Managerial ACCT 5315 Midterm Prep questions and
Answers
Liquidity refers to: ** Answ** A company's cash availability
Rationale: Liquidity refers to cash, the amount on hand, the amount generated from
operating activities, and the amount that can be raised on relatively short notice.
Selected balance sheet data follow for Goodyear Tire & Rubber Company for the year
ended December 31, 2016 (in millions):
Total Operating Liabilities = $6,307
Total Nonoperating Liabilities = $5,479
Total CurrentLiabilities = $4,817
Total Liabilities = $11,786
Total Liabilities and Shareholders' Equity = $16,511
What is the company's liabilities-to-equity ratio? ** Answ** 2.49
Rationale: Times interest earned = $11,786 / ($16,511 - $11,786) = 2.49
The correct answer is: 2.49
Selected income statement data follow for Harley Davidson, Inc., for the year ended
December 31, 2016 (in thousands):
Income before Provision for Income Taxes = $1,023,911
Interest Expense = $29,670
Statutory Tax Rate = 37%
Provision for Income Taxes = $331,747
Net Income = $692,164
What is the company's times interest earned ratio? ** Answ** 35.5
Rationale: Times interest earned = ($1,023,911 + $29,670) / $29,670 = 35.5
The correct answer is: 35.5
The 2016 balance sheet of Whole Foods Market reports operating assets of $5,489
million, operating liabilities of $2,066 million, and total liabilities of $3,117 million.
,Whole Food's average net operating assets are: ** Answ** There is not enough
information to calculate the amount.
Rationale: Average net operating assets requires two years of balance sheet data. The
question only provided one year's data, thus, there is not enough information to
calculate the amount.
The current ratio is used to assess: ** Answ** Liquidity
Rationale: The current ratio is one of two common ratios used to assess the degree of a
company's liquidity.
The fiscal 2016 balance sheet for Whole Foods Market reports the following data (in
millions).
Cash and Cash Equivalents = $351
Marketable Securities = $379
Accounts Receivable = $242
Merchandise Inventories = $517
Current Assets = $1,975
Current Liabilities = $1,341
What is the company's current ratio? ** Answ** 1.47
Rationale: Current ratio = Current assets / Current liabilities
= $1,975 / $1,341
= 1.47
Which of the following is a measure of liquidity? ** Answ** Quick ratio = (Cash +
Marketable securities + Accounts receivable) / Current liabilities
Rationale: The only measure of liquidity listed above is Quick Ratio which is simply a
variation of the Current Ratio (Current ratio = Current assets / Current liabilities) to focus
on quick assets (cash, securities, and receivables).
Selected ratios follow for Nike, Inc., for the year ended December 31, 2013 (in millions):
Return on Net Operating Assets (RNOA) = 43.6%
,Profit Margin (PM)= 11.6%
Net Operating Profit Margin (NOPM) = 11.4%
Asset Turnover (AT) = 1.51
Financial Leverage (FL) = 1.72
What is the company's return on equity (ROE) for the year? ** Answ** 30.1%
Rationale:
ROE = PM × AT × FL
= 11.6% × 1.51 × 1.72 = 30.1%
Ratios provide one way to compare companies in the same industry regardless of their
size. True or False ** Answ** True
Rationale: Ratios mitigate problems arising from different sizes of companies.
The DuPont analysis disaggregates return on equity into profitability, productivity and
leverage components. True or False ** Answ** True
Rationale: The DuPont disaggregation of return on equity is:
ROE = Profit margin (PM) × Asset turnover (AT) × Financial leverage (FL).
These three terms measure profitability, productivity, and leverage respectively.
Assets are recorded in the balance sheet in order of:
A) Market Value
B) Historic Value
C) Liquidity
D) Maturity ** Answ** C) Liquidity
Which of the following are NOT included in current assets?
A) Prepaid rent
B) Cash
, C) Taxes payable
D) Marketable securities ** Answ** C) Taxes payable
As inventory and property plant and equipment on the balance sheet are consumed,
they are reflected:
A) As a revenue on the income statement
B) As a use of cash on the statement of cash flows
C) On the balance sheet because assets are never consumed
D) As an expense on the income statement ** Answ** D) As an expense on the
income statement
Caterpillar Inc. reports a net loss for 2016 of $(67) million, retained earnings at the end
of the year of $27,377 million, and dividends during the year of $1,802 million. What
was the company's retained earnings balance at the start of 2016?
A) $29,246 million
B) $30,361 million
C) $28,065 million
D) $26,572 million ** Answ** A) $29,246 million
Thomas Company receives information that requires the company to increase its
expectations of uncollectible accounts receivable. Which of the following items will not
be affected by this change?
A) Bad debt expense
B) Accounts receivables
C) Net income
D) Allowance account ** Answ** B) Accounts receivables
In its fiscal 2016 balance sheet, JetBlue Airways Corporation, reported cash of $443
million at year-end. The statement of cash flows reports that cash increased by $115
million during the year and that net cash flow from operating activities was $1,632
million. What was the cash flow from investing activities during the year?
Answers
Liquidity refers to: ** Answ** A company's cash availability
Rationale: Liquidity refers to cash, the amount on hand, the amount generated from
operating activities, and the amount that can be raised on relatively short notice.
Selected balance sheet data follow for Goodyear Tire & Rubber Company for the year
ended December 31, 2016 (in millions):
Total Operating Liabilities = $6,307
Total Nonoperating Liabilities = $5,479
Total CurrentLiabilities = $4,817
Total Liabilities = $11,786
Total Liabilities and Shareholders' Equity = $16,511
What is the company's liabilities-to-equity ratio? ** Answ** 2.49
Rationale: Times interest earned = $11,786 / ($16,511 - $11,786) = 2.49
The correct answer is: 2.49
Selected income statement data follow for Harley Davidson, Inc., for the year ended
December 31, 2016 (in thousands):
Income before Provision for Income Taxes = $1,023,911
Interest Expense = $29,670
Statutory Tax Rate = 37%
Provision for Income Taxes = $331,747
Net Income = $692,164
What is the company's times interest earned ratio? ** Answ** 35.5
Rationale: Times interest earned = ($1,023,911 + $29,670) / $29,670 = 35.5
The correct answer is: 35.5
The 2016 balance sheet of Whole Foods Market reports operating assets of $5,489
million, operating liabilities of $2,066 million, and total liabilities of $3,117 million.
,Whole Food's average net operating assets are: ** Answ** There is not enough
information to calculate the amount.
Rationale: Average net operating assets requires two years of balance sheet data. The
question only provided one year's data, thus, there is not enough information to
calculate the amount.
The current ratio is used to assess: ** Answ** Liquidity
Rationale: The current ratio is one of two common ratios used to assess the degree of a
company's liquidity.
The fiscal 2016 balance sheet for Whole Foods Market reports the following data (in
millions).
Cash and Cash Equivalents = $351
Marketable Securities = $379
Accounts Receivable = $242
Merchandise Inventories = $517
Current Assets = $1,975
Current Liabilities = $1,341
What is the company's current ratio? ** Answ** 1.47
Rationale: Current ratio = Current assets / Current liabilities
= $1,975 / $1,341
= 1.47
Which of the following is a measure of liquidity? ** Answ** Quick ratio = (Cash +
Marketable securities + Accounts receivable) / Current liabilities
Rationale: The only measure of liquidity listed above is Quick Ratio which is simply a
variation of the Current Ratio (Current ratio = Current assets / Current liabilities) to focus
on quick assets (cash, securities, and receivables).
Selected ratios follow for Nike, Inc., for the year ended December 31, 2013 (in millions):
Return on Net Operating Assets (RNOA) = 43.6%
,Profit Margin (PM)= 11.6%
Net Operating Profit Margin (NOPM) = 11.4%
Asset Turnover (AT) = 1.51
Financial Leverage (FL) = 1.72
What is the company's return on equity (ROE) for the year? ** Answ** 30.1%
Rationale:
ROE = PM × AT × FL
= 11.6% × 1.51 × 1.72 = 30.1%
Ratios provide one way to compare companies in the same industry regardless of their
size. True or False ** Answ** True
Rationale: Ratios mitigate problems arising from different sizes of companies.
The DuPont analysis disaggregates return on equity into profitability, productivity and
leverage components. True or False ** Answ** True
Rationale: The DuPont disaggregation of return on equity is:
ROE = Profit margin (PM) × Asset turnover (AT) × Financial leverage (FL).
These three terms measure profitability, productivity, and leverage respectively.
Assets are recorded in the balance sheet in order of:
A) Market Value
B) Historic Value
C) Liquidity
D) Maturity ** Answ** C) Liquidity
Which of the following are NOT included in current assets?
A) Prepaid rent
B) Cash
, C) Taxes payable
D) Marketable securities ** Answ** C) Taxes payable
As inventory and property plant and equipment on the balance sheet are consumed,
they are reflected:
A) As a revenue on the income statement
B) As a use of cash on the statement of cash flows
C) On the balance sheet because assets are never consumed
D) As an expense on the income statement ** Answ** D) As an expense on the
income statement
Caterpillar Inc. reports a net loss for 2016 of $(67) million, retained earnings at the end
of the year of $27,377 million, and dividends during the year of $1,802 million. What
was the company's retained earnings balance at the start of 2016?
A) $29,246 million
B) $30,361 million
C) $28,065 million
D) $26,572 million ** Answ** A) $29,246 million
Thomas Company receives information that requires the company to increase its
expectations of uncollectible accounts receivable. Which of the following items will not
be affected by this change?
A) Bad debt expense
B) Accounts receivables
C) Net income
D) Allowance account ** Answ** B) Accounts receivables
In its fiscal 2016 balance sheet, JetBlue Airways Corporation, reported cash of $443
million at year-end. The statement of cash flows reports that cash increased by $115
million during the year and that net cash flow from operating activities was $1,632
million. What was the cash flow from investing activities during the year?
