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Exam 15: Financial Statement Analysis

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Question 51

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

A) earnings per share
B) inventory turnover
C) current ratio
D) number of times interest charges earned

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Question 52

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The balance sheet data of Randolph Company for two recent years appears below: $\begin{array} { | l | l | l | } \hline \text { Assets: } & \text { Year } 2 & \text { Year } 1 \\\hline \text { Current assets } & \$ 440 & \$ 280 \\\hline \text { Plant assets } & 675 & 520 \\\hline \text { Total assets } & \$ 1,115 & \$ 800 \\\hline & & \\\hline \text { Liabilities and stockholders' equity: } & & \\\hline \text { Current liabilities } & \$ 280 & \$ 120 \\\hline \text { Long-term debt } & 250 & 160 \\\hline \text { Common stock } & 325 & 320 \\\hline \text { Retained earnings } & 260 & 200 \\\hline \text { Total liabilities and stockhol ders' equity } & \$ 1,115 & \$ 800 \\\hline\end{array}$ a) Using horizontal analysis, show the percentage change for each balance sheet item using Year 1 as a base year. b) Using vertical analysis, prepare a comparative balance sheet. Round percentages to one decimal place.

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Question 53

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

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

Horizontal analysis of comparative financial statements includes

Why would you compare or not compare Coca-Cola and Pepsi-Cola PepsiCo) as companies to each other?

A company reported the following: Net income $270,000 Preferred dividends $10,000 Shares of common stock outstanding 20,000 Market price per share of common stock $36.40 Calculate the company's price­earnings ratio. Round your answer to one decimal place.

In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.

The following data are taken from the balance sheet at the end of the current year. $\begin{array} { l l } \text { Cash } & \$ 154,000 \\\text { Accounts receivable } & 210,000 \\\text { Inventory } & 240,000 \\\text { Prepaid expenses } & 15,000 \\\text { Temporary investments } & 350,000 \\\text { Property, plant, and equipment } & 375,000 \\\text { Accounts payable } & 245,000 \\\text { Accrued liabilities } & 4,000 \\\text { Income tax payable } & 10,000 \\\text { Notes payable, short-term } & 85,000\end{array}$ Determine the a) working capital, b) current ratio, and c) quick ratio. Round ratios to the nearest tenth.

Earnings per share amounts are only required to be presented for income from continuing operations and net income on the face of the statement.

When you are interpreting financial ratios, it is useful to compare a company's ratios to some form of standard.

The independent auditor's report

A company reports the following: Sales $2,520,000 Average total assets 1,400,000 Determine the ratio of sales to assets. Round your answer to one decimal place.

Reporting unusual items separately on the income statement allows investors to isolate the effects of these items on income and cash flows.

A company reports the following: Sales $1,200,000 Average accounts receivable net) 50,000 Determine the a) accounts receivable turnover, and b) number of days' sales in receivables. Round your answer to one decimal place.

Using measures to assess a business's ability to pay its current liabilities is called current position analysis.

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

A firm selling food should have higher inventory turnover rate than a firm selling office furniture.

Gallant Company reported net income of $2,500,000. The income statement included a $500,000 gain from condemnation of land and a $200,000 loss on discontinued operations, both 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.

Match each definition that follows with the term a-h) it defines. -the percentage analysis of the relationship of each component in a financial statement to a total within the statement