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    Merchandise Inventory, Income Tax Rate, and Investments

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    7. Keifert Company had a balance in the Merchandise Inventory account of $260,000 at the beginning of the year and a balance of $340,000 at the end of the year. The inventory turnover ratio for 2006 was 4 times. If gross profit as a percentage of sales was 40%, the amount of sales for 2006 was
    a. $2,000,000.
    b. $1,200,000.
    c. $3,000,000.
    d. $750,000.

    8. Foxter Company reported net income of $140,000 for 2006. The income statement also indicates that interest expense for 2006 was $40,000. Assuming an income tax rate of 30%, the number of times interest earned ratio for 2006 was
    a. 5 times.
    b. 6 times.
    c. 4.5 times.
    d. 3.5 times.

    9. Simms Company has a 70% interest in the stock of Werton Company. What level of investment does Simms hold?
    a. Controlling
    b. Significant
    c. Insignificant
    d. Passive

    10. Bechtel Enterprises has a 10% interest in Walton Company. During 2006, Walton earned net income of $45,000 and paid dividends of $20,000. The entry on the books of Bechtel to record income from the investment will include
    a. a debit to Stock Investments of $4,500
    b. a credit to Investment Income of $2,500.
    c. a credit to Dividend Income of $2,000.
    d. a credit to Gain on the Sale of Stock Investments for $2,500.

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    Solution Preview

    7. Keifert Company had a balance in the Merchandise Inventory account of $260,000 at the beginning of the year and a balance of $340,000 at the end of the year. The inventory turnover ratio for 2006 was 4 times. If gross profit as a percentage of sales was 40%, the amount of sales for 2006 was
    a. $2,000,000.
    b. $1,200,000.
    c. $3,000,000.
    d. $750,000. ...

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