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Exam 14: Financial Statement Analysis

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Question 41

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

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Question 42

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A company reports the following: $\begin{array}{lr}\text { Sales } & \$ 1,200,000 \\\text { Average accounts receivable (net) } & 50,000\end{array}$ ​ Determine the (a) accounts receivable turnover, and (b) number of days' sales in receivables. Round your answer to one decimal place.

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Question 43

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

Match each definition that follows with the term (a-h) it defines. -a percentage analysis of increases and decreases in related items on comparative financial statements

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 is the asset turnover for Diane Company?

The return on total assets measures the profitability of total assets, without considering how the assets are financed.

Income statement information for Sadie Company is below: $\begin{array} { l l } \text { Sales } & \$ 175,000 \\\text { Cost of goods sold } & \$ 15,000 \\\text { Gross profit } & \$ 60,000\end{array}$ Using vertical analysis of the income statement for Sadie Company, determine the gross profit margin.

A company reports the following: $\begin{array}{lr}\text { Cost of goods sold } & \$ 610,000 \\\text { Average inventory } & 80,000\end{array}$ ​ Determine the (a) inventory turnover, and (b) number of days' sales in inventory. Round your answer to one decimal place.

The following items are reported on a company's balance sheet: $\begin{array} { l r } \text { Cash } & \$ 230,000 \\\text { Marketable securities } & 50,000 \\\text { Accounts receivable } & 200,000 \\\text { Inventory } & 240,000 \\\text { Accounts payable } & 300,000\end{array}$ ​ Determine the (a) current ratio, and (b) quick ratio. Round your answer 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 amount of quick assets?

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

Manx Company owns one investment, purchased several years ago for $20,000. As of the end of the year two years ago, the investment had increased in value to $26,000. As of the end of the current year, the investment had decreased somewhat in value to $24,000. Manx anticipates selling the investment in the coming year, and expects to receive $28,000. Under fair value accounting, what would be the value of the investments account on the current year's December 31 balance sheet?

The balance sheet for Seuss Company at the end of the current fiscal year indicated the following: ​ $\begin{array}{|l|r|}\hline \text { Bonds payable, } 10 \%(20 \text {-year term) } & \$ 5,000,000 \\\hline \text { Preferred } 10 \% \text { stock, } \$ 100 \text { par } & 1,000,000 \\\hline \text { Common stock, } \$ 10 \text { par } & 2,000,000 \\\hline\end{array}$ ​ Income before income tax was $1,500,000 and income taxes were $200,000 for the current year. Cash dividends paid on common stock during the current year totaled $150,000. The common stock sells for $75 per share at the end of the year. ​ Determine each of the following: (a) Times interest earned (b) Earnings per share on common stock (c) Price-earnings ratio (d) Dividends per share of common stock (e) Dividend yield ​ Round to one decimal place except earnings per share and dividends per share, which should be rounded to two decimal places.

CorpCo gathered the following information as of the end of the current fiscal year: ​ $\begin{array} { | l | r | } \hline \text { Dividends on common stock } & \$ 125,000 \\\hline \text { Market price per share of common stock } & \$ 115.00 \\\hline \text { Shares of common stock outstanding } & 5,000 \\\hline \text { Dividends on preferred stock } & \$ 65,000 \\\hline \text { Shares of preferred stock outstanding } & 600 \\\hline \text { Earnings per share on common stock } & \$ 102.00 \\\hline \text { Dividends per share of common stock } & \$ 25.00 \\\hline \text { Net income } & \$ 575,000 \\\hline\end{array}$ ​ What is CorpCo's dividend yield? Write your answer as a percent, rounded to one decimal place.

The relationship of each asset item as a percent of total assets is an example of vertical analysis.

Cash and accounts receivable for Adams Company are provided below: $\begin{array} { l r r } & \text { Current Year } & \text { Prior Year } \\\text { Cash } & \$ 70,000 & \$ 50,000 \\\text { Accounts receivable (net) } & 70,400 & 80,000\end{array}$ ​ What is the amount and percentage of increase or decrease that would be shown with horizontal analysis?

Percentage analyses, ratios, turnovers, and other measures of financial position and operating results are

In the vertical analysis of an income statement, each item is generally stated as a percentage of total assets.

Match each definition that follows with the term (a-h) it defines. -useful for comparing one company to another or to industry averages

Ratios and various other analytical measures are not a substitute for sound judgment, nor do they provide definitive guides for action.