Reference: 13-08
Financial Statements for Oratz Company Appear Below:
Oratz

question 29

Multiple Choice

Reference: 13-08
Financial statements for Oratz Company appear below:
Oratz Company
Balance Sheet
December 31, 20X6 and 20X5
(dollars in thousands) $\begin{array}{|l|l|l|}\hline & 20 X 6 & 20 X 5 \\\hline \text { Current assets: } & & \\\hline \text { Cash and marketable securities } & \$ 150 & \$ 150 \\\hline \text { Accounts receivable, net } & 130 & 130 \\\hline \text { Inventory } & 180 & 180 \\\hline \text { Prepaid expenses } & {30} &{30} \\\hline \text { Total current assets } & 490 & 490 \\\hline \text { Noncurrent assets: } & & \\\hline \text { Plant \& equipment, net } & {1,430} & 1,370 \\\hline \text { Total assets } & \underline{\$ 1,920} & \underline{\$ 1,860} \\\hline & & \\\hline \text { Current liabilities: } & & \\\hline \text { Accounts payable } & \$ 70 & \$ 100 \\\hline \text { Accrued liabilities } & 100 & 70 \\\hline \text { Notes payable, short term } & 230 & 220 \\\hline \text { Total current liabilities } & 400 & 390 \\\hline \text { Noncurrent liabilities: } & & \\\hline \text { Bonds payable } & 300 & 300 \\\hline \text { Total liabilities } & 700 & 690 \\\hline \text { Shareholders' equity: } & & \\\hline \text { Preferred shares, \$10 par, 5\% } & 120 & 120 \\\hline \text { Common shares, \$15 par } & 140 & 140 \\\hline \text { Additional paid-in capital--common shares } & 240 & 240 \\\hline \text { Retained earnings } & 720 & 670 \\\hline \text { Total shareholders' equity } & \underline{1,220} & \underline{1,170} \\\hline \text { Total liabilities \& shareholders' equity } & \underline{\$ 1,920} & \underline{\$ 1,860} \\\hline\end{array}$ Oratz Company
Income Statement
For the Year Ended December 31, 20X6 (dollars in thousands) $$\begin{array} { | l | r | } \hline \text { Sales (all on account) } & \$ 1,630 \\\hline \text { Cost of goods sold } & 1,140 \\\hline \text { Gross margin } & 490 \\\hline \text { Operating expenses } & 190 \\\hline \text { Net operating income } & 300 \\\hline \text { Interest expense } & 30 \\\hline \text { Net income before taxes } & 270 \\\hline \text { Income taxes (30\%) } & 81 \\\hline \text { Net income } & \$ 189 \\\hline\end{array}$$ Dividends during 20X6 totalled $139 thousand, of which $6 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $260.
-Desktop Co. Prepaying next year's office rent of $50,000 will:

• A)decrease the company's current ratio and decrease its acid-test ratio.
• B)increase the company's current ratio and increase its acid-test ratio.
• C)have no effect on either the company's current ratio or its acid-test ratio.
• D)have no effect on the company's current ratio but will decrease its acid-test ratio.

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Definitions:

Incorporate

The process of legally declaring a business as a separate entity from its owners, providing legal protections and benefits.

Management By Objectives (MBO)

Is a process of joint objective‐setting between a manager and a staff member.

External Supervisory Control

Oversight conducted by external bodies or regulators to ensure an organization meets standards or regulations.

Relationship Building

The process of establishing and maintaining positive connections with others, often characterized by trust, understanding, and cooperation.