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Exam 13: Analyzing and Interpreting Financial Statements

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Question 31

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Guidelines (rules-of-thumb) are general standards of comparison developed from:

A) Industry statistics from the government.
B) Past experience.
C) Analysis of competitors.
D) Relations between financial items.
E) Dun and Bradstreet.

F) A) and C)
G) A) and E)

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Question 32

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Jones Corp.reported current assets of $193,000 and current liabilities of $137,000 on its most recent balance sheet.The current assets consisted of $62,000 Cash; $43,000 Accounts Receivable; and $88,000 of Inventory.The acid-test (quick) ratio is:

A) 1.4:1.
B) 0.77:1.
C) 0.54:1.
D) 1:1.
E) 0.64:1.

F) B) and E)
G) All of the above

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Question 33

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Which of the following items is typically not included as a separate item after normal revenues and expenses?

The following summaries from the income statements and balance sheets of Kouris Company and Brittania,Inc.are presented below. (1)For both companies for Year 2,compute the: (a)Current ratio (b)Acid-test ratio (c)Accounts receivable turnover (d)Inventory turnover (e)Days' sales in inventory (f)Days' sales uncollected Which company do you consider to be the better short-term credit risk? Explain. (2)For both companies for Year 2,compute the: (a)Profit margin ratio (b)Return on total assets (c)Return on common stockholders' equity Which company do you consider to have better profitability ratios?

Use the following selected information from Wheeler,LLC to determine the 2018 and 2017 trend percentages for net sales using 2017 as the base. $\begin{array}{lrrl}&2018&&2017\\Net ~sales&\$ 276,200& & \$ 231,400 \\Cost ~of ~goods ~sold&151,90 0 & & 129,590 \\Operatirg ~expenses&55,240 & & 53,240 \\Net ~earmirgs&27,820 & & 19,820\end{array}$

Refer to the following selected financial information from Graceworks Corp.Compute the company's inventory turnover for Year 2. $\begin{array} { l l } &\text { Year 2 } & \text { Year } 1 \\Merchardise~ irventory&271,000 & 253,500 \\Cost ~of~ goods~ sold&486,400 & 433,100\end{array}$

A good financial statement analysis report often includes the following sections: executive summary,analysis overview,evidential matter,assumptions,key factors,and inferences.

Profitability is the ability to generate positive market expectations.

Profitability is the ability to provide financial rewards sufficient to attract and retain financing.

Powers Company reported Net sales of $1,200,000 and Accounts Receivable,net of $78,500.The Day's sales uncollected (rounded to whole days) is:

When an item has a value in the base period and zero in the analysis period,the decrease is 0 percent.

Efficiency refers to how productive a company is in using its assets,and is usually measured relative to how much revenue is generated from a certain level of assets.

Refer to the following selected financial information from McCormik,LLC.Compute the company's acid-test ratio for Year 2. $\begin{array} { l r r } & { \text { Year 2 } } & \text { Year 1 } \\\text { Cash } & \$37,500 & \$ 36,850 \\\text { Short-term irvestrnents }& 90,000 & 90,000 \\\text { Accounts receivable, net } & 85,500 & 86,250 \\\text { Merchardise irventory } & 121,00 0 & 117,000 \\\text { Prepaid experses } & 12,100 & 13,500 \\\text { Plart assets } & 388,000 & 392,000 \\\text { Accounts payable } & 113,40 0 & 111,750 \\\text { Net sales } & 711,000 & 706,000 \\\text { Cost of goods sold }& 390,000 & 385,500\end{array}$

The higher the accounts receivable turnover,the less quickly accounts receivable are collected.

Express the following income statement information in common-size percentages (round to nearest whole percent).Comment on the results.

A corporation reported cash of $27,000 and total assets of $461,000 on its balance sheet.Its common-size percent for cash equals:

Vertical analysis is used to reveal patterns in data covering two or more successive periods.

A company's sales in Year 1 were $250,000 and in Year 2 were $287,500.Using Year 1 as the base year,the percent change for Year 2 compared to the base year is:

Working capital is computed as current liabilities minus current assets.

A corporation reports the following year-end balance sheet data.The company's working capital equals: $\begin{array} { l r l r r } \text { Cash } & \$ 40,000 & \text { Current liabilities } & \$ 5,000 \\\text { Accourts receivable } & 55,000 & \text { Long-temn liabilities } & 35,000 \\\text { Irventory } & 60,000 & \text { Cormon stock } & 100,000 \\\text { Equiprment } & \underline{145,000} & \text { Retaired earnirgs } & \underline{90,000} \\\text { Total assets } & \underline{\$ 300,000} & \text { Total liabilities ard equity } & \underline{\$ 300,000}\end{array}$