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Exam 15: Financial Statement Analysis

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Question 1

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The following data are taken from the balance sheet at the end of the current year. $\begin{array}{lr}\text { Cash } & \$ 154,000 \\\text { Accounts receivable } & 210,000 \\\text { Inventory } & 240,000 \\\text { Prepaid expenses } & 15,000 \\\text { Temporary investments } & 350,000 \\\text { Property, plant, and equipment } & 375,000 \\\text { Accounts payable } & 245,000 \\\text { Accrued liablities } & 4,000 \\\text { Income tax payable } & 10,000 \\\text { Notes payable, short-term } & 85,000\end{array}$ Determine the a working capital,b current ratio,and c quick ratio.Round ratios to the nearest tenth.

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a. Current assets $969,000 – Current lia...

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Question 2

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The relationship of $325,000 to $125,000,expressed as a ratio,is

A) 2.0
B) 2.6
C) 2.5
D) 0.45

E) All of the above
F) C) and D)

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Question 3

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A company reports the following: Determine the ratio of sales to assets.Round your answer to one decimal place.

The numerator of the rate earned on common stockholders' equity ratio is

Based on the following data for the current year,what is the number of days' sales in inventory?

$\begin{array}{lr}\text { Accounts payable } & \$ 30,000 \\\text { Accounts receivable } & 35,000 \\\text { Accrued liabilities } & 7,000 \\\text { Cash } & 25,000 \\\text { Intangible assets } & 40,000 \\\text { Inventory } & 72,000 \\\text { Long-term investments } & 100,000 \\\text { Marketable securities } & 75,000 \\\text { Notes payable short-term } & 36,000 \\\text { Property, plant, and equipment } & 20,000 \\\text { Prepaid expenses } & 400,000 \\& 2,000\end{array}$ -Based on the above data,what is the quick ratio,rounded to one decimal point?

The tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is

Current position analysis measures a company's ability to pay its current liabilities.

The following data are available for Martin Solutions,Inc. $\begin{array}{|l|r|r|}\hline & \text { Year 2 } & \text { Year 1 } \\\hline \text { Sales } & \$ 1,139,600 & \$ 1,192,320 \\\hline \text { Beginning inventory } & 80,000 & 64,000 \\\hline \text { Cost of goods sold } & 500,800 & 606,000 \\\hline \text { Ending inventory } & 72,000 & 80,000 \\\hline\end{array}$ 1- Determine for each year: a. The inventory turnover b. The number of days’ sales in inventory Round intermediate calculation to the nearest whole number and your final answer to one decimal place. 2- What conclusions can be drawn from these data concerning the inventories?

Define solvency and profitability.How are they alike?

If a firm has a current ratio of 2,the subsequent receipt of a 60-day note receivable on account will cause the ratio to decrease.

In a company's annual report,the section called management discussion and analysis provides critical information in interpreting the financial statements and assessing the future of the company.

The percentage analysis of increases and decreases in individual items in comparative financial statements is called

An advantage of the current ratio is that it considers the makeup of the current assets.

Zeus Company reports the following for the current year: $\begin{array}{|l|c|}\hline \text { Income from continuing operations before income tax } & \$ 500,000 \\\hline \text { Extraordinary property loss from hurricane } & \$ 60,000^{*} \\\hline \text { Loss from discontinued operations } & \$ 90,000^{*} \\\hline \text { Weighted average number of common shares outstanding } & 40,000 \\\hline \text { Applicable tax rate } & 40 \% \\\hline\end{array}$ *Net of any tax effect a Prepare a partial income statement for Zeus Company beginning with income from continuing operations before income tax. b Calculate the earnings per common share for Zeus,including per-share amount for unusual items.

Comparative information taken from the Friction Company's financial statements is shown below: $\begin{array}{l}\begin{array}{lll}\\a& \text { Notes receivable}\\b& \text { Accounts receivable}\\c& \text { Retained earnings}\\d& \text { Sales}\\e& \text { Operating expenses}\\f& \text { Income taxes payable}\\\end{array}\begin{array}{lll}\text { Year 2 }&\text { Year 1}\\\$ 10,000&\$0\\106,200 & 90,000 \\30,000 & 40,00 \\654,000 & 600,000 \\160,000 & 200,000 \\28,000 & 20,000\end{array}\end{array}$ Using horizontal analysis,show the percentage change and direction increase or decrease from Year 1 to Year 2 with Year 1 as the base year.

All of the following are typically included in the management's discussion and analysis in annual reports except

The excess of current assets over current liabilities is referred to as working capital.

An analysis in which all the components of an income statement are expressed as a percentage of sales is a

Assume the following sales data for a company: $\begin{array}{llcc} \text {Current year } &\$325,000 \\ \text { Preceding year} &250,000\end{array}$ What is the percentage increase in sales from the preceding year to the current year?