Scott Company had a current ratio of 2.76:1 in Year 1 and 2.57:1 in Year 2. This

Question

Scott Company had a current ratio of 2.76:1 in Year 1 and 2.57:1 in Year 2. This change in current ratio indicates that the A. company’s debt-paying ability has improved. B. company’s debt-paying ability has weakened. C. company’s customers are paying their accounts sooner. D. company is able to sell its inventory faster.

When preparing an income statement showing departmental contribution margin,

A. indirect expenses are combined with direct expenses.

B. indirect departmental expenses are added to contribution margin.

C. direct expenses are subtracted from contribution margin on sales.

D. None of the above

What was the percentage of decrease in the Accounts Receivable account if the receivables were $80,000 in Year 1 and $60,000 in Year 2?

A. (25%)

B. 33.33%

C. (33.33%)

D. 25%

If management wishes to evaluate the ability of a business to provide funding to cover operating expenses, they could use the

A. rate of return on total assets.

B. rate of return on common stockholders’ equity.

C. gross profit rate.

D. times interest earned

If total assets are $6,000, what is the vertical analysis for Cash when it has a balance of $2,400?

A. 40%

B. 60%

C. 250%

D. 25%

A. indirect expenses are combined with direct expenses.

B. indirect departmental expenses are added to contribution margin.

C. direct expenses are subtracted from contribution margin on sales.

D. None of the above

What was the percentage of decrease in the Accounts Receivable account if the receivables were $80,000 in Year 1 and $60,000 in Year 2?

A. (25%)

B. 33.33%

C. (33.33%)

D. 25%

If management wishes to evaluate the ability of a business to provide funding to cover operating expenses, they could use the

A. rate of return on total assets.

B. rate of return on common stockholders’ equity.

C. gross profit rate.

D. times interest earned

If total assets are $6,000, what is the vertical analysis for Cash when it has a balance of $2,400?

A. 40%

B. 60%

C. 250%

D. 25%

Explanation / Answer

1) Current Ratio has fallen from 2.76 to 2.57 which shows that companies ability to pay its debt has weakened Answer - Option B 2) when preparing an income statement showing departmental contribution margin indirect expenses are combined with direct expenses All variable expenses (direct & indirect) are clubbed and deducted from sales to find out contribution margin Answer -Option A 3) Percentage decrease In accounts receivables can be calculated as Change in Accounts receivables / accounts receivables at year 1 = (80000-60000) / 80000 = 25 % Answer - option D 4) If management wishes to evaluate its ability to provide funding to cover operating expenses it would evaluate its Gross profit rate As Gross profit left after direct expense is used to cover remaining operating expenses of business Answer - Option C 5) Vertical analysis measures each individual item of balance sheet as % to total assets Vertical analysis for cash can be calculated as Cash balance / total assets =2400 / 6000 = 40 % Answer - Option A

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