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Quiz

SU 10.3

Sadan Dahal 9 questions

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Questions in this quiz (9)

  1. 1If a high percentage of an entity’s total costs is fixed, the entity’s operating leverage will be
    1. AA.High.
    2. BB.Low.
    3. CC.Unchanged.
    4. DD.Unable to be determined.
  2. 2Entity A has 50,000 common shares and 10,000 preferred shares outstanding at the start of the year on January 1. The preferred shares are entitled to a US $2 per share annual cash dividend, payable on December 31. The entity had net income of US $150,000 for the year. On April 1, the entity issued 15,000 additional common shares for cash.

    Entity B is identical to entity A in all respects except that it had 75,000 common shares outstanding for the entire year.

    Basic earnings per share for entity B is approximately
    1. AA.US $1.73
    2. BB.US $1.87
    3. CC.US $2.00
    4. DD.US $2.27
  3. 3An entity had 300,000 shares of common shares issued and outstanding at December 31, Year 1. No shares were issued during Year 2. On January 1, Year 2, the entity issued 200,000 shares of nonconvertible preferred shares. During Year 2, the entity declared and paid US $75,000 of cash dividends on the common shares and US $60,000 on the preferred shares. Profit for the year ended December 31, Year 2, was US $330,000. What is the entity’s Year 2 basic earnings per share?
    1. AA.US $1.10
    2. BB.US $0.90
    3. CC.US $0.85
    4. DD.US $0.65
  4. 4An entity has 100,000 outstanding common shares with a market value of US $20 per share. Dividends of US $2 per share were paid in the current year, and the entity has a dividend-payout ratio of 40%. The price-to-earnings (P-E) ratio of the entity is
    1. AA.2.5
    2. BB.4
    3. CC.10
    4. DD.50
  5. 5When comparing two companies, if all else is equal, the company that has a higher dividend payout ratio will have a
    1. AA.Higher marginal cost of capital.
    2. BB.Lower debt ratio.
    3. CC.Higher investment opportunity schedule.
    4. DD.Higher price-to-earnings ratio.
  6. 6Which group of ratios would be useful in evaluating the effectiveness of working capital management?
    1. AA.Profit margin, acid-test ratio, and return on assets.
    2. BB.Acid-test ratio, inventory turnover ratio, and average collection period ratio.
    3. CC.Inventory turnover ratio, times interest earned, and debt-to-equity ratio.
    4. DD.Acid-test ratio, current ratio, and return on equity.
  7. 7An entity has total asset turnover of 3.5 times and a total debt to total assets ratio of 70%. If the entity has total debt of US $1,000,000, it has a sales level of
    1. AA.US $5,000,000
    2. BB.US $2,450,000
    3. CC.US $408,163
    4. DD.US $200,000
  8. 8Which of the following is true about the impact of price inflation on financial ratio analysis?
    1. AA.Inflation has no impact on financial ratio analysis.
    2. BB.Inflation affects financial ratio analysis for one entity over time but not comparative analysis of entities of different ages.
    3. CC.Inflation affects financial ratio analysis for one entity over time, as well as comparative analysis of entities of different ages.
    4. DD.Inflation affects comparative analysis of entities of different ages but not financial ratio analysis for one entity over time.
  9. 9Which of the following financial statement analyses is most useful in determining whether the various expenses of a given entity are higher or lower than industry averages?
    1. AA.Horizontal.
    2. BB.Vertical.
    3. CC.Activity ratio.
    4. DD.Defensive-interval ratio.

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Description
CIA Part 3 SU 10 Quiz on SU 10.3, created by Sadan Dahal on 24/06/2020.
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