Chat with AIExam 23: Analysis of Financial Statements
The following 3 ratios have been computed using the financial statements for the year ended December 31, 2011, for CR Company:
The following additional information has been assembled:
Show how the values for the 3 ratios computed above differ if CR had used LIFO, depreciated the asset over 12 years, and recognized the full amount of its environmental cleanup obligation. Compute how the financial statements would differ if the alternative accounting methods had been used. Do not treat the use of these alternative methods as accounting changes. Ignore any income tax effects.
The following additional information has been assembled:
Show how the values for the 3 ratios computed above differ if CR had used LIFO, depreciated the asset over 12 years, and recognized the full amount of its environmental cleanup obligation. Compute how the financial statements would differ if the alternative accounting methods had been used. Do not treat the use of these alternative methods as accounting changes. Ignore any income tax effects.
(81) 
VerifiedAdjustments:
(a)Using LIFO:
Ending inventory decreases by $15,500 ($43,000 - $58,500).
Net income for 2011 decreases by $3,500 [($43,000 - $58,500) - ($36,000 - $48,000)].
Beginning retained earnings decreases by $12,000 ($36,000 - $48,000).
(b)12-year useful life:
Book value at December 31, 2008:
7-year life: $120,000 - [($120,000 ¸ 7) ´ 4 years] = $51,429
12-year life: $120,000 - [($120,000 ¸ 12) ´ 4 years] = $80,000
Book value increases by $28,571 ($51,429 - $80,000).
Net income for 2011 increases by $7,143 [($120,000 ¸ 7) - ($120,000 ¸ 12)]
Beginning retained earnings increases by $21,428 [($120,000 ¸ 7) ´ 3 years] - [($120,000 ¸ 12) ´ 3 years].
(c)Environmental cleanup obligation:
Net income for 2011 decreases by $17,100 [($18,000 ´ .05) - $18,000].
Environmental cleanup obligation increases by $17,100.
Adjusted current ratio: ($80,000 - $15,500) ¸ $43,000 = 1.5
Adjusted debt-to-equity ratio: ($110,000 + $17,100) ¸ ($125,000 - $3,500 - $12,000 + $7,143 + $21,428 - $17,100) = 1.05
Adjusted return on sales ratio: ($45,000 - $3,500 + $7,143 - $17,100) ¸ $400,000 = 0.079
The following information has been collected for CLD Company:
Required:
Estimate the price per share for CLD Company's common stock using the discounted free cash flow model.
Required:
Estimate the price per share for CLD Company's common stock using the discounted free cash flow model. (78) Verified
At the end of 2015, the perpetuity of $7,050 per year forever has a present value of $50,357, computed as $7,050/0.14.In order to add the perpetuity of $50,357 to the present value of the other free cash flows, it must be discounted back as a lump sum for four years to the end of 2011, resulting in the $29,815 shown above.
Price per share = $45,125¸ 3,000 = $15.04
An entity changed from the FIFO to the LIFO cost flow assumption for inventories. Assuming that inventory and sales remain constant over time, and that prices are rising, how would the current ratio be changed as a result of converting from FIFO to LIFO?
(82) VerifiedC
The following information has been collected for Ben Locke Company:
Required:
Estimate the price per share for Ben Locke's common stock using the discounted free cash flow model.
Required:
Estimate the price per share for Ben Locke's common stock using the discounted free cash flow model. (82) Which of the following transactions would increase a firm's current ratio?
(80) Which of the following statements best describes the use of financial statement analysis?
(79) Selected information from the accounting records of Ellison Manufacturing follows:
What is the number of days' sales in average inventories for the year?
What is the number of days' sales in average inventories for the year? (68) Which of the following is true regarding the debt to equity ratio?
(71) Selected information from the 2011 and 2010 financial statements of SCL Corporation is presented below:
Refer to the SCL Corporation information above. SCL's account receivable turnover for 2011 is
Refer to the SCL Corporation information above. SCL's account receivable turnover for 2011 is (95) Which of the following ratios does not measure efficiency or activity of an entity?
(63) Laura Anderson has just been assigned as the senior accountant on the audit of Larsen Manufacturing Company. Laura currently is planning the audit and has been considering what procedures to perform in examining the company's inventories of raw materials, work-in-process, and finished goods. She has determined that the calculation of certain ratios and other financial analysis techniques will prove useful to her in deciding how to approach the audit of the company's inventory accounts.
Identify the ratios to be calculated and the factors to be considered in Laura's analysis of the company's inventory accounts.
(82) How would the quick ratio be affected by a prepayment of $30,000 for fire and liability insurance?
(87) Which of the following ratios would not be affected by the choice of depreciation methods?
(80) The balance sheet for the Byrne Dareed Corp. showed liabilities and stockholders' equity balances at the end of each year as given below:
Based on the data provided, compute the following ratios for 2011:
Based on the data provided, compute the following ratios for 2011:
(74) Selected information from the 2011 and 2010 financial statements of SCL Corporation is presented below:
Refer to the SCL Corporation information above. SCL's merchandise inventory turnover for 2011 is
Refer to the SCL Corporation information above. SCL's merchandise inventory turnover for 2011 is (84) Which of the following is not a component of the DuPont Framework?
(80) Which of the following is not correct regarding the rate of return on assets?
(76) A manufacturer/dealer disclosed the following information related to its selling activities and receivable balances:
Required:
1. Determine the ending gross accounts receivable balance for 2010 and 2011.
2. Did the accounts receivable turnover rise or fall from 2010 to 2011 and by how much?
3. Compute the age of accounts receivable for 2010 and 2011. Comment on the factors that might have caused the two ratios to change in 2011.
4. What effect does a significant increase in bad debt expense have on accounts receivable turnover and age of accounts receivable? Explain the effect in both real and economic terms.
Required:
1. Determine the ending gross accounts receivable balance for 2010 and 2011.
2. Did the accounts receivable turnover rise or fall from 2010 to 2011 and by how much?
3. Compute the age of accounts receivable for 2010 and 2011. Comment on the factors that might have caused the two ratios to change in 2011.
4. What effect does a significant increase in bad debt expense have on accounts receivable turnover and age of accounts receivable? Explain the effect in both real and economic terms. (89) 
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