Question 1

The debt to assets ratio

Accepted Answer

A)  is a solvency ratio. 
B)  is computed by dividing total assets by total debt. 
C)  measures the total assets provided by stockholders. 
D)  is a profitability ratio.

Question 2

The income statement for Pointe Company for the year ended December 31 2017 appears below. $\begin{array}{ll}
\text { Sales } & \$ 720,000 \
\text { Cost of goods sold } & \$ 380,000 \
\text { Gross profit } & 340,000 \
\text { Expenses } & 190,000^{*} \
\text { Net income } & \$ 150,000
\end{array}$ *Includes $20000 of interest expense and $25000 of income tax expense.
Additional information:
1. Common stock outstanding on January 1 2017 was 50000 shares. On July 1 2017 10000 more shares were issued.
2. The market price of Pointe's stock was $11.70 at the end of 2017.
3. Cash dividends of $30000 were paid $7000 of which were paid to preferred stockholders.
Instructions
Compute the following ratios for 2017:
(a) Earnings per share.
(b) Price-earnings.
(c) Times interest earned.

Accepted Answer

The answer of The income statement for Pointe Company for...

Question 3

Which of the following is not a profitability ratio?

Accepted Answer

A)  Payout ratio 
B)  Profit margin 
C)  Times interest earned 
D)  Return on common stockholders' equity

Question 4

Other __________________ includes all changes in stockholders' equity during a period except changes resulting from investments by stockholders and distributions to stockholders.

Accepted Answer

The answer of Other __________________ includes all changes in stockholders'...

Question 5

Selected financial statement data for Freeman Company are presented below. $\begin{array}{lr}&12/31/17\
\text { Cash } & \$ 10,000 \
\text { Short-term investments } & 20,000 \
\text { Accounts receivable } & 60,000 \
\text { Inventories } & 75,000 \
\text { Total current liabilities } & 100,000
\end{array}$ Instructions
Compute the following ratios at December 31 2017:
(a) Current.
(b) Acid-test.

Accepted Answer

The answer of Selected financial statement data for Freeman Company...

Question 6

The following information pertains to Ortiz Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. $\begin{array}{lr}
\text { Assets }\
\text { Cash and short-term investments } & \$ 45,000 \
\text { Accounts receivable (net) } & 30,000 \
\text { Inventory } & 40,000 \
\text { Property, plant and equipment } & \underline{310,000} \
\quad \text { Total Assets } & \$ 425,000 \
\end{array}$

$\begin{array}{lr}
\text { Liabilities and Stockholders' Equity }\
\text { Current liabilities } & \$ 55,000 \
\text { Long-term liabilities } & 110,000 \
\text { Stockholders' equity—common } & 260,000 \
\quad \text { Total Liabilities and Stockholders' Equity } & \$ 425,000
\end{array}$

$\begin{array}{lr}
\text { Income Statement }\
\text { Sales } & \$ 120,000 \
\text { Cost of goods sold } & 65,000 \
\text { Gross profit } & 55,000 \
\text { Operating expenses } & 29,500 \
\quad \text { Net income } & 25,500 \
\
\text { Number of shares of common stock } &\$ 6,000  \
\text { Market price of common stock } &\$20 \
\text { Dividends per share } & .50
\end{array}$ 
What is the return on assets for Ortiz?

Accepted Answer

A)  6.0% 
B)  5.0% 
C)  10.0% 
D)  12.0%

Question 7

In performing a vertical analysis the base for sales revenues on the income statement is

Accepted Answer

A)  net sales. 
B)  sales. 
C)  net income. 
D)  cost of goods available for sale.

Question 8

In performing a vertical analysis the base for sales returns and allowances is

Accepted Answer

A)  sales. 
B)  sales discounts. 
C)  net sales. 
D)  total revenues.

Question 9

In reporting discontinued operations the income statement should show in a special section
1) gains on the disposal of a discontinued component.
2) losses on the disposal of a discontinued component.

Accepted Answer

A)  1 only. 
B)  2 only. 
C)  neither 1 nor 2. 
D)  both 1 and 2.

Question 10

Common size analysis expresses each item within a financial statement in terms of a percent of a base amount.

Accepted Answer

A) True 
 B)False

Question 11

Selected financial statement data for Mure Company are presented below. $\begin{array}{lcc}
&\text { December 31, } 2017& \text { December 31, } 2016\
\text { Cash } & \$ 40,000 & \$ 30,000 \
\text { Short-term investments } & 20,000 & 18,000 \
\text { Receivables (net) } & 100,000 & 90,000 \
\text { nventories } & 80,000 & 60,000 \
\text { Total current liabilities } & 100,000 & 90,000
\end{array}$  During 2017 net sales were $950000 and cost of goods sold was $770000.
Instructions
Compute the following ratios at December 31 2017:
(a) Current.
(b) Acid-test.
(c) Accounts receivable turnover.
(d) Inventory turnover.

Accepted Answer

The answer of Selected financial statement data for Mure Company...

Question 12

Using borrowed money to increase the rate of return on common stockholders' equity is called "trading on the equity."

Accepted Answer

A) True 
 B)False

Question 13

Under which of the following cases may a percentage change be computed?

Accepted Answer

A)  The trend of the balances is decreasing but all balances are positive. 
B)  There is no balance in the base year. 
C)  There is a positive balance in the base year and a negative balance in the subsequent year. 
D)  There is a negative balance in the base year and a positive balance in the subsequent year.

Question 14

Vertical analysis is useful in making comparisons of companies of different sizes.

Accepted Answer

A) True 
 B)False

Question 15

The following items were taken from the financial statements of Rug Inc. over a four-year period: $\begin{array}{lrrrr}
\text { Item }&2018&2017&2016&2015\
\text { Net Sales } & \$ 900,000 & \$ 650,000 & \$ 600,000 & \$ 500,000 \
\text { Cost of Goods Sold } &580,000&460,000&420,000&400,000 \
\text { Gross Profit } & \$ 320,000&\$190,000&\$180,000&\$100,000
\end{array}$ Instructions
Using horizontal analysis and 2015 as the base year compute the trend percentages for net sales cost of goods sold and gross profit. Explain whether the trends are favorable or unfavorable for each item.

Accepted Answer

The answer of The following items were taken from the...

Question 16

Flite Corporation has issued common stock only. The company has been successful and has a gross profit rate of 20%. The information shown below was taken from the company's financial statements. $$\begin{array} { l c } 
\text { Beginning inventory } & \$ 482,000 \
\text { Purchases } & 4,036,000 \
\text { Ending inventory } & ? \
\text { Average accounts receivable } & 800,000 \
\text { Average common stockholders' equity } & 3,500,000 \
\text { Sales (all on credit) } & 5,000,000 \
\text { Net income } & 385,000
\end{array}$$ Instructions
Compute the following:
(a) Accounts receivable turnover and the average collection period.
(b) Inventory turnover and the days in inventory.
(c) Return on common stockholders' equity.

Accepted Answer

The answer of Flite Corporation has issued common stock only....

Question 17

Swiss Clothing Store had a balance in the Accounts Receivable account of $920000 at the beginning of the year and a balance of $980000 at the end of the year. Net credit sales during the year amounted to $6650000. The average collection period of the receivables in terms of days was

Accepted Answer

A)  53.7 days. 
B)  52.1 days. 
C)  30 days. 
D)  50.7 days.

Question 18

The following financial statement information is available for Penn Corporation: $\begin{array}{lrr}
&2017&2016\
\text { Stockholders' equity - common } & \$ 350,000 & \$ 270,000 \
\text { Net sales } & 784,000 & 697,000 \
\text { Cost of goods sold } & 406,000 & 377,000 \
\text { Net income } & 115,000 & 80,000 \
\text { Inc tax expense } & 48,000 & 29,000 \
\text { Interest expense } & 14,000 & 14,000 \
\text { Dividends paid to preferred } & & \
\quad \text { stockholders } & 24,000 & 20,000 \
\quad \begin{array}{l}
\text { Dividends paid to common } \
\quad \text { stockholders }
\end{array} & 15,000 & 10,000
\end{array}$ The return on common stockholders' equity for 2017 is

Accepted Answer

A)  21.7%. 
B)  32.9%. 
C)  28.6%. 
D)  26%.

Question 19

The following information pertains to Ortiz Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. What is the inventory turnover for Ortiz?

Accepted Answer

A)  32 times 
B)  5.5 times 
C)  11 times 
D)  0.18 times

Question 20

In analyzing the financial statements of a company a single item on the financial statements

Accepted Answer

A)  should be reported in bold-face type. 
B)  is more meaningful if compared to other financial information. 
C)  is significant only if it is large. 
D)  should be accompanied by a footnote.

Exam 18: Financial Statement Analysis

The debt to assets ratio

Which of the following is not a profitability ratio?

Other __________________ includes all changes in stockholders' equity during a period except changes resulting from investments by stockholders and distributions to stockholders.

In performing a vertical analysis the base for sales revenues on the income statement is

In performing a vertical analysis the base for sales returns and allowances is

In reporting discontinued operations the income statement should show in a special section 1) gains on the disposal of a discontinued component. 2) losses on the disposal of a discontinued component.

Common size analysis expresses each item within a financial statement in terms of a percent of a base amount.

Using borrowed money to increase the rate of return on common stockholders' equity is called "trading on the equity."

Under which of the following cases may a percentage change be computed?

Vertical analysis is useful in making comparisons of companies of different sizes.

Swiss Clothing Store had a balance in the Accounts Receivable account of $920000 at the beginning of the year and a balance of $980000 at the end of the year. Net credit sales during the year amounted to $6650000. The average collection period of the receivables in terms of days was

The following information pertains to Ortiz Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. What is the inventory turnover for Ortiz?

In analyzing the financial statements of a company a single item on the financial statements