CHAPTER 7

MULTIPLE CHOICE

1.Jones Company has long-term debt of 1,000,000, while Smith Company, Jones' competitor, has long-term debt of 200,000. Which of the following statements best represents an analysis of the long-term debt position of these two firms?

a.

Smith Company's times interest earned should be lower than Jones.

b.

Jones obviously has too much debt when compared to its competitor.

c.

Jones should sell more stock and use less debt.

d.

Smith has five times better long-term borrowing ability than Jones.

e.

Not enough information to determine if any of the answers are correct.

ANS:E

2.Ingram Dog Kennels had the following financial statistics for 2010:

Long-term debt

400,000

(average rate of interest is 8%)

Interest expense

35,000

Net income

48,000

Income tax...