Which of the following statements about the Securities and Exchange Commission (SEC) is true?
Answer(s): B
The Securities and Exchange Commission has issued specific rules and regulations concerning the preparation of financial statements and the degree of detail that they contain.
The following data have been extracted from the financial statements of a firm for two years, 1993 and 1994:1993 1994Assets 10,895 12,444Sales 8,465 9,275Inventory 3,126 3,549COGS 7,120 7,387Receivables 2,154 1,768The receivables turnover ratio and the average receivables collection period for 1994 equal ________.
Answer(s): D
Receivables turnover ratio = Net annual sales/average receivables Average receivables collection period = 365/ receivables turnover. Typically, average receivables for a given year are taken to be the average of the ending values of the receivables for this year and the last year. For 1994, the average receivables equal (2154+1768)/2 = 1,961. Receivables turnover ratio = 9,275/1,961 = 4.73. Average receivables collection period = 365/4.73 = 77.17 days.
Which of the following is/are advantages of accelerated methods of depreciation?
Answer(s): C
All three responses are correct as advantages of accelerated methods of depreciation.
A firm has convertible bonds, preferred equity, common equity and straight bonds in its capital structure. In calculating Diluted EPS, which of the following is true about the earnings number used, assuming the convertible bonds are dilutive?
Think of the earnings used in EPS calculations as the earnings that are available for distribution amongst common shareholders. Under Diluted EPS, convertible bonds are assumed converted if dilutive. Hence, for Diluted EPS purposes, convertible bond holders are assumed to be a part of the residual claimants of the earnings available after the liabilities to debt holders and preferred equity holders are satisfied. The earnings available for distribution amongst these security holders then equal Net income - preferred dividends + interest payments on convertible net of taxes.
Redeemable preferred stock
The liquidation preference or redemption price should be used in the computation of book value per share, leverage, and capital ratios.
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