Exam 14: Financial Statement Analysis

Eastham Company's accounts receivable were $600,000 at the beginning of the year and $800,000 at the end of the year.Cash sales for the year were $300,000.The accounts receivable turnover for the year was 5 times.What were Eastham Company's total sales for the year?

Several investors are in the process of organizing a new company.The investors feel that $800,000 would be adequate to finance the new company's operations.Three methods are available to finance the new company: (1.)All $800,000 could be obtained through the issuance of common shares. (2.)Common shares could be issued to provide $400,000 with the other $400,000 obtained by issuing $100 par value,l0% preferred shares. (3.)Common shares could be issued to provide $40,000 with the other $400,000 obtained by issuing bonds with an interest rate of 10%. The investors are confident that the company could earn $175,000 each year before interest and taxes.The tax rate is 40%. Required: a)If the estimates are correct,compute the net income available to common shareholders under each of the three financing methods proposed above. b)Using the income data computed in part a)above,compute the return on common shareholders' equity under each of the three methods. c)Why do methods 2 and 3 provided a greater return on common equity than does method 1? Why does method 3 provide a greater return on common equity than method 2?

Last year,Javer Company had a net income of $200,000,income tax expense of $74,000,and interest expense of $20,000.The company's times interest earned was closest to which of the following?

Martin Company reported an extraordinary after-tax loss of $180,000,resulting from an earthquake.What must have been the before-tax loss if Martin's marginal income tax rate was 40%?

Which one of the following would increase the working capital of a company?

What will be the effect of a sale of a piece of equipment at book value for cash?

If the market value of a common share is greater than its book value,the common share is probably overpriced.

Krakov Company has total assets of $170,000 and total liabilities of $80,000.The company's debt-to-equity ratio is closest to which of the following?

Financial statements for Larosa Company appear below: Total dividends during Year 2 were $47,000, of which $10,000 were preferred dividends. The market price of a common share on December 31, Year 2 was $70. -Larosa Company's return on common shareholders' equity for Year 2 was closest to which of the following?

Financial statements for Larned Company appear below: Total dividends during Year 2 were $263,000, of which $12,000 were for preferred shares. The market price of a common share on December 31, Year 2 was $160. -Larned Company's return on common shareholders' equity for Year 2 was closest to which of the following?

Financial statements for Laroche Company appear below: Shareholders' Equity: Total dividends during Year 2 were $166,000, of which $10,000 were preferred dividends. The market price of a common share on December 31, Year 2 was $150. -Laroche Company's return on common shareholders' equity for Year 2 was closest to which of the following?

Harker Company,a retailer,had cost of goods sold of $160,000 last year.The beginning inventory balance was $26,000,and the ending inventory balance was $20,000.The company's inventory turnover was closest to which of the following?

Financial statements for Orange Company appear below: Total dividends during Year 2 were $156,000, of which $18,000 were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $100. -Orange Company's accounts receivable turnover for Year 2 was closest to which of the following?

The price-earnings ratio is calculated by dividing the market price per share by the current earnings per share.

Financial statements for March Company appear below: -March Company's acid-test (quick)ratio at the end of Year 2 was closest to which of the following?

Financial statements for March Company appear below: -March Company's accounts receivable turnover for Year 2 was closest to which of the following?

Karma Company has total assets of $190,000 and total liabilities of $90,000.The company's debt-to-equity ratio is closest to which of the following?

In determining whether a company's financial condition is improving or deteriorating over time,vertical analysis of financial statement data would be more useful than horizontal analysis.

Financial statements for Larned Company appear below: Total dividends during Year 2 were $263,000, of which $12,000 were for preferred shares. The market price of a common share on December 31, Year 2 was $160. -Larned Company's book value per share at the end of Year 2 was closest to which of the following?

Financial statements for March Company appear below: -March Company's inventory turnover for Year 2 was closest to which of the following?