In Its Closing Financial Statements for Its First Year in Business

question 25

Multiple Choice

In its closing financial statements for its first year in business, the Runs and Goses Company, had cash of $242, accounts receivable of $850, inventory of $820, net fixed assets of$3,408, accounts payable of $700, short-term notes payable of $740, long-term liabilities of $1,100, common stock of $1,160, retained earnings of$1,620, net sales of $2,768, cost of goods sold of $1,210, depreciation of $360, interest expense of $160, taxes of $312, addition to retained earnings of $508, and dividends paid of $218.
-What is the equity multiplier for Runs and Goses?

• A)4.59 times
• B)2.35 times
• C)0.48 times
• D)1.12 times
• E)1.91 times

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Definitions:

Inventory Period

The average time that inventory is held before it is sold or used in production.

Operating Cycle

Refers to the duration it takes for a company to buy goods or services, convert them into products, sell those products, and collect cash from the sales.

Effective Rate

The actual interest rate on an investment or loan, accounting for the effect of compounding over a given period.

Operating Loan

Loan negotiated with banks for day-to-day operations.