Question

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

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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