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Exam 17: Financial Statement Analysis

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Question 91

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

A) 2.7
B) 2.6
C) 1.7
D) 0.9

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

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Question 92

Multiple Choice

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Which of the following ratios provides a solvency measure that shows the margin of safety of bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?

A) ratio of fixed assets to long-term liabilities
B) asset turnover ratio
C) number of days' sales in receivables
D) return on stockholders' equity

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

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Question 93

Multiple Choice

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The following income statement information is for Sadie Company:Sales$175,000Cost of goods sold115,000Gross profit$ 60,000​Using vertical analysis of the income statement for Sadie Company, determine the gross profit margin.

The report on internal control required by the Sarbanes-Oxley Act of 2002 may be prepared by either management or the company's auditors.

Cash and accounts receivable for Ashfall Co. are provided below.​ $\begin{array}{lll}&\text { Current Year }&\text { Prior Year }\\\text { Cash } & \$ 62,400 & \$ 58,000 \\\text { Accounts receivable (net) } & 42,000 & 50,000\end{array}$ Based on this information, what is the amount and percentage of increase or decrease that would be shown on a balance sheet with horizontal analysis? Round percentages to one decimal place.

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

Gallant Company reported net income of $2,500,000. The income statement included a $200,000 loss on discontinued operations, after applicable income tax. There were 100,000 shares of $10 par common stock and 40,000 shares of 4% preferred stock of $100 par outstanding throughout the current year.​Prepare the earnings per share section of Gallant Company's income statement.

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

The numerator of the return on common stockholders' equity is

Prepare an income statement using the following data for New Orleans Adventures for the year ended December 31:

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.

Match each definition that follows with the term (a-h) it defines. -Use debt to increase the return on an investment

Use this information for Kellman Company to answer the questions that follow. ​ 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?

The numerator in calculating the accounts receivable turnover is

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

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

An increase in the accounts receivable turnover may be due to a change in how credit is granted and/or in collection practices.

The denominator of the return on total assets ratio is the average total assets.

The numerator of the return on total assets is

Match each definition that follows with the term (a-h) it defines. -An analysis of a company's ability to pay its current liabilities