14. Stanley Company had inventory of $220,000 and $180,000 on December 31, 1998,

Question

14. Stanley Company had inventory of $220,000 and $180,000 on December 31, 1998, and December 31, 1999, respectively. Cost of goods sold for 1999 was $1.200,000. Average days to sell the inventory is approximately a. 60.8 b. 6.0 c. 54.5 d. 6.7 -15. Which of the following statements is true? a. The price-earnings ratio is a long-term solvency ratio. b. High asset turnover is a sign of efficient use of assets. C. The payout ratio measures the profitability of the owners' investment d. The acid-test ratio applies to manufacturing companies but not to service or retailing businesses 16. When using the direct method to compute cash provided by operations a. income taxes paid may be ignored. b. depreciation expense is added to net income- c. decreases in inventory are added to total operating expenses to compute cash payments for operating expenses increases in accounts receivable are subtracted from total sales to compute cash receipts from customers. d. 17. Profitability ratios include the a. times interest earned ratio. b. inventory turnover ratio. c. payout ratio. d. acid-test ratio.

Explanation / Answer

14)

answer : a. 60.8

=> [ (220000 + 180000) / 2 ] *365 / 1200000 = 60.8 days

15)

answer : b. High asset turnover is a sign of effcient use of assets. (true statement)

(high asset turnover means that many times the assets are rolled-over during the year, so better it is)

16)

answer : b. depreciation expense is added to net income.

(depeciation being a non-cash expense, so added back to net income to have cash balance)

17)

answer : c. payout ratio

(which says "dividend payment out of period earning", so higher the ratio, the better the profitability)

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