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Exam 14: Financial Statement Analysis

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Question 91

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Comparing dividends per share to earnings per share indicates the extent to which the corporation is retaining its earnings for use in operations.

A) True
B) False

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Question 92

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If two companies have the same current ratio, their ability to pay short-term debt is the same.

A) True
B) False

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Question 93

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Which of the following items should be classified as an unusual item on an income statement?

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

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

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

Which of the following measures a company's ability to pay its current liabilities?

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

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

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

In a common-sized income statement, 100% is the

Match each ratio that follows to its use (Items). Items may be used more than once.

In a common-sized income statement, each item is expressed as a percentage of net income.

Match each ratio that follows to its use (items a-h) . Items may be used more than once. -current ratio

The balance sheets at the end of each of the first two years of operations indicate the following: $\text { Kellman Company }$ $\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\\text { Total current assets } & \$ 600,000 & \$ 560,000 \\\text { Total investments } & 60,000 & 40,000 \\\text { Total property, plant, and equipment } & 900,000 & 700,000 \\\text { Total current liabilities } & 125,000 & 65,000 \\\text { Total long-term liabilities } & 350,000 & 250,000 \\\text { Preferred } 9 \% \text { stock, } \$ 100 \text { par } & 100,000 & 100,000 \\\text { Common stock, } \$ 10 \text { par } & 600,000 & 600,000 \\\text { Paid-in capital in excess of par-Common stock } & 75,000 & 75,000 \\\text { Retained earnings } & 310,000 & 210,000\end{array}$ -Using the balance sheets for Kellman Company, if net income is $150,000 and interest expense is $20,000 for Year 2, what is the return on stockholders' equity for Year 2?

Dividend yield on common stock is calculated as...

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. Assets $\begin{array}{lr}\text { Cash and short-term investments } & \$ 30,000 \\\text { Accounts receivable (net) } & 20,000 \\\text { Inventory } & 15,000 \\\text { Property, plant, and equipment } & 185,000 \\\text { Total assets } & \$ 250,000\end{array}$ Liabilities and Stockholders' Equity $\begin{array}{lr}\text { Current liabilities } & \$ 45,000 \\\text { Long-term liabilities } & 70,000 \\\text { Common stock } & 80,000 \\\text { Retained earnings } & 55,000 \\\text { Total liabilities and stockhol ders' equity } & \$ 250,000\end{array}$ Income Statement $\begin{array}{lr}\text { Sales } & \$ 85,000 \\\text { Cost of goods sold } & 45,000 \\\text { Gross margin } & \$ 40,000 \\\text { Operating expenses } & (15,000) \\\text { Interest expense } & (5,000) \\\text { Net income } & \$ 20,000\end{array}$ $\begin{array} { l r } \text { Number of shares of common stock outstanding } & 6,000 \\\text { Market price of common stock } & \$ 20 \\\text { Total dividends paid } & \$ 9,000 \\\text { Cash provided by operations } & \$ 30,000\end{array}$ -What are the dividends per common share for Diane Company?

The following items are reported on a company's balance sheet: $\begin{array} { l r } \text { Cash } & \$ 400,000 \\\text { Marketable securities } & 50,000 \\\text { Accounts receivable } & 150,000 \\\text { Inventory } & 200,000 \\\text { Accounts payable } & 250,000\end{array}$ ​ Determine the (a) current ratio, and (b) quick ratio. Round your answer to one decimal place.

In a company's annual report, the section called Management Discussion and Analysis provides critical information for interpreting the financial statements and assessing the future of the company.

Zeus Company reports the following for the current year: ​ *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.