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Exam 9: Financial Statement Analysis

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Question 41

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Comparative income statements for Chicago Company are provided below: $\begin{array}{c}\text {Chicago Company}\\\text {Comparative Income Statement}\\\text {Years Ended December 31,}\\\begin{array}{lrr}&\text {Year 2}&\text {Year 1}\\\text { Sales } & \$288,000 & \$ 302,190 \\\text { Less cost of goods sold } & 101,350 & 115,400 \\\text { Gross margin } &186,650 & 186,790 \\\text { Less operating expenses } & 89,970&99,770\\\text { Income before taxes } & 96,680&87,020\\\text { Income taxes } & 38,672 & 34,808\\\text { Met income } & \$ 58,008 & \$ 52,212\end{array}\end{array}$ Required: Perform a horizontal analysis of Chicago Company's income statement by computing horizontal percentages for each item. Round your answer to one decimal place (i.e., 22.5%).

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Question 42

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The Phibbs Company paid total cash dividends of $175,000 on 35,000 outstanding common shares. On the most recent trading day, the common shares sold at $90. What is this company's dividend yield?

A) 3.76%
B) 11.90%
C) 20.00%
D) 5.56%

E) A) and D)
F) None of the above

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Question 43

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Which ratio would you use to examine a company's ability to pay its debts in the short term?

Discuss the limitations that affect financial statement analysis.

The Dennis Company reported net income of $51,000 on sales of $310,000. The company has average total assets of $515,000 and average total liabilities of $110,000. What is the company's return on equity ratio?

Rialto Company collected $5,000 on account. What impact will this transaction have on the firm's current ratio?

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. - On January 1, Year 2, Gant collected $5,200 of accounts receivable. As a result of this transaction, Gant's working capital will:

A careless accountant splattered spaghetti sauce on Kitchen Company's balance sheet. The balance sheet with its missing amounts is provided below: Kitchen Company's working capital is $138,000. Required: Compute the missing amounts.

Milton Company has total current assets of $46,000, including inventory of $10,000, and current liabilities of $20,000. The company's current ratio is:

In vertical analysis, each item is expressed as a percentage of:

The Phibbs Company paid total cash dividends of $200,000 on 25,000 outstanding common shares. On the most recent trading day, the common shares sold at $80. What is this company's dividend yield?

Which of the following statements regarding the quick ratio is incorrect?

Indicate whether each of the following statements about financial statement analysis is true or false. The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis. ______ In horizontal percentage analysis, an item from the financial statements is expressed as a percentage of the same item from a previous year's financial statements. ______ Horizontal analysis for several years can be done by choosing one year as a base year and calculating increases or decreases in relation to that year. ______ One form of horizontal analysis is the preparation of common size financial statements. ______ Vertical analysis compares two or more financial statement items within the same time period. ______

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $29,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant paid $3,600 on accounts payable. Which of the following statements is incorrect?

An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant paid $250 for transportation in cost on merchandise it had received. Which of the following statements is incorrect?

Select the term from the list provided that best matches each of the following descriptions or definitions:

The following partial balance sheet is provided for Groome Company: $\begin{array}{lr}\text { Liabilities and stockholders' Equity }\\\\\text { Accounts payable } & \$ 9,000 \\\text { Salaries payable } & 12,000 \\\text { Bonds payable (due in ten years) } & 20,000 \\\text { Common stock, no par } & 30,000 \\\text { Retained earnings } &\underline{ 54,000} \\\text { Total liabilities and stockholders' equity } &\underline{ \$ 125,000}\end{array}$ What is the company's debt to assets ratio? (Round your answers to the nearest whole percent.)

Maynard Company's balance sheet and income statement are provided below: $\begin{array}{c}\text {Maynard Company}\\ \text { Income Statement}\\\text {Years Ended December 31,}\\\begin{array}{lrr}&\text {Year 2}&\text {Year 1}\\\text { Sales } & \$ 549,000 & \$ 468,150 \\\text { Less cost of goods sold } & 360,000 & 289,500 \\\text { Gross margin } &189,000& 178,650 \\\text { Less operating expenses } & 86,500 & 55,450 \\\text { Income before taxes } & 102,500 & 123,200 \\\text { Income taxes } &18,500 &16,600\\\text { Net income } & \$84,000 & \$ 106,600\end{array}\end{array}$ The company paid cash dividends of $2.00 per share during Year 2. On December 31, Year 2, the stock was listed on the stock exchange at a price of $78.25 per share. Required: Compute the following ratios for Year 2:Accounts receivable turnoverAverage days to collect receivablesInventory turnoverAverage days to sell inventoryDebt to assets ratioDebt to equity ratioNet marginAsset turnoverReturn on investmentDividend yield Round your answers to one decimal place.

The following partial balance sheet is provided for Groome Company: $\begin{array}{lr}\text { Liabilities and stockholders' Equity }\\\\\text { Accounts payable } & \$ 15,300 \\\text { Salaries payable } & 13,000 \\\text { Bonds payable (due in ten years) } & 11,800 \\\text { Common stock, no par } & 27,700 \\\text { Retained earnings } &\underline{ 91,500} \\\text { Total liabilities and stockholders' equity } &\underline{ \$ 159,300}\end{array}$ What is the company's debt to assets ratio? (Rounded to nearest whole percent.)