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# Times Interest Earned ratio

I am having trouble with accounting. I am not really good at any type of math. If I could get some insight on this?

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1. A company has total fixed costs of \$200,000.00 and wishes to meet a target profit of \$100,000.00. The company makes a product with variable costs of \$50 per unit, and a sell price of \$200 per unit. How many units must the company make to achieve its profit goal?

a. 1,334 units
b. 2,000 units
c. 1,000 units
d. 6,667 units

Units must the company make to achieve its profit goal= (Fixed cost +Profit)/Contribution margin per unit
=(200000+100000)/(Sales price- Variable cost)
=300000/(200-50)
=2000 units
Hence option b

2. If a company reports an asset balance of \$300,000.00 on its balance sheet and has a total liability balance of \$200,000 on the balance sheet, which of the following MUST be true:

a. Equity must equal \$100,000.00
b. Retained earnings must be less than the common stock equity
c. The sum of common stock equity and assets must be \$100,000.00
d. None of the above must be true

a. Equity must equal \$100,000.00

3. If a company is offered terms of 2/10 net 30, they have the option of:

a. Paying 98% of the bill if they pay within 10 days after receipt of the invoice.
b. Paying 100% of the bill if they pay within 30 days of the receipt of the invoice.
c. Both a and b are options for this company.
d. Neither a nor b are options for this company.

c. Both a and b are options for this company.

4. On which of the following statements would the account value of the Depreciation expense appear?

a. Income statement only
b. Balance Sheet only
c. Statement of Cash Flows only
d. Depreciation Expense appears on all three of these statements

a. Income statement only

5. Cost of Goods Sold represents the cost of which of the following:

a. Direct material and labor required to build a product.
b. Variable selling expenses.
c. Utilities and Rent
d. All of these items are part of Cost of Goods Sold

a. Direct material and labor required to build a product.

6. When a sale is made on credit, which of the following represents how the cash flow associated with the activity is recorded:

a. Cash is increased by the amount of the sale.
b. Cash is decreased by the amount of cost of goods sold
c. Cash is decreased by the amount of the sale.
d. No cash transaction is recorded.

d. No cash transaction is recorded.

7. All of the following are variable expenses except:

a. Direct labor hours.
b. Direct material costs
c. Commissions earned as a percent of the sale price of each unit.
d. Executive pay and benefits.

d. Executive pay and benefits

8. In a cash business (all sales are made for cash, no credit is granted):

a. Collections are equal to sales.
b. Collections are equal to prior months sales.
c. A sale does not affect the cash account.
d. None of the above are true for a cash business.

a. Collections are equal to sales.

9. Which of the following inventory turns represents the most efficient use of inventory assets:

a. 1.0 Times
b. 2.0 Times
c. 3.0 Times
d. 2.5 Times

c. 3.0 Times

10. A TIE (Times Interest Earned) ratio of less than 1.0 indicates:

a. The business does not have sufficient cash to pay its creditors.
b. The business does not generate sufficient profits to cover its interest expenses.
c. The profitability of the business is not sufficient to support its debt load.
d. None of the above

b. The business does not generate sufficient profits to cover its interest expenses.

11. Which of the following graphs indicates the most capital intensive business?

a. b.

c. d.

b. represent the most capital intensive business
(Here Fixed costs are the highest)

12. If a business has sales of \$2000 in widgets, with fixed costs of 1000 and a sell price of 200 per widget, what is the maximum variable cost for each widget in order for the business to breakeven?

a. \$100
b. (\$100)
c. 0
d. Can not be determined from data given

b. (\$100)

13. Which of the following ratios is not associated with liquidity?

a. Price to Earnings (PE) ratio
b. Quick Ratio
c. Current Ratio
d. None of these are liquidity ratios

a. Price to Earnings (PE) ratio

14. A business collects 50% of its sales in the current month, 30% in the second month after the sale and the balance 2 months after the sale. The business has sales of 100 in the first month, 200 in the second month, 300 in the third month and 400 in the fourth month. What are its projected collections in the third month?

a. 330
b. 230
c. 130
d. 300

= (50%*300+ 30%*200+20%*100)
=\$230
Hence option b.

15. If a business has fixed costs of \$100,000 and produces a product that it can sell for \$500 with variable costs of \$250, how many units of product must the business ...

#### Solution Summary

Response provides the steps to compute the times Interest Earned ratio

\$2.19