Multiple choice

See attached file.

Please provide a brief explanation for the correct answer.
1. Which of the following statements about financial statement analysis is true?

a. The return-on-equity is a liquidity ratio
b. The debt-to-equity ratio is a solvency ratio
c. The book value per share is a profitability ratio
d. The quick ratio is a stock market ratio

2. Which of the following statements about ratio analysis is false?

a. A company prefers to have its price-earnings ratio be lower rather than higher
b. A company prefers' to have its inventory turnover ratio be higher rather than lower
c. A company trying to increase its creditworthiness prefers to have its debt-to¬-equity ratio be lower rather than higher
d. A company prefers to have its net margin be higher rather than lower

3. Which of the following statements about financial statement analysis is true?

a. Working capital is defined as: current assets - (inventory + prepaid assets)
b. Vertical analysis refers to comparing different companies in the same industry
c. In order to conduct a horizontal analysis, a company's financial data must be converted from an absolute format to a percentage format
d. In order to perform trend analysis, financial data from more than one accounting period must be obtained

The following information pertains to Questions 4 - 7

Newton Corporation
Balance Sheet as of December 31, 2008

Current assets: Current liabilities:
Cash $ 10,000 Accounts payable $150,000
Accounts receivable 90,000 Taxes payable 20,000
Inventory 135,000 Interest payable 10,000
Prepaid insurance 15,000 180,000
250,000 Long-term liabilities:
Long-term assets: Notes payable 50,000
Equipment 150,000 Bonds payable 250,000
Buildings 250,000 300,000
Land 50,000 Total liabilities 480,000
Goodwill 50,000
500,000 Stockholders' equity:
Total assets $750,000 Common stock 100,000
Retained earnings 170,000
Total stockholders'
equity
270,000
Total liabilities &
stockholders' equity
$750,000

4. What is the amount of Newton's working capital?

a. $70,000
b. $100,000
c. $250,000
d. $270,000

5. What is Newton's current ratio?

a. .72 to 1.0
b. .56 to 1.0
c. 1.39 to 1.0
d. 1.80 to 1.0

6. What is Newton's debt-to-ratio?

a. .72 to 1.0
b. .64 to 1.0
c. 1.39 to 1.0
d. 1.78 to 1.0

7. What is Newton's quick ratio?

a. .72 to 1.0
b. .56 to 1.0
c. 1.39 to 1.0
d. 1.80 to 1.0

The following information pertains to Questions 8 - 13:
Information from the Balance Sheet of Japanese Garden Company

2009 2008
Cash $ 10,000 $ 11,000
Accounts receivable 98,000 92,000
Inventory 155,000 164,000
Property plant & equipment 737,000 667,000
Total assets $1,000,000 $934,000

Accounts payable $ 96,500 $ 98,500
Interest payable 3,500 3,500
Bonds payable 600,000 600,000
Total liabilities 700,000 702,000

Common stock (10,000 shares outstanding) 100,000 100,000
Retained earnings 200,000 132,000
Total stockholders' equity 300,000 232,000

Total liabilities & stockholders' equity $1,000,000 $934,000

Information from the Income Statement
of Japanese Garden Company
Sales $ 850,000
Cost of goods sold (537,500)
Selling and administrative expenses (157,000)
Interest expense (42,000)
Income tax expense (45,000)
Net income $ 68,000

8. What are the Japanese Garden's average days to collect receivables?

a. 41 days
b. 65 days
c. 68 days
d. 108 days

9. What are the Japanese Garden's average days to sell inventory?

a. 41 days
b. 65 days
c. 68 days
d. 108 days

10. What is the number of times interest is earned for the Japanese Garden?

a. 1.62 times
b. 2.62 times
c. 3.69 times
d. 20.24 times

11. What is the Japanese Garden's net margin percentage?

a. 36.8%
b. 18.2%
c. 8.0%
d. 6.8%

12. What is the Japanese Garden's book value per share for 2009?

a. $10
b. $30
c. $70
d. $100

13. What is the Japanese Garden's return on investment?

a. 7.0%
b. 8.0%
c. 22.7%
d. 85.0%

The following information pertains to Questions 14 and 15:
The following information is available for the Freemont Corporation for 2008:
Net earnings $214,000
Average number of shares of Common Stock
Outstanding (No Par Value)
100,000
Average number of shares of Preferred Stock
Outstanding (Par = $100, 7% Dividend rate)
2,000

Market price per share of Common Stock $ 37.00
Market price per share of Preferred Stock $105.00
Dividend per share paid on Common Stock $ 0.75

14. What are Freemont's earnings per share?

a. $1.25
b. $2.00
c. $2.07
d. $2.10

15. What is Freemont's dividend yield on common stock?

a. 37.5%
b. 2.0%
c. 7.0%
d. 35.0%