ACCT500 – Financial & Managerial Accounting
1- Listed below are eight technical accounting terms introduced in this chapter:
Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the term described, or answer “None” if the statement does not correctly describe any of the terms.
____ (a) The percentage of total assets financed by creditors.
____ (b) A measure of the effectiveness with which management utilizes a company’s resources, regardless of how those resources are financed.
____(c) A company’s percentage share of total dollar sales within its industry.
____ (d) Current assets less current liabilities.
____ (e) A measure reflecting investors’ expectations of future profitability.
____ (f) A measure of short-term solvency often used when a company has large inventories that cannot be quickly converted into cash.
____ (g) A ratio that helps individual stockholders relate the net income of a large corporation to their equity investment.
The balance sheet of Red Missile Company contained the following items, among others:
(a) From the above information compute:
(1) Current assets: $_______
(2) Current liabilities: $______
(3) The current ratio: ______ to 1
(4) Net Working capital: $______
(b) Assume that Red Missile Company pays the note payable of $163,000, thus reducing cash to $17,000. Compute the following after the completion of this transaction:
(1) The current ratio: ______ to 1
(2) Net Working capital: $______
Shown below are selected items appearing in a recent balance sheet of Grant Products. (Dollar amounts are in thousands.)
(a) Compute the following:
(1) Total quick assets $____________
(2) Total current assets $____________
(3) Total current liabilities $____________
(4) Quick ratio ______ to 1
(5) Current ratio ______ to 1
(b) Research indicates an industry average quick ratio is 1.3 to 1, and a current ratio of 2.3 to 1. Based upon this information, does Grant Products appear more or less solvent than the average company in its industry? Explain briefly.
Shown below is a recent income statement for Phaeton, Inc.:
Prepare an income statement for the year in a multiple-step format. (Use the grid provided below.)
Shown below are selected data from a recent annual report of Quality Service. (Dollar amounts are in millions.)
Compute for the year:
6- Shown below are selected data from a recent annual report of Tall Oaks Co. (Dollar amounts are in thousands.)
Compute for the year the company’s:
7- Shown below is a recent income statement for B-D Electric.
Net Income $970,000
Assume that comparative balance sheets for B-D Electric indicate average total assets for the year of $2,500,000, and average total equity of $2,050,000. Compute the following:
8- Given below are comparative balance sheets and an income statement for the Excellent Corporation:
All sales were made on account. Cash dividends declared during the year totaled $58,550. Compute the following:
Carter Corporation financed construction of a new addition to its facilities with a large long-term note payable. As a condition of obtaining the loan, Carter agreed to maintain a current ratio at year-end of at least 1.7 to 1. If Carter fails to maintain this ratio, the lender may demand immediate repayment of the principal amount of the note and all unpaid accrued interest. As the end of the year approaches, Carter is concerned about the magnitude of its current ratio. Suggest some actions that the company might take to increase the magnitude of the current ratio.