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Exam 15: Financial Statement Analysis

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Question 41

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Percentage analyses,ratios,turnovers,and other measures of financial position and operating results are

A) a substitute for sound judgment
B) useful analytical measures
C) enough information for analysis; industry information is not needed
D) unnecessary for analysis,but reaction is better

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Question 42

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-Based on the above data,what is the amount of working capital?

A) $238,000
B) $128,000
C) $168,000
D) $203,000

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Question 43

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The ratio of the sum of cash,receivables,and marketable securities to current liabilities is referred to as the current ratio.

The numerator in calculating the accounts receivable turnover is

If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year,there has been an acceleration in the collection of receivables.

Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales,a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in inventory management.

The balance sheet data of Randolph Company for two recent years appears below: $\begin{array}{|l|r|r|}\hline \text { Assets: } & \text { Year 2 } & \text { Year } 1 \\\hline \text { Current assets } & \$ 440 & \$ 280 \\\hline \text { Plant assets } & {675}&{520} \\\hline \text { Total assets } & \$ 1,115 & \$ 800 \\\hline\\\hline\text { Liablities and stockholders' equity: }\\\hline \text { Current liabilities } & \$ 280 & \$ 120 \\\hline \text { Long-term debt } & 250 & 160 \\\hline \text { Common stock } & 325 & 320 \\\hline \text { Retained earnings } & 260 & 200 \\\hline \text { Total liabilities and stockholders' equity } & \$ 1,115 & \$ 800 \\\hline\end{array}$ a. Using horizontal analysis,show the percentage change for each balance sheet item using Year 1 as a base year. b. Using vertical analysis,prepare a comparative balance sheet. Round percentages to one decimal place.

The independent auditor's report

The current ratio is

A loss on disposal of a segment would be reported in the income statement as an

The following information pertains to Newman Company.Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. What is the rate earned on total assets for this company?

The following information was taken from the financial statement of Fox Resources for December 31 of the current fiscal year: $\begin{array}{|l|r|}\hline \text { Common stock, } \$ 20 \text { par value no change during the year } & \$ 5,000,000 \\\hline \text { Preferred } 10 \% \text { stock, } \$ 40 \text { par no change during the year } & 2,000,000\\\hline\end{array}$ The net income was $600,000,and the declared dividends on the common stock were $125,000 for the current year.The market price of the common stock is $20 per share. Required: Calculate for the common stock: a earnings per share b the price-earnings ratio c the dividends per share and the dividend yield Round to one decimal place except earnings per share,which should be rounded to two decimal places.

$\begin{array}{c}\text { Assets }\\\begin{array}{lr}\text { Cash and short-term investments } & \$ 30,000 \\\text { Accounts receivable net } & 20,000 \\\text { Inventory } & 15,000 \\\text { Property, plant, and equipment } & \underline {185,000} \\ \text { Total assets } & \underline {\$ 250,000} \\\end{array}\end{array}$ $\begin{array}{c}\text { Liabilities and Stockholders' Equity }\\\begin{array}{lr}\text { Current liablities } & \$ 45,000 \\\text { Long-term liabilities } & 70,000 \\\text { Stockholders' equity \_Common } & \underline {135,000} \\\text { Total liabilities and stockholders' equity } & \underline {\$ 250,000} \\\end{array}\end{array}$ $\begin{array}{c}\text { Income Statement}\\\begin{array}{lll}\text { Sales } \\\text { Cost of goods sold } \\\text { Gross margin } \\\text { Operating expense: } \\\text { Interest expense } \\\text { Net income }\end{array}\begin{array}{lll}\$ 85,000 \\45,000 \\\hline \$ 40,000 \\15,000 \\5,000 \\\hline \$ 20,000 \\\hline\end{array}\end{array}$ $\begin{array}{l}\begin{array}{lll} \text { Number of shares of common stock outstanding}\\ \text { Market price of common stock}\\ \text { Total dividends paid}\\ \text { Cash provided by operations}\\\end{array}\begin{array}{lll}6,000 \\\$ 20 \\\$ 9,000 \\\$ 30,000\end{array}\end{array}$ -What is the rate earned on common stockholders' equity for Diane Company?

Income statement information for Lucy Company is provided below: $\begin{array}{l}\begin{array}{l}\text { Sales } \\\text { Cost of goods sold }\\\text { Gross profit }\end{array}\begin{array}{r}\$ 175,000 \\105,000 \\\hline\$ 70,000\\\hline\end{array}\end{array}$ Prepare a vertical analysis of the income statement for Lucy Company.

An extraordinary item must be either unusual in nature or infrequent in occurrence.

An increase in the accounts receivable turnover may be due to an improvement in the collection of receivables or to a change in the granting of credit and/or in collection practices.

Why would you compare or not compare Coca-Cola and Pepsi-Cola PepsiCo as companies to each other?

When computing the rate earned on total common stockholders' equity,preferred stock dividends are subtracted from net income.

A 15% change in sales will result in a 15% change in net income.

The number of times interest expense is earned is computed as