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Exam 17: Financial Statement Analysis

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Question 61

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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.

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Question 62

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A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will

A) both decrease
B) both increase
C) increase and remain the same, respectively
D) remain the same and decrease, respectively

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Question 63

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The following data are taken from the financial statements:​​ Determine for the current year: (a) Return on total assets (b) Return on stockholders' equity (c) Return on common stockholders' equity (d) Earnings per share on common stock (e) Price-earnings ratio on common stock (f) Dividend yield​The current market price per share of common stock is $25.​Round dollar values to two decimal places and other final answers to one decimal place.

In computing the asset turnover ratio, long-term investments are excluded from average total assets.

Based on the following data for the current year, what is the number of days' sales in receivables? $\begin{array} { l r } \text { Sales on account during year } & \$ 584,000 \\\text { Cost of goods sold during year } & 300,000 \\\text { Accounts receivable, beginning of year } & 45,000 \\\text { Accounts receivable, end of year } & 35,000 \\\text { Inventory, beginning of year } & 90,000 \\\text { Inventory, end of year } & 110,000\end{array}$

The auditor's report is where the auditor certifies that the financial statements are correct and accurate.

The analysis of increases and decreases in the amount and percentage of comparative financial statement items is referred to as horizontal analysis.

When a corporation discontinues a segment of its operations at a loss, the loss should be reported as a separate item after income from continuing operations on the income statement.

Comparative financial statements are designed to compare the financial statements of two or more corporations.

Corporate annual reports typically do not contain

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

The ratio of the sum of cash, receivables, and marketable securities to current liabilities is referred to as the current ratio.

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

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 amount of working capital?

The following items are reported on Denver Company's balance sheet:?? $\begin{array} { l r } \text { Cash } & \$ 190,000 \\\text { Marketable securities } & 160,000 \\\text { Accounts receivable (net) } & 240,000 \\\text { Inventory } & 350,000 \\\text { Accounts payable } & 600,000\end{array}$ Determine the (a) current ratio and (b) quick ratio. Round your answers to one decimal place.

For Garrison Corporation, the working capital at the end of the current year is $10,000 more than the working capital at the end of the preceding year, reported as follows:?? Has the current position of Garrison Corporation improved? Explain.

Condensed data taken from the ledger of St. Louis Company at December 31, for the current and preceding years, are as follows:? $\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\\text { Current assets } & \$ 160,000 & \$ 130,000 \\\text { Property, plant, and equipment } & 450,000 & 400,000 \\\text { Intangible assets } & 20,700 & 30,000 \\\text { Current liabilities } & 70,000 & 80,000 \\\text { Long-term liabilities } & 210,000 & 250,000 \\\text { Common stock } & 225,000 & 150,000 \\\text { Retained earnings } & 125,700 & 80,000\end{array}$ Prepare a comparative balance sheet, with horizontal analysis, for December 31, Year 2 and Year 1. (Round percents to one decimal place.)

Based on the following data for the current year, what is the number of days' sales in inventory? $\begin{array} { l r } \text { Sales on account during year } & \$ 1,204,500 \\\text { Cost of goods sold during year } & 657,000 \\\text { Accounts receivable, beginning of year } & 75,000 \\\text { Accounts receivable, end of year } & 85,000 \\\text { Inventory, beginning of year } & 85,600 \\\text { Inventory, end of year } & 98,600\end{array}$

The current ratio is

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