Multiple Choice

26.A decreasing average collection period could be associated with (select one best answer)

a. Increasing account receivable.

b. None of the choices.

c. Decreasing sales.

d. Increasing cash sales.

27.If accounts receivable stays the same, and credit sales go up

a. Accounts receivable turnover will increase.

b. None of the choices.

c. The average collection period will go up.

d. The average collection period will go down.

28.Total asset turnover indicates the company's

a. Debt position.

b. Liquidity.

c. Profitability.

d. Ability to use its assets to generate sales.

29.When is the return on assets equal to the return on equity?

a. When the company only issues equity to finance its borrowing.

b. When the current ratio of the company equals 1.

c. When the company issues no dividends for a given time period.

d. When the company issues equal amounts of long-term debt and common stock.

30.Investors and financial analysts wanting to evaluate the operating efficiency of a company's managers would probably look primarily at the company's

a. Debt utilization ratios.

b. Profitability ratios.

c. Liquidity ratios.

d. Asset utilization ratios.

31.Which one of the following ratios would be of greatest interest to the common shareholders?

a. Current ratio

b. Return on equity

c. Average collection period

d. Total asset turnover

32.According to the DuPont formula, which one of the following will not increase a profitable company's return on equity?

a. Lowering corporate income taxes.

b. Increasing net profit margin.

c. Increasing total asset turnover.

d. Lowering equity multiplier.

33.Shaila Company has a current ratio of 2.5. What will be the effect of a purchase of inventory with cash on the acid-test ratio and on working capital?

a. Decreased acid-test ratio and decreased working capital.

b. No effect on acid-test ratio and decreased working capital.

c. No effect on acid-test ratio and no effect working capital.

d. Decreased acid-test ratio and no effect on working capital.

34.An increasing average collection period indicates

a. Accounts receivable are going down.

b. The company is generating more income.

c. The company is becoming more efficient in its collection policy.

d. The company is becoming less efficient in its collection policy.

35.Which of the following is NOT a purpose of the statement of cash flows?

a. To show operating expenses for a period of time.

b. To show cash flow from investing activities.

c. To show cash flow from financing activities.

d. To show all investing and financing transactions.

e. To show cash flow from operations.

36.Holding all other things constant, which of the following represents a cash outflow?

a. The company receives a bank loan.

b. The company increases accounts payable.

c. The company acquires inventory.

d. The company sells a machine.

37.When calculating a company's free cash flow from earnings before interest and taxes we must add back depreciation, amortization and depletion expense and allowances because

a. The accounting method for reporting such expenses may be different from that reported to the taxing authority.

b. They are unrelated to the amount of taxes paid during the year.

c. They are non-cash expenditures.

d. They approximate the value of fixed asset purchases during the year.

38.Gross profit variance analysis can be used to study the effect of:

a. Changes in product sales mix on a company's profitability.

b. Changes in cost of goods sold on a company's profitability.

c. Changes in selling prices on a company's profitability.

d. Changes in volume of goods sold on a company's profitability.

e. All of the choices.

39.All other things being equal, a company that sells multiple products should attempt to structure its sales mix so the greatest portion of the mix is composed of those products with the highest:

a. Gross profit/margin per unit.

b. Selling price.

c. Fixed costs.

d. Cost of goods sold.

e. Quantity/unit sold.

40.Which of the following underlying assumptions form(s) the basis for gross profit variance analysis?

a. All of the choices are assumptions that underlie gross profit variance analysis.

b. Costs can be categorized as variable.

c. In multiproduct organizations, the sales mix remains discretionary.

d.Sales and costs behave in a linear manner.