Exam 14: Financial Statement Analysis

Revenue and expense data for Bluestem Company are as follows: Year 2 Year 1 Administrative expenses \ 37,000 \ 20,000 Cost of goods sold 350,000 320,000 Income tax expense 40,000 32,000 Sales 800,000 700,000 Selling expenses 150,000 110,000 ​ (a) Prepare a comparative income statement, with vertical analysis, stating each item for both years as a percent of sales. (b) Comment upon significant changes disclosed by the comparative income statement. Round percentages to one decimal place.

Based on the following data for the current year, what is the number of days' sales in receivables Sales on account during year \ 584,000 Cost of goods sold during year 300,000 Accounts receivable, beginining of year 45,000 Accounts receivable, end of year 35,000 Inventory, beginning of year 90,000 Inventory, end of year 110,000

The balance sheets at the end of each of the first two years of operations indicate the following: $\text { Kellman Company }$ Year 2 Year 1 Total current assets \ 600,000 \ 560,000 Total investments 60,000 40,000 Total property, plant, and equipment 900,000 700,000 Total current liabilities 125,000 65,000 Total long-term liabilities 350,000 250,000 Preferred 9\% stock, \ 100 par 100,000 100,000 Common stock, \ 10 par 600,000 600,000 Paid-in capital in excess of par-Common stock 75,000 75,000 Retained earnings 310,000 210,000 -Using the balance sheets for Kellman Company, if net income is $250,000 and interest expense is $30,000 for Year 2, what are the earnings per share on common stock for Year 2?

An increase in the accounts receivable turnover may be due to a change in how credit is granted and/or in collection practices.

Reporting unusual items separately on the income statement allows investors to isolate the effects of these items on income and cash flows.

The balance sheets at the end of each of the first two years of operations indicate the following:​ $\text { Kellman Company }$ Year 2 Year 1 Total current assets \ 600,000 \ 560,000 Total investments 60,000 40,000 Total property, plant, and equipment 900,000 700,000 Total current liabilities 125,000 65,000 Total long-term liabilities 350,000 250,000 Preferred 9\% stock, \ 100 par 100,000 100,000 Common stock, \ 10 par 600,000 600,000 Paid-in capital in excess of par-Common stock 75,000 75,000 Retained earnings 310,000 210,000 ​ ​ -Using the balance sheets for Kellman Company, if net income is $150,000 and interest expense is $20,000 for Year 2, what is the return on total assets for the year?

Earnings per share amounts are only required to be presented for income from continuing operations and net income on the face of the statement.

In horizontal analysis, the current year is the base year.

A financial statement showing each item on the statement as a percentage of one key item on the statement is called a common-sized financial statement.

A company reports the following: Sales \ 720,000 Average accounts receivable (net) 45,000 ​ Determine the (a) accounts receivable turnover, and (b) number of days' sales in receivables. Round your answer to one decimal place.

Select the correct presentation for other comprehensive income on the financial statements of Puma Company.

Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency, profitability, and liquidity.

A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for creditors.

A company reports the following income statement and balance sheet information for the current year: Net income \ 180,000 Interest expense 20,000 Average total assets 2,000,000 ​ Determine the return on total assets. Round your answer to one decimal place.

Define solvency and profitability. How are they alike?

Analyzing a company's performance should take into account conditions peculiar to the industry and the general economic conditions.

The report on internal control required by the Sarbanes-Oxley Act of 2002 may be prepared by either management or the company's auditors.

What type of analysis is indicated by the following? $\begin{array}{lrrrr}&&&\text { Increase (Decrease) }\\&\text { Current Year } & \text { Preceding Year } & \text { Amount } & \text { Percent }\\\text { Current assets } & \$ 430,000 & \$ 500,000 & \$(70,000) & (14 \%) \\\text { Fixed assets } & 1,740,000 & 1,500,000 & 240,000 & 16 \%\end{array}$

The following data are taken from or calculated from the financial statements: Current Preceding Year Year Average accounts receivable (net) \ 123,000 \ 95,000 Sales on account 950,000 825,000 ​ (a) Assuming that credit terms on all sales are $n / 45$ , determine for each year (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Round intermediate calculations to whole numbers and final answers to two decimal places. (b) Comment on any significant trends revealed by the data. ​