1/ Given the following data: sales $1,500,000; gross profit $640,000; net income after tax $40,000 and income tax expens...
1/ Given the following data: sales $1,500,000; gross profit $640,000; net income after tax $40,000 and income tax expense $35,000. What is the common-size percentage for operating expenses?
37.7%
42.7%
95.0%
97.3%
2/ To best interpret the accounts receivable turnover ratio, the days in accounts receivable should be compared to the company's
inventory turnover.
sales revenue.
credit terms.
accounts receivable balance.
3/ The quick ratio will be negatively impacted by
tying up cash in inventory.
increasing accounts receivable.
decreasing the level of prepaid accounts.
increasing levels of long term debt.
4/ Which of the following depicts the current ratio?
(current assets – inventory) ÷ current liabilities
currents assets ÷ total assets
(current assets – inventory) ÷ total assets
current assets ÷ current liabilities
Homework Answers
1.
Net income after tax = $40,000
Income tax expense = $35,000
Income before tax = Net income after tax + Income tax expense
= 40,000+35,000
= $75,000
Operating expenses = Gross profit - Income before tax
= 640,000-75,000
= $565,000
Common size percentage for operating expenses = Operating expenses/sales
= 565,000/1,500,000
= 37.7%
First option is correct option.
2. To best interpret the accounts receivable turnover ratio, the days in accounts receivable should be compared to the company's credit terms.
Third option is correct option.
3.
The quick ratio will be negatively impacted by tying up cash in inventory.
First option is correct option.
When more and more of inventory is purchased on cash, quick assets decrease due to decrease in cash and thus quick ratio declines.
4.
Current ratio = Current assets/Current liabilities
Fourth option is correct option.
Kindly comment if you need further assistance.
Thanks‼!
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