnings of the same period, and by adjusting prior periods'
statements presented for the effects of the change in each period.
Stanford Company leased some special-purpose equipment from Vincent Inc. under a long-term lease that was treated as
an operating lease by Stanford. After the financial statements for the year had been issued, it was discovered that the lease
should have been treated as a capital lease by Stanford. All of the following measures relating to Stanford would be affected
by this discovery except the
A. accounts receivable turnover.

B. debt/equity ratio.
C. fixed asset turnover.
D. net income percentage.
Shown below are selected data from Fortune Company's most recent financial statements.
Marketable securities $10,000
Inventory 25,000
Supplies 5,000
Short-term debt payable 10,000
Accruals 5,000
What is Fortune's net working capital?
A. $45,000
B. $50,000
C. $80,000
D. $35,000

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Part 2 : FIRST Comprehensive Exam - Section A

Question 1 - ICMA 10.P2.069 - Ratios: Profitability, Market and Profitability Analysis

CPZ Enterprises had the following account information.

The company has an operating cycle of five months.

What is the company's acid test (quick) ratio?

Question 3 - CMA 692 P2 Q16 - Special Issues

A. an investment in bonds to be held until maturity.

Question 4 - ICMA 10.P2.034 - Ratios: Liquidity, Leverage, Coverage and Activity

Question 7 - ICMA 10.P2.031 - Ratios: Liquidity, Leverage, Coverage and Activity

A. working capital and return on equity.

Question 8 - CMA 1288 P3 Q30 - Special Issues

Question 9 - ICMA 13.P2.011 - Ratios: Profitability, Market and Profitability Analysis

Which one of the following statements is correct?

Dividends declared and paid in 20X1 60,000

Composition of Current Assets

McKeon Company's debt to total asset ratio for 20X1 is

A. Asset turnover and return on sales.

Question 13 - CMA 692 P2 Q15 - Special Issues

Question 14 - ICMA 10.P2.024 - Ratios: Liquidity, Leverage, Coverage and Activity

Inventory 125,000 138,000

Question 15 - ICMA 10.P2.084 - Ratios: Profitability, Market and Profitability Analysis

Selected information regarding Dyle Corporation’s outstanding equity is shown below.

Dyle's yield on common stock is

Question 16 - ICMA 10.P2.035 - Ratios: Liquidity, Leverage, Coverage and Activity

Dedham's quick (acid-test) ratio at year end is

Question 19 - ICMA 10.P2.088 - Ratios: Profitability, Market and Profitability Analysis

Arnold's dividend yield in Year 2

A. has declined compared to Year 1.

debt-to-asset ratio as measured by the balance sheet will

Question 21 - ICMA 13.P2.005 - Ratios: Profitability, Market and Profitability Analysis

Operating leverage = [Q(S − VC)] ÷ [Q(S − VC) − FC]

Financial leverage = EBIT ÷ {EBIT − I − [P / (1 − T)]}

Total leverage = Q(S − VC) ÷ {Q(S − VC) − FC − I − [P / (1 − T)]}

The degree of operating leverage for Carlisle Company is

Return on investment may be calculated by multiplying total asset turnover by

Question 24 - CMA 1295 2.21 - Comparative Financial Statement Analysis

A. Dividend payout ratio and earnings per share.

Common shares outstanding: 750,000

Year 1 dividends paid per share: $4.50

The price-earnings ratio for Hamilton's common stock is

Question 28 - ICMA 10.P2.038 - Ratios: Liquidity, Leverage, Coverage and Activity

A summary of the Income Statement of Sahara Company is shown below.

Based on the above information, Sahara's degree of financial leverage is

Inventory turnover (based on cost of goods sold) 8 times

Sheridan's net sales for the year were

Accounts receivable (net) 45 30

Inventories (at lower of cost of market) 60 50

Total Current Assets $170

Property, plant & equipment:

Land (at cost) 75 75

Total Long-Term Assets $330

Total Assets $500

Liabilities and Equity

Total current liabilities $ 85 $

Long-term Notes payable 10% due 12/31/20X6 $ 10 $

Bonds payable 12% due 12/31/20X9 15 15

Total long-term debt $ 25 $