Multiple-Choice Questions 1. What ratio is used to measure a


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Multiple-Choice Questions 1. What ratio is used to measure a firm’s liquidity? a. Debt ratio b. Asset turnover c. Current ratio d. Return on equity 2. Which of the following transactions could increase a firm’s current ratio? a. Purchase of inventory for cash b. Payment of accounts payable c. Collection of accounts receivable d. Purchase of temporary investments for cash 3. Total Liabilities/Total Equity equals: a. Times Interest Earned Ratio b. Accounts Payable Turnover Ratio c. Debt-to-Equity Ratio d. Receivables Turnover Ratio 4. Which of the following ratios is not a debt management ratio? a. Times interest earned b. Debt-to-equity ratio c. Long-term debt-to-equity ratio d. Return on equity ratio 5. The balance sheet for Parker Inc. at the end of the first year of operations indicates the following: 2009__ Total current assets …………………………………….$600,000 Total investments ……………………………………… 85,000 Total property, plant, and equipment ………………….. 900,000 Current portion of long-term debt ……………………… 250,000 Total long-term liabilities ………………………………. 350,000 Common stock, $10 par ………………………………… 600,000 Paid-in capital in excess of par—common stock ………. 60,000 Retained earnings ………………………………………. 325,000 What is the long-term debt to total assets ratio for 2009 (rounded to one decimal place)? a. 37.9% b. 40.0% c. 22.1% d. 41.7% 6. When analyzing a company’s debt-to-equity ratio, if the ratio has a value that is greater than one, then the company has: a. Less debt than equity b. More debt than equity c. Equal amounts of debt and equity d. None of these are correct 7. Cost of goods sold divided by average inventory is the formula to compute: a. Accounts receivable turnover b. Inventory turnover c. Gross profit percentage d. Return on sales percentage 8. A firm’s asset turnover ratio is typically computed as follows: a. Net Sales/Average Total Assets b. Gross Profit/Net Sales c. Operating Income/Net Sales d. Net Income + [Interest Expense A? (1 – Tax Rate)]/Average Total Assets 9. Which of the following ratios is used to measure a firm’s efficiency at using its assets? a. Current ratio b. Asset turnover ratio c. Return on sales ratio d. Return on equity

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