NAME:__________________ Score:_____________

SEMI FINAL EXAMINATION IN MANAGERIAL SERVICES REVIEW

PROBLEM 1

Use the following to answer questions 1 to 7:

Financial statements for Larabee Company appear below:

Larabee Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)

Year 2 Year 1
Current assets:
Cash and marketable securities ........ $ 180 $ 160
Accounts receivable, net ........... 190 160
Inventory ............................ 150 160
Prepaid expenses ..................... 20 20
Total current assets .................. 540 500
Noncurrent assets:
Plant & equipment, net ............... 1,680 1,640
Total assets ........................... $2,220 2,140

Current liabilities:
Accounts payable ....................... $ 110 $ 140
Accrued liabilities .................... 50 80
Notes payable, short term .............. 60 100
Total current liabilities .............. 220 320
Noncurrent liabilities:
Bonds payable .......................... 350 400
Total liabilities ...................... 570 720

Stockholders’ equity: ..................

Preferred stock, $20 par, 10% .......... 120 120
Common stock, $10 par .................. 180 180
Additional paid-in capital--common stock 280 280
Retained earnings ..................... 1,070 840
Total stockholders’ equity ............ 1,650 1,420
Total liabilities & stockholders’ equity $2,220 $2,140

Larabee Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)

Sales (all on account) ....................... $ 2,610

Page 1 of 7
Cost of goods sold ........................... 1,820
Gross margin ................................. 790
Operating expenses ........................... 310
Net operating income ......................... 480
Interest expense ............................. 40
Net income before taxes ...................... 440
Income taxes (30%) ........................... 132
Net income ................................... $ 308

Dividends during Year 2 totaled $78 thousand, of which $12 thousand were
preferred dividends. The market price of a share of common stock on December
31, Year 2 was $150.

1. Larabee Company's earnings per share of common stock for Year 2 was
closest to:
a. $17.11
b. $16.44
c. $24.44
d. $ 9.87

2. Larabee Company's price-earnings ratio on December 31, Year 2 was

closest to:
a. 8.77
b. 6.14
c. 9.12
d. 15.20

3. Larabee Company's dividend payout ratio for Year 2 was closest to:
a. 13.8%
b. 25.3%
c. 8.4%
d. 22.3%

4. Larabee Company's dividend yield ratio on December 31, Year 2 was

closest to:
a. 2.0%
b. 2.4%
c. 1.7%
d. 2.9%

5. Larabee Company's return on total assets for Year 2 was closest to:
a. 12.8%
b. 15.4%
c. 14.7%
d. 14.1%

6. Larabee Company's return on common stockholders' equity for Year 2

was closest to:
a. 19.3%
b. 21.8%
c. 20.9%
d. 20.1%
Page 2 of 7
 7. Larabee Company's book value per share at the end of Year 2 was
closest to:
a. $91.67
b. $85.00
c. $25.56
d. $10.00

Use the following to answer questions 8-12:

Selected data (in thousands of dollars) from Ostrander Corporation's

financial statements are presented below:

Balance Sheet Data: Year 2 Year 1

Cash ................................. $ 32 $ 28
Marketable securities ................ $ 169 $ 172
Accounts receivable (net) ............ $ 210 $ 204
Merchandise inventory ................ $ 440 $ 420
Equipment (net) ...................... $ 480 $ 440
Total assets ......................... $1,397 $1,320
Current liabilities .................. $ 370 $ 368
Total liabilities .................... $ 790 $ 750
Common stock outstanding ........... $ 226 $ 210
Retained earnings .................... $ 381 $ 360

Income Statement Data:

Year 2
Sales (all on account) ................ $4,175
Cost of goods sold .................... $2,880
Interest expense ...................... $ 50
Income tax ............................ $ 120
Net income ............................ $ 175

8. Ostrander Corporation's acid-test (quick) ratio for Year 2 is

closest to:
a. 1.73
b. 1.87
c. 1.11
d. 0.54
9. Ostrander Corporation's inventory turnover for Year 2 is closest to:
a. 6.54
b. 6.69
c. 6.85
d. 9.70

10. Ostrander Corporation's average collection period (age of

receivables) for Year 2 is closest to:
a. 18.10 days
b. 26.61 days
c. 17.83 days
d. 18.36 days
Page 3 of 7
 11. Ostrander Corporation's times interest earned for Year 2 is closest
to:
a. 4.50
b. 7.70
c. 3.50
d. 6.90

12. Ostrander Corporation's debt-to-equity ratio at the end of Year 2 is

closest to:
a. 3.49
b. 1.85
c. 2.07
d. 1.30

Use the following to answer questions 13-19:

Financial statements for Maraby Company appear below:

Maraby Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)

Year 2 Year 1
Current assets:
Cash and marketable securities ............ $ 220 $ 190
Accounts receivable, net .................. 190 160
Inventory ................................. 140 150
Prepaid expenses .......................... 70 80
Total current assets ...................... 620 580
Noncurrent assets:
Plant & equipment, net .................... 1,180 1,150
Total assets .............................. $1,800 $1,730

Current liabilities:
Accounts payable .......................... $ 100 $ 120
Accrued liabilities ....................... 100 70
Notes payable, short term ................. 160 160
Total current liabilities ................. 360 350
Noncurrent liabilities:
Bonds payable ............................. 450 500
Total liabilities ......................... 810 850
Stockholders’ equity:
Preferred stock, $10 par, 8% .............. 100 100
Common stock, $5 par ...................... 160 160
Additional paid-in capital--common stock .. 100 100
Retained earnings ......................... 630 520
Total stockholders’ equity ................ 990 880
Total liabilities & stockholders’ equity .. $ 1,800 $1,730

Page 4 of 7
 Maraby Company
Income Statement For the Year Ended
December 31, Year 2
(dollars in thousands)

Sales (all on account) .................. $1,960

Cost of goods sold ...................... 1,370
Gross margin ............................ 590
Operating expenses ...................... 230
Net operating income .................... 360
Interest expense ........................ 50
Net income before taxes ................. 310
Income taxes (30%) ...................... 93
Net income .............................. $ 217

13. Maraby Company's working capital (in thousands of dollars) at the end
of Year 2 was closest to:
a. $260
b. $620
c. $360
d. $990

14. Maraby Company's current ratio at the end of Year 2 was closest to:
a. 1.34
b. 1.72
c. 0.60
d. 0.44

15. Maraby Company's acid-test (quick) ratio at the end of Year 2 was
closest to:
a. 0.51
b. 0.47
c. 1.14
d. 1.95

16. Maraby Company's accounts receivable turnover for Year 2 was closest
to:
a. 13.5
b. 7.8
c. 11.2
d. 9.4

17. Maraby Company's average collection period (age of receivables) for

Year 2 was closest to:
a. 38.6 days
b. 46.6 days
c. 32.6 days
d. 27.0 days

18. Maraby Company's inventory turnover for Year 2 was closest to:
a. 11.2
Page 5 of 7
 b. 7.8
c. 9.4
d. 13.5

19. Maraby Company's average sale period (turnover in days) for Year 2
was closest to:
a. 38.6 days
b. 32.6 days
c. 46.6 days
d. 27.0 days

Items for numbers 20 to 29 are based on the following information:

Rainbow Company

Rainbow Company uses a standard cost system for its production process.
Rainbow Company applies overhead based on direct labor hours. The following
information is available for July:

Standard:
Direct labor hours per unit 2.20
Variable overhead per hour $2.50
Fixed overhead per hour
(based on 11,990 DLHs) $3.00

Actual:
Units produced 4,400
Direct labor hours 8,800
Variable overhead $29,950
Fixed overhead $42,300

20. Refer to Rainbow Company Using the four-variance approach, what is

the variable overhead spending variance?
a. $ 7,950 U
b. $ 25 F
c. $ 7,975 U
d. $10,590 U

21. Refer to Rainbow Company Using the four-variance approach, what is

the variable overhead efficiency variance?
a. $9,570 F
b. $9,570 U
c. $2,200 F
d. $2,200 U

22. Refer to Rainbow Company Using the four-variance approach, what is

the fixed overhead spending variance?
a. $15,900 U
b. $ 6,330 U
c. $ 6,930 U
d. $ 935 F
Page 6 of 7
23. Refer to Rainbow Company Using the four-variance approach, what is
the volume variance?
a. $ 6,930 U
b. $13,260 U
c. $ 0
d. $ 2,640 F

24. Refer to Rainbow Company Using the three-variance approach, what is

the spending variance?
a. $23,850 U
b. $23,850 F
c. $14,280 F
d. $14,280 U

25. Refer to Rainbow Company Using the three-variance approach, what is

the efficiency variance?
a. $11,770 F
b. $ 2,200 F
c. $ 7,975 U
d. $ 5,775 U

26. Refer to Rainbow Company Using the three-variance approach, what is

the volume variance?
a. $13,260 U
b. $ 2,640 F
c. $ 6,930 U
d. $0

27. Refer to Rainbow Company Using the two-variance approach, what is the
controllable variance?
a. $21,650 U
b. $16,480 U
c. $ 5,775 U
d. $12,080 U

28. Refer to Rainbow Company Using the two-variance approach, what is the
noncontrollable variance?
a. $26,040 F
b. $0
c. $6,930 U
d. $13,260 U

29. Refer to Rainbow Company Using the one-variance approach, what is the
total variance?
a. $19,010 U
b. $ 6,305 U
c. $12,705 U
d. $ 4,730 U

END OF EXAMINATIONS
Page 7 of 7