Missed Financial Ratios

Question 1

Debt to Equity

Answer 1

Total Liabilities / Total Equity

Question 2

Asset Turnover

Answer 2

Net Sales/Average Total Assets

Question 3

Timed Interest Earned

Answer 3

EBIT/Interest

Question 4

Days in Inventory

Answer 4

365/COGS/Ending Inventory

Question 5

If there is Turnover as part of the equitation that your denominator needs to have average T or F

Answer 5

True Turnover ratios generally use average balances; however, on recent CPA exams questions the question will ask you to use year-end balances instead. Make sure to read the question carefully to determine the appropriate method of use

Question 6

Accounts Receivable Turnover

Answer 6

Sales(net)/Average Accounts Receivable (net)

Question 7

Going from accrual to cash basis if you have an increase in accounts receivable what is your adjusted entry ?

Answer 7

A increase in accounts receivable under the cash basis is a decrease to the income because under the cash basis method the revenue would not have been affected so you would need to decrease the income.

Question 8

Going from accrual to cash basis if you have an decrease in accounts payable what is your adjusted entry ?

Answer 8

A Decrease in accounts payable under the cash basis method is a decrease in cash and an increase in expense. under the cash method you would D expense and C cash

Question 9

Net Profit Margin

Answer 9

Net Income/Sales

Question 10

T or F Unrelaized holding gains and losses on tradinig securities is included in other comprehensive income

Answer 10

F - it is part of the income statement as net income

Question 11

T or F Unrealized holding gains and losses on trading securities is included in other comprehensive income

Answer 11

F It goes into the income statement

Question 12

The main components of other comprehensive income include

Answer 12

Pension changes in funded status: due to gains/losses, prior service costs, and net transition assets or obligations; unrealized gains and losses: unrealized holding gains/losses on available for sale debt securities, unrealized holding gains and losses on deb securities TRANSFERRED FROM THE HELD-TO-MATURITY TO AVAILABLE FOR SALE CLASSIFICATION and gains and losses on cash flow hedges; foreign currency items, including translation adjustments, instrument-specific credit risks