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Exam 14: Financial Statement Analysis

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Question 1

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A common measure of liquidity is

A) the asset turnover ratio
B) dividends per share of common stock
C) the accounts receivable turnover
D) the profit margin

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Question 2

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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) sale of company stores in Florida
D) discontinued operations

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Question 3

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The following data are available for Martin

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

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

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

If Epsilon Company's price-earnings ratio on common stock is greater than Iota Company's, then Iota Company would be expected to have the best potential for future common stock price appreciation.

For the current year, Lynx Company's comprehensive income was $245,000 and its net income was $198,000. What is Lynx Company's other comprehensive income?

Based on the following data, what is the accounts receivable turnover $\begin{array}{lr}\text { Sales on account during year } & \$ 700,000 \\\text { Cost of goods sold during year } & 270,000 \\\text { Accounts receivable, beginning of year } & 45,000 \\\text { Accounts receivable, end of year } & 35,000 \\\text { Inventory, beginning of year } & 90,000 \\\text { Inventory, end of year } & 110,000\end{array}$

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.

$\text { Harding Company }$ $\begin{array}{lr}\text { Accounts payable } & 40,000 \\\text { Accounts receivable } & 65,000 \\\text { Accrued liabilities } & 7,000 \\\text { Cash } & 30,000 \\\text { Intangible assets } & 40,000 \\\text { Inventory } & 72,000 \\\text { Long-term investments } & 110,000 \\\text { Long-term liabilities } & 75,000 \\\text { Marketable securities } & 36,000 \\\text { Notes payable (short-term) } & 30,000 \\\text { Property, plant, and equipment } & 625,000 \\\text { Prepaid expenses } & 2,000\end{array}$ -Based on the data for Harding Company, what is the quick ratio, rounded to one decimal point?

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

Selected data from the Carmen Company at year end are presented below: ​ $\begin{array}{lr}\text { Total assets } & \$ 2,000,000 \\\text { Average total assets } & 2,200,000 \\\text { Net income } & 250,000 \\\text { Sales } & 1,300,000 \\\text { Average common stockholders' equity } & 1,000,000 \\\text { Net cash provided by operating activities } & 275,000 \\\text { Shares of common stock outstanding } & 10,000 \\\text { Long-term investments } & 400,000\end{array}$ ​ Calculate: (a) asset turnover ratio; (b) return on total assets; (c) return on common stockholders' equity; and (d) earnings per share on common stock. Assume the company had no preferred stock or interest expense. Round dollar values to two decimal places and other final answers to one decimal place.

The numerator of the return on common stockholders' equity is

Which of the following is the most useful in analyzing companies of different sizes?

Match each definition that follows with the term (a-h) it defines. -a company's ability to make interest payments and repay debt at maturity

The following information pertains to Dallas Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Assets $\begin{array} { l r } \text { Cash and short-term investments } & \$ 40,000 \\\text { Accounts receivable (net) } & 30,000 \\\text { Inventory } & 25,000 \\\text { Property, plant, and equipment } & 280,000 \\\text { Total assets } & \$ 375,000\end{array}$ Liabilities and Stockholders' Equity $\begin{array} { l r } \text { Current liabilities } & \$ 60,000 \\\text { Long-term liabilities } & 95,000 \\\text { Common stock, } \$ 20 \text { par } & 120,000 \\\text { Retained earnings } & 100,000 \\\text { Total liabilities and stockhol ders' equity } & \$ 375,000\end{array}$ Income Statement $\begin{array} { l r } \text { Sales } & \$ 90,000 \\\text { Cost of goods sold } & 45,000 \\\text { Gross margin } & \$ 45,000 \\\text { Operating expenses } & 15,000 \\\text { Net income } & \$ 30,000\end{array}$ $\begin{array} { l r } \text { Number of shares of common stock } & 6,000 \\\text { Market price of common stock } & \$ 20 \\\text { Dividends per share } & \$ 1.00 \\\text { Cash provided by operations } & \$ 40,000\end{array}$ What is the return on stockholders' equity?

A change from one acceptable accounting method to another is reported

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.

If a firm has a current ratio of 2, the subsequent collection of a 60-day note receivable on account will cause the ratio to decrease.