AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 15-04 Compute and interpret financial ratios that managers use for debt management
purposes.
99. Karma Corporation has total assets of $190,000 and total liabilities of $90,000. The
corporation's debt-to-equity ratio is closest to:
A. 0.4
7
B. 0.9
0
C. 0.5
3
D. 0.3
2
Debt-to-equity ratio = Total liabilities ÷ Stockholders' equity
= $90,000 ÷ $100,000* = 0.90
*Stockholders' equity = Total assets - Total liabilities = $190,000 - $90,000 =
$100,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 15-04 Compute and interpret financial ratios that managers use for debt management
purposes.
,100. Rough Corporation's total assets at the end of Year 2 were $1,247,000 and at the end
of Year 1 were $1,270,000. The company's total liabilities at the end of Year 2 were
$512,000 and at the end of Year 1 were $550,000. The company's total stockholders'
equity at the end of Year 2 was $735,000 and at the end of Year 1 was $720,000. The
company's equity multiplier is closest to:
A. 1.7
3
B. 1.4
4
C. 0.6
9
D. 0.5
8
Equity multiplier = Average total assets* ÷ Average stockholders' equity*
= $1,258,500 ÷ $727,500 = 1.73 (rounded)
*Average total assets = ($1,247,000 + $1,270,000) ÷ 2 = $1,258,500
**Average stockholders' equity = ($735,000 + $720,000) ÷ 2 = $727,500
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 15-04 Compute and interpret financial ratios that managers use for debt management
purposes.
,101. Younis Corporation's income statement appears below:
The company's net profit margin percentage is closest to:
A. 37.1
%
B. 3.5
%
C. 2.4
%
D. 1.7
%
Net profit margin percentage = Net income ÷ Sales
= $20,600 ÷ $1,240,000 = 1.7% (rounded)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 15-05 Compute and interpret financial ratios that managers use to assess profitability.
, 102. Crosswhite Corporation's sales last year were $1,270,000, its gross margin was
$400,000, its net operating income was $53,769, and its net income was $26,500.
The company's net profit margin percentage is closest to:
A. 31.5
%
B. 3.2
%
C. 4.2
%
D. 2.1
%
Net profit margin percentage = Net income ÷ Sales
= $26,500 ÷ $1,270,000 = 2.1% (rounded)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 15-05 Compute and interpret financial ratios that managers use to assess profitability.
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 15-04 Compute and interpret financial ratios that managers use for debt management
purposes.
99. Karma Corporation has total assets of $190,000 and total liabilities of $90,000. The
corporation's debt-to-equity ratio is closest to:
A. 0.4
7
B. 0.9
0
C. 0.5
3
D. 0.3
2
Debt-to-equity ratio = Total liabilities ÷ Stockholders' equity
= $90,000 ÷ $100,000* = 0.90
*Stockholders' equity = Total assets - Total liabilities = $190,000 - $90,000 =
$100,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 15-04 Compute and interpret financial ratios that managers use for debt management
purposes.
,100. Rough Corporation's total assets at the end of Year 2 were $1,247,000 and at the end
of Year 1 were $1,270,000. The company's total liabilities at the end of Year 2 were
$512,000 and at the end of Year 1 were $550,000. The company's total stockholders'
equity at the end of Year 2 was $735,000 and at the end of Year 1 was $720,000. The
company's equity multiplier is closest to:
A. 1.7
3
B. 1.4
4
C. 0.6
9
D. 0.5
8
Equity multiplier = Average total assets* ÷ Average stockholders' equity*
= $1,258,500 ÷ $727,500 = 1.73 (rounded)
*Average total assets = ($1,247,000 + $1,270,000) ÷ 2 = $1,258,500
**Average stockholders' equity = ($735,000 + $720,000) ÷ 2 = $727,500
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 15-04 Compute and interpret financial ratios that managers use for debt management
purposes.
,101. Younis Corporation's income statement appears below:
The company's net profit margin percentage is closest to:
A. 37.1
%
B. 3.5
%
C. 2.4
%
D. 1.7
%
Net profit margin percentage = Net income ÷ Sales
= $20,600 ÷ $1,240,000 = 1.7% (rounded)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 15-05 Compute and interpret financial ratios that managers use to assess profitability.
, 102. Crosswhite Corporation's sales last year were $1,270,000, its gross margin was
$400,000, its net operating income was $53,769, and its net income was $26,500.
The company's net profit margin percentage is closest to:
A. 31.5
%
B. 3.2
%
C. 4.2
%
D. 2.1
%
Net profit margin percentage = Net income ÷ Sales
= $26,500 ÷ $1,270,000 = 2.1% (rounded)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 15-05 Compute and interpret financial ratios that managers use to assess profitability.
