Question

The variable Market Value of Equity divided by Total Liabilities in the Altman Z-Score measures which...

The variable Market Value of Equity divided by Total Liabilities in the Altman Z-Score measures which of the following concepts?

Select one:

A. Current level of efficiency

B. Current level of leverage

C. Current level of net operating assets

D. Current level of profitability

2)

Selected financial data for Wilmington Corporation is presented below.

WILMINGTON CORPORATION
Balance Sheet
Dec. 31, Year 7 Dec. 31, Year 6
Current Assets
Cash and cash equivalents $519,159 $274,579
Marketable securities 166,106 187,064
Accounts receivable (net) 232,548 260,190
Inventories 382,044 352,022
Prepaid expenses 49,832 22,958
Other current assets 83,053 85,029
Total Current Assets 1,432,742 1,181,842
Property, plant and equipment 1,384,217 625,421
Long-term investment 568,003 425,000
Total Assets $3,384,962 $2,232,263
Current Liabilities
Short-term borrowings $306,376 $170,419
Current portion of long-term debt 155,000 168,000
Accounts payable 228,700 257,631
Accrued liabilities 246,292 150,285
Income taxes payable 87,962 161,020
Total Current Liabilities 1,024,330 907,355
Long-term debt 500,000 300,000
Deferred income taxes 193,515 236,164
Total Liabilities 1,717,845 1,443,519
Common stock $425,250 $125,000
Additional paid-in capital 356,450 344,335
Retained earnings 885,417 319,409
Total Stockholders' Equity 1,667,117 788,744
Total Liabilities and Stockholders' Equity $3,384,962 $2,232,263


Selected Income Statement Data for the year ending December 31, Year 7
Net sales $4,885,340
Cost of goods sold (2,978,182)
Selling expenses (884,685)
Operating income 1,022,473
Interest expense (55,240)
Earnings before income taxes 967,233
Income tax expense (401,225)
Net income $566,008


Selected Statement of Cash Flow Data for the year ending December 31, Year 7
Cash flows from operations $1,310,476
Capital expenditures $745,862

Required

Wilmington Corporation’s return on equity in Year 7 was:

Select one:

a. 20.2%

b. 34.0%

c. 16.7%

d. 46.1%

3)

In times of falling prices, choosing LIFO over FIFO as an inventory cost method would affect the financial statements as follows:

Select one:

A. Cost of goods sold will be higher and ending inventory will be lower

B. Cost of goods sold will be lower and ending inventory will be lower

C. Cost of goods sold will be higher and ending inventory will be higher

D. Cost of goods sold will be lower and ending inventory will be higher

E. None of the above

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4)

Identify which of the following items would be reported in the income statement.

a.

Cash

d.

Wage expense

g.

Net income

b.

Sales

e.

Wages payable

h.

Inventory

c.

Long-term debt

f.

Retained earnings

i.

Cost of goods sold


Items reported in the income statement would include:

Select one:

A. b, e, f, and g

B. b, e, g, and h

C. b, d, g, and i

D. d, f, g, and h

E. a, b, d, and i

Homework Answers

Answer #1

Solution

1) The variable Market Value of Equity divided by Total Liabilities in the Altman Z-Score measures B) Current level of leverage

2) The correct answer is d) 46.1%

Average Stockholders equity = (opening balance + Closing Balance )/2

= ($788,744+1667,117)/2

= $ 12,27,931

Return On Stockholders Equity = Net Income / Average Common stockholders equity

= $ 566,008/ 12,27,931 = 46.1%

3) In times of falling prices, choosing LIFO over FIFO as an inventory cost method would affect the financial statements as follows D) Cost of goods sold will be lower and ending inventory will be higher

4) Identify which of the following items would be reported in the income statement

The correct answer is c)  b, d, g, and i Sales, Wages expense, Net income & cost of goods sold

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