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Exam 13: Analysis of Financial Statements

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Question 91

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

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Question 92

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

A) 6.2.
B) 2.5.
C) 8.7.
D) 9.7.
E) 3.7.

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

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Question 93

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A trend percent,or index number,is calculated by dividing the analysis period amount by the base period amount and multiplying the result by 100.

General standards of comparisons,developed from experience,include the 2:1 level for the current ratio and 1:1 level for the acid-test ratio.

Match each of the following terms with the appropriate formulas. - $\frac {\text { Total liabilities }} { \text { Total assets} }$

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:

Use the financial data shown below to calculate the following ratios for the current year: (a)Current ratio. (b)Acid-test ratio. (c)Accounts receivable turnover. (d)Days' sales uncollected. (e)Inventory turnover. (f)Days' sales in inventory. $\text { Income statement data }$ Sales (all on credit)……………………………… $650,000 Cost of goods sold………………………………….425,000 Income before taxes………………………………..78,000 Net income………………………………………… 54,600 $\begin{array}{|l|c|c|}\hline&\text { Ending } & \text { Beginning } \\&\text { Balances } & \text { Balances }\\\hline \text { Cash } & 19,500 & 15,000 \\\hline \text { Accounts receivable (net) } & 65,000 & 60,000 \\\hline \text { Inventory } & 71,50 \mathrm{~d} & 64,500 \\\hline \text { Plant and equipment (net) } & 195,000 & 183,900 \\\hline \text { Total assets } & \$ 351.00 \mathrm{~d} & \$ 323,400 \\\hline \text { Current liabilities } & \$ 62,400 & \$ \quad 52,700 \\\hline\text { Long-term notes payable } & 97,500 & 100,000\\\hline\end{array}$

Match each of the following terms with the appropriate formulas. - $\frac {\text {Cost of goods sold }} { \text {Average inventory } }$

Ratios must refer to economically important relationships,such as a sale price compared to its cost.

A company's sales in Year 1 were $280,000,and its sales in Year 2 were $341,600.Using Year 1 as the base year,what is the sales trend percent for Year 2?

Martinez Corporation reported Net sales of $765,000 and Net income of $142,000.The Profit margin is:

The following information is available for the Starr Corporation: $\begin{array} { | l | r | } \hline \text { Sales } & \$ 750,000 \\\hline \text { Cost of goods sold } & 450,000 \\\hline \text { Gross profit } & 300,000 \\\hline \text { Operating income } & 85,000 \\\hline \text { Net income } & 42,000 \\\hline \text { Inventory, beginning-year } & 41,200 \\\hline \text { Inventory, end-of-year } & 48,800 \\\hline\end{array}$ Calculate the company's inventory turnover and its days' sales in inventory.

Ratios may be expressed as (1)________, (2)________,or (3)________.

The following current year information is available from a manufacturing company: $\begin{array} { | l | r |} \hline \text { Sales } & \$ 740,000 \\\hline \text { Gross profit on sales } & 276,000 \\\hline \text { Operating income } & 64,000 \\\hline \text { Income before taxes } & 44,000 \\\hline \text { Net income } & 33,600 \\\hline \text { Accounts Receivable, beginning-year } & 58,000 \\\hline \text { Accounts Receivable, end-of-year } & 72,000 \\\hline\end{array}$ Calculate the company's accounts receivable turnover and its days' sales uncollected.

Identify and describe three common tools of financial statement analysis.

Trend analysis is a form of horizontal analysis that can reveal patterns in data across successive periods.

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

Match each of the following terms with the appropriate definitions. -A statement with data for two or more successive accounting periods placed in side-by-side columns,often with changes shown in dollar amounts and percentages.

Rajan Company's most recent balance sheet reported total assets of $1.9 million,total liabilities of $0.8 million,and total equity of $1.1 million.Its Debt to equity ratio is:

Earnings per share are calculated only on income from continuing operations.