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Exam 14: Financial Statement Analysis

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Question 31

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Based on the following data for the current year, what is the number of days' sales in inventory $\begin{array}{lr}\text { Sales on account during year } & \$ 1,204,500 \\\text { Cost of goods sold during year } & 657,000 \\\text { Accounts receivable, beginning of year } & 75,000 \\\text { Accounts receivable, end of year } & 85,000 \\\text { Inventory, beginning of year } & 85,600 \\\text { Inventory, end of year } & 98,600\end{array}$

A) 51.2
B) 44.4
C) 6.5
D) 7.5

E) None of the above
F) B) and C)

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Question 32

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Horizontal analysis is a technique for evaluating financial statement data

A) for one period of time
B) over a period of time
C) on a certain date
D) as it may appear in the future

E) None of the above
F) All of the above

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Question 33

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$\begin{array} { l r } { \text { Privett Company } } & \\\text { Accounts payable } & 30,000 \\\text { Accounts receivable } & 35,000 \\\text { Accrued liabilities } & 7,000 \\\text { Cash } & 25,000 \\\text { Intangible assets } & 40,000 \\\text { Inventory } & 72,000 \\\text { Long-term investments } & 100,000 \\\text { Long-term liabilities } & 75,000 \\\text { Marketable securities } & 36,000 \\\text { Notes payable (short-term) } & 20,000 \\\text { Property, plant, and equipment } & 400,000 \\\text { Prepaid expenses } & 2,000\end{array}$ ​ ​ -Based on the data for Privett Company, what is the amount of quick assets?

The following data are taken from the financial statements: ​ $\begin{array}{lrr}&\text { Current } & \text { Preceding } \\&\text { Year } & \text { Year }\\\text { Current assets } & \$ 745,000 & \$ 820,000 \\\text { Property, plant, and equipment } & 1,510,000 & 1,400,000\\\text { Current liabilities } &\\\text { (non-interest-bearing) } & 160,000 & 140,000 \\\text { Long-term liabilities, } 12 \% & 400,000 & 400,000 \\\text { Preferred } 10 \% \text { stock } & 250,000 & 250,000 \\\text { Common stock, } \$ 25 \text { par } & 1,200,000 & 1,200,000\\\text { Retained eamings, }\\\text { beginning of year } & 230,000 & 160,000 \\\text { Net income for year } & 110,000 & 155,000 \\\text { Preferred dividends declared } & (25,000) & (25,000) \\\text { Common dividends declared } & (70,000) & (60,000)\end{array}$ ​ Determine for the current year the (a) return on total assets, (b) return on stockholders' equity, (c) return on common stockholders' equity, (d) earnings per share on common stock, (e) price-earnings ratio on common stock, and (f) dividend yield. The current market price per share of common stock is $25. Round dollar values to two decimal places and other final answers to one decimal place.

Unusual items affecting the current period's income statement consist of changes in accounting principles and discontinued operations.

The following information is available for Jase Company: $\begin{array}{lr}\text { Market price per share of common stock } & \$ 25.00 \\\text { Earnings per share on common stock } & \$ 1.25\end{array}$ Which of the following statements is correct?

A company reports the following: $\begin{array} { l r } \text { Sales } & \$ 2,400,000 \\\text { Average total assets (excluding long-term investments) } & 1,500,000\end{array}$ ​ Determine the asset turnover ratio. Round your answer to one decimal place.

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

Revenue and expense data for Young Technologies Inc. are as follows: ​ $\begin{array}{|l|r|r|}\hline &{\text { Year 2 }} &{\text { Year 1 }} \\\hline \text { Sales } & \$ 500,000 & \$ 440,000 \\\hline \text { Cost of goods sold } & 325,000 & 242,000 \\\hline \text { Selling expenses } & 70,000 & 79,200 \\\hline \text { Administrative expenses } & 75,000 & 70,400 \\\hline \text { Income tax expense } & 10,500 & 16,400 \\\hline\end{array}$ ​ (a) Prepare an income statement in comparative form, stating each item for both years as an amount and as a percent of sales. Round to the nearest whole percent. (b) Comment on the significant changes disclosed by the comparative income statement.

Leverage implies that a company

A company reports the following: $\begin{array} { l r } \text { Net income } & \$ 160,000 \\\text { Preferred dividends } & \$ 10,000 \\\text { Shares of common stock outstanding } & 20,000 \\\text { Market price per share of common stock } & \$ 35\end{array}$ The company's earnings per share on common stock is

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

In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.

Match each definition that follows with the term (a-h) it defines. -measures the risk that interest payments will not be made if earnings decrease

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.

Match each ratio that follows to its use (items a-h) . Items may be used more than once. -return on common stockholders' equity

The balance sheet data of Randolph Company for two recent years appears below: ​ $\begin{array}{|l|r|r|}\hline\text { Assets: } & \text { Year 2 } & \text { Year 1 } \\\hline \text { Current assets } & \$ 445 & \$ 280 \\\hline \text { Plant assets } & 680 & 520 \\\hline \text { Total assets } & \$ 1,125 & \$ 800 \\\hline & & \\\hline \begin{array}{l}\text { Liabilities and stockholders' } \\\text { equity: }\end{array} & \\\hline \text { Current liabilities } & \$ 285 & \$ 120 \\\hline \text { Long-term debt } & 255 & 160 \\\hline \text { Common stock } & 325 & 320 \\\hline \text { Retained earnings } & 260 & 200 \\\hline \text { Total liabilities and } \\\text { stockholders' equity } &\$1,125&\$800\\\hline\end{array}$ ​ (a) Using horizontal analysis, show the percentage change for each bal ance sheet item using Year 1 as a base year. (b) Using vertical analysis, prepare a comparative balance sheet. Round percentages to one decimal place.

Which of the following is not included in the computation of the quick ratio?

Which of the following items appear on the corporate income statement before income from continuing operations?

A loss due to a discontinued operation should be reported on the income statement