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Exam 13: Analysis of Financial Statements

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Question 51

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In horizontal analysis the percent change is computed by:

A) Subtracting the analysis period amount from the base period amount.
B) Subtracting the base period amount from the analysis period amount.
C) Subtracting the analysis period amount from the base period amount, dividing the result by the base period amount, then multiplying that amount by 100.
D) Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100.
E) Subtracting the base period amount from the analysis amount, then dividing the result by the analysis period amount.

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

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Question 52

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A company reports basic earnings per share of $3.50, cash dividends per share of $0.75, and a market price per share of $64.75. The company's dividend yield equals 21.4%.

A) True
B) False

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Question 53

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The standards for comparisons when interpreting measures from financial statement analysis include (1) ________, (2) ________, (3) ________, and (4) ________.

Refer to the following selected financial information from Marston Company. Compute the company's accounts receivable turnover for Year 2. $\begin{array} { | l | r | r | } \hline & \text { Year 2 } & { \text { Year 1 } } \\\hline \text { Accounts receivable, net } & 86,500 & 82,750 \\\hline \text { Net sales } & 723,000 & 693,000 \\\hline\end{array}$

Comparative calendar-year financial data for a company are shown below. Calculate the following ratios for the company for 2018: (a) accounts receivable turnover (b) day's sales uncollected (c) inventory turnover (d) days' sales in inventory $\begin{array} { | l | l | l | } \hline \text { Sales } & \frac { 2018 } { } & \frac { 2017 } { } \\\cline { 2 - 3 } & \$ 200,000 & \$ 607,500 \\\hline \text { Cost of goods sold } & 450,000 & 382,700 \\\hline \text { Operating expenses } & 168,500 & 134,900 \\\hline \text { Net income } & 51,200 & 51,700 \\\hline & & \\\hline & \text { December 31, } & \text { December 31, } \\\hline & 2018 & 2017 \\\hline \text { Accounts receivable (net) } & \$ 1157,500 & \$ 162,500 \\\hline \text { Inventory } & 139,500 & 110,500 \\\hline \text { Total assets } & 1,012,500 & 944,800 \\\hline\end{array}$

A company's board of directors analyzes financial statements to assess future company prospects for making operating decisions.

In order to be classified as an extraordinary gain or loss, the item must be both (1) ________ and (2) ________.

The current ratio is calculated as current liabilities divided by current assets.

Three of the most common tools of financial analysis include horizontal analysis, vertical analysis, and ratio analysis.

External users of accounting information make the strategic and operating decisions of a company.

Explain the purpose of financial statement analysis for both external and internal users.

Horizontal analysis is the comparison of a company's financial condition and performance to a base amount.

Market prospects are the ability to generate positive market expectations.

Comparative financial statements are reports that show financial amounts in side by side columns on a single statement for analysis purposes.

Refer to the following selected financial information from Shakley's Incorporated. Compute the company's return on total assets for Year 2. $\begin{array} { | l | r | r | } \hline & \text { Year 2 } & \text { Year 1 } \\\hline \text { Net sales } & \$ 478,500 & \$ 426,250 \\\hline \text { Cost of goods sold } & 276,300 & 250,120 \\\hline \text { Interest expense } & 9,700 & 10,700 \\\hline \text { Net income before tax } & 67,250 & 52,680 \\\hline \text { Net income after tax } & 46,050 & 39,900 \\\hline \text { Total assets } & 317,100 & 288,000 \\\hline\text { Total liabilities } & 181,400 & 167,300 \\\hline \text { Total equity } & 135,700 & 120,700 \\\hline\end{array}$

Refer to the following selected financial information from Graphics, Inc. Compute the company's times interest earned. $\begin{array} { | l | l | } \hline \\\hline \text { Interest expense } & \$ 9,100 \\\hline \text { Income tax expense } & 22,700 \\\hline \text { Net income after tax } & 56,500 \\\hline\end{array}$

A corporation reports the following year-end balance sheet data. The company's current ratio equals: $\begin{array} { l r l r } \text { Cash } & \$ 40,000 & \text { Current liabilities } & \$ 75,000 \\\text { Accounts receivable } & 55,000 & \text { Lore-tern liabilities } & 35,000 \\\text { Irventory } & 60,000 & \text { Corrnon stock } & 100,000 \\ \text { Equiprnent} &\underline{ 145,000 }& \text { Retained earnings } &\underline{ 90,000} \\ \text { Total assets } &\underline{ \$ 300,000} & \text { Total liabilities ard equity } & \underline{\$ 300,000}\end{array}$

Use the following selected information from Wheeler, LLC to determine the 2017 and 2016 trend percentages for net sales using 2016 as the base. $\begin{array} { | l | r | r |} \hline & { 2017 } & { \mathbf { 2 0 1 6 } } \\\hline \text { Net sales } & \$ 276,200 & \$ 231,400 \\\hline \text { Cost of goods sold } & 151,900 & 129,590 \\\hline \text { Operating expenses } & 55,240 & 53,240 \\\hline \text { Net earnings } & 27,82 \mathrm {~d} & 19,820 \\\hline\end{array}$

The greater the times interest earned ratio, the greater the risk a company is exposed to.

Powers Company reported Net sales of $1,200,000 and average Accounts Receivable, net of $78,500. The accounts receivable turnover ratio is: