Maynard Company's balance sheet and income statement are provided below: $\begin{array}{c} \text { Maynard Company}\\ \text { Balance Sheet}\\ \text { As of December 31 ,}\\ \begin{array}{lrr} \text { Cash } & \$ 83,500 & \$ 92,000 \\ \text { Accounts receivable } & 94,000 & 90,000 \\ \text { Inventory } & 62,500 & 60,000 \\ \text { Plant and equipment, net } & 500,000 & 525,000 \\ \text { Land } &\underline{ 150,000}& \underline{ 150,000} \\ \text { Total assets } & \underline{ \$ 890,000} &\underline{ \$ 917,000} \\ \text { Liabilities and Stockholders'Equity }\\ \text { Accounts payable } & \$ 73,000 & \$ 62,000 \\ \text { Notes payable } & 115,000 & 160,000\\ \text { Capital stock, no par } & 440,000 & 400,000 \\ \text { Retained earnings } &\underline{ 262,000 }& \underline{295,000} \\ \text { Total liabilities and stockholders' equity } & \underline{\$ 890,000 }&\underline{ \$ 917,000} \end{array}\end{array}$ $\begin{array}{c} \text {Maynard Company}\\ \text { Income Statement }\\ \text {Years Ended December 31}\\\begin{array}{lrr} &\text { Year } 2 & \text { Year } 1\\ \text { Sales } & \$ 549,000 &\$468,150 \\ \text { Less cost of goods sold } & 360,000 & 289,500 \\ \text { Gross margin } & 189,000 & 178,650 \\ \text { Less operating expenses } & 86,500 & 55,450 \\ \text { Income before taxes } & 102,500& 123,200 \\ \text { Income taxes } & 18,500& 16,600\\ \text { Net income } & \$ 84,000 & \$ 106,600 \end{array}\end{array}$ The company paid cash dividends of $2.00 per share during Year 2.On December 31,Year 2,the stock was listed on the stock exchange at a price of $78.25 per share. Required: Compute the following ratios for Year 2: (a)Accounts receivable turnover (b)Average days to collect receivables (c)Inventory turnover (d)Average days to sell inventory (e)Debt to assets ratio (f)Debt to equity ratio (g)Net margin (h)Asset turnover (i)Return on investment (j)Dividend yield Round your answers to one decimal place.

The answer of Maynard Company's balance sheet and income statement...

Exam 13: Financial Statement Analysis

Select the term from the list provided that best matches each of the following descriptions or definitions:

An indication of the relative importance of an item of financial information

Absolute amounts

Analysis technique that compares amounts of the same item over two or more time periods

Book value per share

Measures of the long-term debt paying ability of the firm

Current ratio

Correct Answer:

Verified

An indication of the relative importance of an item of financial information

Analysis technique that compares amounts of the same item over two or more time periods

Measures of the long-term debt paying ability of the firm

Measure of profitability calculated by dividing net income by average total stockholders' equity

Dollar amounts of individual items on financial statements can be misleading because they make no reference to the size of the company

Measurements of a firms ability to generate income

Study of the performance of ratios or other financial measures over time

Current assets divided by current liabilities

Measures of short-tem debt paying ability

Measure to compare values of different stocks, calculated by dividing market price per share by amount of income per share

Another way at looking at inventory turnover by converting the inventory turnover ratio into a number of days

Calculated by dividing total stockholders' equity less preferred rights by the number of common shares outstanding

(Matching)

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Question 141

Indicate whether each of the following statements about financial statement analysis is true or false. Meaningful comparisons between two companies generally should be made using percentage analysis or ratio analysis,not absolute amounts. The materiality of accounting information refers to whether it is viewed as favorable (good news)or unfavorable (bad news). Companies must account for immaterial items in compliance with generally accepted accounting principles. To judge the materiality of an absolute financial statement amount,one must consider the size of the company reporting it. Comparing percentages derived from financial statement analysis has the drawback of varying materiality levels.__

(Short Answer)

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Question 142

Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is incorrect?

(Multiple Choice)

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Question 143

Which type of approach should be used when evaluating corporate results using horizontal analysis?

(Multiple Choice)

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Question 144

A company has an obligation to provide highly detailed information on its financial statements.

(True/False)

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Question 145

The Martin Company reported net income of $15,000 on gross sales of $80,000.The company has average total assets of $135,000,of which $102,000 is property,plant,and equipment.What is the company's return on investment? (Rounded to the nearest decimal point.)

(Multiple Choice)

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Question 146

Maynard Company's balance sheet and income statement are provided below: Maynard Company Balance Sheet As of December 31 , Cash \ 83,500 \ 92,000 Accounts receivable 94,000 90,000 Inventory 62,500 60,000 Plant and equipment, net 500,000 525,000 Land Total assets Liabilities and Stockholders'Equity Accounts payable \ 73,000 \ 62,000 Notes payable 115,000 160,000 Capital stock, no par 440,000 400,000 Retained earnings Total liabilities and stockholders' equity Maynard Company Income Statement Years Ended December 31 Year 2 Year 1 Sales \ 549,000 \4 68,150 Less cost of goods sold 360,000 289,500 Gross margin 189,000 178,650 Less operating expenses 86,500 55,450 Income before taxes 102,500 123,200 Income taxes 18,500 16,600 Net income \ 84,000 \ 106,600 The company paid cash dividends of $2.00 per share during Year 2.On December 31,Year 2,the stock was listed on the stock exchange at a price of $78.25 per share. Required: Compute the following ratios for Year 2: (a)Accounts receivable turnover (b)Average days to collect receivables (c)Inventory turnover (d)Average days to sell inventory (e)Debt to assets ratio (f)Debt to equity ratio (g)Net margin (h)Asset turnover (i)Return on investment (j)Dividend yield Round your answers to one decimal place.

(Essay)

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Question 147

Indicate whether each of the following statements is true or false. Some forms of financial statement analysis involve identifying changes in the same item for the same company over a period of time. Some forms of financial statement analysis involve comparing operations of different companies in the same industry. Vertical analysis is also called trend analysis. Vertical analysis refers to studying the behavior of individual financial statement items over several periods. Horizontal analysis could be done using changes in the absolute dollar amount of an item or trends in percentages.__

(Short Answer)

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Question 148

Indicate whether each of the following statements about financial statement analysis is true or false. Ratio analysis may involve studying relationships between an item reported on the balance sheet and another reported on the income statement. Comparing sales in Year 2 with sales for Year 1 is a form of vertical analysis. Comparing net income in Year 2 with sales for Year 2 is a form of horizontal analysis. Liquidity ratios measure a company's ability to generate cash flows in the short term. Working capital is calculated by using the following formula: current assets - current liabilities.__

(Short Answer)

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Question 149

The accounting profession assumes that financial statement users have an expert knowledge of business.

(True/False)

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Question 150

Current financial reporting standards assume that users of accounting information:

(Multiple Choice)

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Question 151

You are considering an investment in Apple stock and wish to assess the firm's short-term debt-paying ability.All of the following ratios are used to assess liquidity except:

(Multiple Choice)

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Question 152

Cost of goods sold divided by average inventory is the formula for which of these analytical measures?

(Multiple Choice)

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Question 153

Which of the following statements regarding horizontal analysis is incorrect?

(Multiple Choice)

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Question 154

The current ratio is one of the most common measures of solvency.

(True/False)

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Question 155

Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is incorrect?

Which type of approach should be used when evaluating corporate results using horizontal analysis?

A company has an obligation to provide highly detailed information on its financial statements.

The Martin Company reported net income of $15,000 on gross sales of $80,000.The company has average total assets of $135,000,of which $102,000 is property,plant,and equipment.What is the company's return on investment? (Rounded to the nearest decimal point.)

The accounting profession assumes that financial statement users have an expert knowledge of business.

Current financial reporting standards assume that users of accounting information:

You are considering an investment in Apple stock and wish to assess the firm's short-term debt-paying ability.All of the following ratios are used to assess liquidity except:

Cost of goods sold divided by average inventory is the formula for which of these analytical measures?

Which of the following statements regarding horizontal analysis is incorrect?

The current ratio is one of the most common measures of solvency.

Management Accounting and Corporate Governance

Cost Behavior, operating Leverage, and Profitability Analysis

Analysis of Cost, volume, and Pricing to Increase Profitability

Cost Accumulation,tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, process, and Hybrid Costing Systems

Statement of Cash Flows

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