Exam 13: Financial Statement Analysis

Which of the following statements regarding net margin is incorrect?

Various ratios are computed to assess different aspects of a company's financial condition and (or)strength. Required: In the table below,indicate which aspect of financial condition each specified ratio is designed to assess:

On December 31,Year 1,Houston Company's total current assets were $560,000 and its total current liabilities were $420,000.On January 1,Year 2,Houston issued a long-term note to a bank for $30,000 cash. Required: (a)Compute Houston's working capital before and after issuing the note payable. (b)Compute Houston's current ratio before and after issuing the note payable.(Round your answer to two decimal places.)

Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm.

The Miller Company reported gross sales of $850,000,sales returns and allowances of $15,000,and sales discounts of $5,000.The company has average total assets of $500,000,of which $250,000 is property,plant,and equipment.What is the company's asset turnover ratio? (Round your answer to 2 decimal places.)

Which ratio would you use to examine a company's ability to pay its debts in the short term?

Selected financial information for Martin Company for Year 2 follows: Sales \ 498,000 Cost of goods sold 320,000 Merchandise inventory Beginning of year 72,000 End of year 80,000 Required: How many times did Martin's merchandise inventory turnover during Year 2? (Round your answer to one decimal place.)

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:

Which of the following statements about financial statement analysis is incorrect?

As of December 31,Year 1,Gant Corporation had a current ratio of 1.29,quick ratio of 1.05,and working capital of $18,000.The company uses a perpetual inventory system and sells merchandise for more than it cost.On January 1,Year 2,Gant purchased merchandise on account for $4,000.Which of the following statements is correct?

Darden Company has cash of $40,000,accounts receivable of $60,000,inventory of $32,000,and equipment of $100,000.Assuming current liabilities of $48,000,this company's working capital is:

Comparative income statements for Chicago Company are provided below: Chicago Company Comparative Income Statement Years Ended December 31, Year 2 Year 1 Sales \ 288,000 \ 302,190 Less cost of goods sold 101,350 115,400 Gross margin 186,650 186,790 Less operating expenses 89,970 99,770 Income before taxes 96,680 87,020 Income taxes 38,672 34,808 Net income \ 58,008 \ 52,212 Required: Perform a horizontal analysis of Chicago Company's income statement by computing horizontal percentages for each item.Round your answer to one decimal place (i.e.,22.5%).

The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

Common methods of financial statement analysis include all of the following except:

If the company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank,then immediately after this transaction what is the expected impact on the components of the current ratio?

The following information applies to Acorn Construction Company (ACC): Year 2 Year 1 Net sales \ 880,000 \ 600,000 Income before interest and taxes 127,500 84,000 Net income 59,000 52,000 Interest expense 24,500 15,000 Stockholder's' equity, December 31 810,300 725,000 Common stock 750,300 700,000 Preferred stock dividends 24,000 24,000 Information on the number of shares outstanding is provided below: Ave. \# of shares outstanding Year 1 38,000 Ave. \# of shares outstanding Year 2 33,000 Required: Compute the following ratios for ACC for Year 2 and Year 1: (a)Number of times interest is earned (b)Earnings per share (c)Price-earnings ratio (Market prices: Year 2 $17.50 per share,Year 1 $15.00 per share) (d)Return on equity (e)Net margin.

Which ratio measures the percentage of a company's assets that are financed by debt?

As of December 31,Year 1,Gant Corporation had a current ratio of 1.29,quick ratio of 1.05,and working capital of $18,000.The company uses a perpetual inventory system and sells merchandise for more than it cost.On January 1,Year 2,Gant paid $3,600 on accounts payable.Which of the following statements is incorrect?

Comparative income statements for Pearle Company are provided below: Pearle Company Comparative Income Statement Years Ended December 31, Year 2 Year 1 Sales \ 595,000 \ 532,200 Less cost of goods sold 386,200 357,650 Gross margin 208,800 174,550 Less operating expenses 108,950 99,770 Income before taxes 99,850 74,780 Income taxes 39,940 29,912 Net income \ 59,910 \ 44,868 Required: Perform a horizontal analysis of Pearle Company's income statement by computing horizontal percentages for each item.Round your answer to one decimal place (i.e.,22.5%).

The following balance sheet information was provided by O'Connor Company: Assets Year 2 Year 1 Cash \ 4,000 \ 2,000 Accounts receivable 15,000 12,000 Inventory \ 35,000 \ 38,000 Assuming that net credit sales for Year 2 totaled $270,000,what is the company's most recent accounts receivable turnover?