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Exam 15: Financial Statement Analysis

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Question 21

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Richards Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000.It had 50,000 shares of common stock outstanding during the entire year.Richards Corporation's common stock is selling for $35 per share.The price-earnings ratio is

A) 7 times
B) 14 times
C) 2 times
D) 5 times

E) B) and D)
F) B) and C)

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Question 22

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The auditor's report is where the auditor certifies that the financial statements are correct and accurate.

A) True
B) False

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Question 23

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Based on the following data,what is the accounts receivable turnover?

The dividend yield rate is equal to the dividends per share divided by the par value per share of common stock.

A company reported the following: $\begin{array}{lr}\text { Net income } & \$ 270,000 \\\text { Preferred dividends } & \$ 10,000 \\\text { Shares of common stock outstanding } & 20,000 \\\text { Market price per share of common stock } & \$ 36.40\end{array}$ Calculate the company's price­earnings ratio.Round your answer to one decimal place.

If a firm has a quick ratio of 1,the subsequent payment of an account payable will cause the ratio to increase.

The effects of differences in accounting methods are of little importance when analyzing comparable data from competing businesses.

Balance sheet and income statement data indicate the following: $\begin{array}{lr}\text { Bonds payable, } 10 \% \text { due in two years } & \$ 1,000,000 \\\text { Preferred } 5 \% \text { stock, } \$ 100 \text { par no change during year } & 300,000 \\\text { Common stock, } \$ 50 \text { par no change during year } & 2,000,000 \\\text { Income before income tax for year } & 550,000 \\\text { Income tax for year } & 80,000 \\\text { Common dividends paid } & 50,000 \\\text { Preferred dividends paid } & 15,000\end{array}$ Based on the data presented above,what is the number of times bond interest charges were earned round to one decimal point?

Which of the following is required by the Sarbanes-Oxley Act?

The analysis of increases and decreases in the amount and percentage of comparative financial statement items is referred to as horizontal analysis.

A change from one acceptable accounting method to another is reported

In a vertical analysis,the base for cost of goods sold is

A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability.As a result of this transaction,the current ratio and working capital will

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.

The number of days' sales in inventory is one means of expressing the relationship between the cost of goods sold and inventory.

Condensed data taken from the ledger of St.Louis Company at December 31,for the current and preceding years,are as follows: $\begin{array}{lrr} & \underline{\text { Year } 2}{} & \underline{\text { Year } 1}{} \\\text { Current assets } & 450,000 & \$ 130,000 \\\text { Property, plant, and equipment } & 20,700 & 400,000 \\\text { Intangible assets } & 70,000 & 30,000 \\\text { Current liabilities } & 210,000 & 250,000 \\\text { Long-term liabilities } & 225,000 & 150,000 \\\text { Common stock } & 125,700 & 80,000\\\text { Retained earnings } &125,700 & 80,000\end{array}$ Prepare a comparative balance sheet,with horizontal analysis,for December 31,Year 2 and Year 1.Round percents to one decimal point.

The following items are reported on Denver Company's balance sheet: $\begin{array}{|l|r|}\hline \text { Cash } & \$ 190,000 \\\hline \text { Marketable securities } & 160,000 \\\hline \text { Accounts receivable net } & 240,000 \\\hline \text { Inventory } & 350,000 \\\hline \text { Accounts payable } & 600,000 \\\hline\end{array}$ Determine a the current ratio and b the quick ratio.Round to one decimal place.

Solvency analysis focuses on the ability of a business to pay its current and noncurrent liabilities.

In horizontal analysis,each item is expressed as a percentage of the

Assume the following sales data for a company: $\begin{array}{llcc} \text { Current year} & \$1,025,000 \\ \text { Preceding year } &820,000\end{array}$ What is the percentage increase in sales from the preceding year to the current year?