71) A low debt to total assets ratio reduces a creditor’s risk if liquidation occurs.

72) The lower the times interest earned ratio, the more likely it is that interest payments will not be made.


73) If the return on common stockholders’ equity is less than the industry standard, it means the company is using debt financing successfully.


74) When net income before taxes and interest is $52,000 and total assets equal $205,000, the rate of return on total assets is 3.9%.


75) If the return on sales is 11% and the total assets turnover is 1.8, the rate of return on total assets would be 19.8%.


76) A vertical analysis of an income statement automatically provides the return on sales ratio and the gross profit ratio.

77) From the following information of Carlson’s Restoration Corporation, compute:


a. ________ Asset turnover for Year 2.

b. ________ Inventory turnover for Year 2.

c. ________ Accounts receivable turnover for Year 2.


Year 2Year 1

Net Sales (on credit)$150,000$120,000

Cost of Goods Sold90,00084,000

Net Income30,00024,000

Ending Acct. Receivable24,00021,000

Ending Inventory16,500 13,500

Total Assets120,000 135,000


78) Selected data for Stick’s Design are given as of December 31, Year 1 and Year 2 (rounded to the nearest hundredth).


Year 2Year 1

Net Credit Sales$25,000$30,000

Cost of Goods Sold 16,00018,000

Net Income2,0002,800


Accounts Receivable3,0002,000


Current Liabilities6,0005,000


Required: Compute the following:

a. ________ Current ratio for Year 2.

b. ________ Acid-test ratio for Year 2.

c. ________ Accounts receivable turnover for Year 2.

d. ________ Average collection period for Year 2.

e. ________ Inventory turnover for Year 2.



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