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Exam 15: Financial Statement Analysis

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Question 71

Multiple Choice

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Which of the following is considered an unusual item affecting the prior period's income statement?

A) a change in accounting principles
B) fixed asset impairments
C) an extraordinary item
D) discontinued operations

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

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Question 72

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The ratio of the market price per share of common stock on a specific date to the annual earnings per share is referred to as the price-earnings ratio.

A) True
B) False

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Question 73

Multiple Choice

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A company with working capital of $720,000 and a current ratio of 2.2 pays a $125,000 short-term liability. The amount of working capital immediately after payment is

Which of the following is not a characteristic evaluated in ratio analysis?

The balance sheets at the end of each of the first two years of operations indicate the following: -If net income is $250,000 and interest expense is $30,000 for Year 2, what are the earnings per share on common stock for Year 2?

In the vertical analysis of an income statement, each item is generally stated as a percentage of total assets.

Horizontal analysis is a technique for evaluating financial statement data

The balance sheet for Seuss Company at the end of the current fiscal year indicated the following: $\begin{array} { | l | l | } \hline \text { B onds payable, } 10 \% 20 \text {-year term) } & \$ 5,000,000 \\\hline \text { Preferred } 10 \% \text { stock, } \$ 100 \text { par } & 1,000,000 \\\hline \text { Common stock, } \$ 10 \text { par } & 2,000,000 \\\hline\end{array}$ Income before income tax was $1,500,000 and income taxes were $200,000 for the current year. Cash dividends paid on common stock during the current year totaled $150,000. The common stock sells for $70 per share at the end of the year. Determine each of the following: a) Number of times interest charges are earned b) Earnings per share on common stock c) Price-earnings ratio d) Dividends per share of common stock e) Dividend yield Round to one decimal place except earnings per share and dividends per share, which should be rounded to two decimal places.

Based on the above data, what is the quick ratio, rounded to one decimal point?

Prepare an income statement using the following data for New Orleans Adventures for the year ended December 31: $\begin{array} { l l } \text { Sales } & \$ 24,500,000 \\\text { Cost of merchandise sold } & 10,900,000 \\\text { Operating expenses } & 6,300,000 \\\text { Losses from asset impairment } & 2,800,000 \\\text { Income tax expense } & 500,000 \\\text { Loss on discontinued operations } & 100,000 \\\text { Net loss on extraordinary item } & 125,000\end{array}$

In computing the ratio of sales to assets, long-term investments are excluded from average total assets.

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

A financial statement showing each item on the statement as a percentage of one key item on the statement is called a common-sized financial statement.

The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. -What are the dividends per common share for Diane Company?

A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for creditors.

The ratio of fixed assets to long-term liabilities provides a measure of a firm's ability to pay dividends.

A company reports the following: Net income $150,000 Preferred dividends $10,000 Shares of common stock outstanding 20,000 Market price per share of common stock $35 Calculate the company's earnings per share on common stock.

An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to

Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency and profitability.

What type of analysis is indicated by the following?