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Exam 15: Financial Statement Analysis

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Question 31

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The relationship of each asset item as a percent of total assets is an example of vertical analysis.

A) True
B) False

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Question 32

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A balance sheet that displays only component percentages is a

A) trend balance sheet
B) comparative balance sheet
C) condensed balance sheet
D) common-sized balance sheet

E) B) and C)
F) A) and D)

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Question 33

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The balance sheets at the end of each of the first two years of operations indicate the following: -If net income is $150,000 and interest expense is $20,000 for Year 2,what is the rate earned on total assets for the year?

A loss due to a discontinued operation should be reported on the income statement

The following items were taken from the financial statements of Tilden,Inc.,over a three-year period: $\begin{array}{|l|r|r|r|}\hline \text { Item } & \text { Year 3 } & \text { Year 2 } & \text { Year 1 } \\\hline \text { Sales } & \$ 360,000 & \$ 335,000 & \$ 290,000 \\\hline \text { Cost of goods sold } & 225,000 & 205,000 & 185,000 \\\hline \text { Gross profit } & \$ 135,000 & \$ 130,000 & \$ 105,000 \\\hline\end{array}$ Compute the following for each of the above time periods. a. The amount and percentage change from Year 2 to Year 3. b. The amount and percentage change from Year 1 to Year 2. Round percentages to one decimal place.

Based on the following data for the current year,what is the number of days' sales in accounts receivable? $\begin{array}{lr}\text { Sales on account during year } & \$ 584,000 \\\text { Cost of merchandise sold during year } & 300,000 \\\text { Accounts receivable, beginning of year } & 45,000 \\\text { Accounts receivable, end of year } & 35,000 \\\text { Inventory, beginning of year } & 90,000 \\\text { Inventory, end of year } & 110,000\end{array}$

In a common-sized income statement,each item is expressed as a percentage of net income.

The following information has been condensed from the December 31 balance sheets of Gabriel Co.: $\begin{array}{l}\begin{array}{lll}\\\text {Assets:}\\\text {Current assets}\\\text {Fixed assets net}\\\text {Total assets}\\\\\text {Liabilities:}\\\text {Current liabjlities}\\\text {Long-term liabilities}\\\text {Total liabilities}\\\text {Stockholders' equity}\\\text {Total liabilities and}\\\text {stockholders' equity}\\\end{array}\begin{array}{lll}\underline {\text { Year 2}}\\\\\$ 825,500 \\ \underline {1,473,600 }\\ \underline {\$ 2,299,100} \\\\\\\$ 313,500 \\\underline { 703,000} \\ \underline { \$ 1,016,500 }\\\underline { \$ 1,282,600} \\ \\\underline {\$ 2,299,100 }\end{array}\begin{array}{lll}\underline {\text { Year 1}}\\\\\$ 674,300 \\\underline {1,275,300 }\\\underline { \$ 1,949,600}\\\\\\\$ 309,600 \\\underline {545,000 }\\\underline { \$ 854,600 }\\\underline {\$ 1,095,000} \\\\\underline { \$ 1,949,600 }\end{array}\end{array}$ a. Determine the ratio of fixed assets to long-term liabilities for each year. b. Determine the ratio of liabilities to stockholders' equity for each year. c. Comment on the year-to-year changes for both ratios.Round your answers to two decimal places.

On a common-sized balance sheet,100% is

The following information pertains to Dallas Company.Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. What is the rate earned on stockholders’ equity?

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

Which of the following is not a characteristic evaluated in ratio analysis?

Brock Company's financial information is listed below.Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. What is the current ratio?

The following data are taken from the financial statements: $\begin{array}{l}\begin{array}{lll}\\\\\text { Current assets}\\\text { Property, plant, and equipment}\\\text { Current liabilities}\\\text { non-interest-bearing}\\\text { Long-term liabilities, 12\%}\\\text { Preferred 10\% stock}\\\text { Common stock, \$25 par}\\\text { Retained earnings,}\\\text { beginning of year}\\\text { Net income for year}\\\end{array}\begin{array}{cc}\underline {\text { Current }}&\underline {\text { Preceding }}\\\underline {\text { Year }}&\underline {\text { Year }}\\\$ 745,000 & \$ 820,000 \\1,510,000 & 1,400,000 \\& \\160,000 & 140,000 \\400,000 & 400,000 \\250,000 & 250,000 \\1,200,000 & 1,200,000 \\\\230,000 & 160,000 \\110,000 & 155,000 \\\end{array}\end{array}$ $\begin{array}{lll}\text { Preferred dividends declared } & 25,000 & 25,000 \\\text { Common dividends declared } & 70,000 & 60,000\end{array}$ Determine for the current year the a rate earned on total assets,b rate earned on stockholders' equity,c rate e common stockholders' equity,d earnings per share on common stock,e price-earnings ratio on common stock,and yield on common stock.The current market price per share of common stock is $25. Round percentage values to one decimal place,dollar values to two decimal places,and other ratios to one decimal

In the vertical analysis of an income statement,each item is generally stated as a percentage of total assets.

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

$\begin{array}{lr}\text { Accounts payable } & \$ 30,000 \\\text { Accounts receivable } & 35,000 \\\text { Accrued liabilities } & 7,000 \\\text { Cash } & 25,000 \\\text { Intangible assets } & 40,000 \\\text { Inventory } & 72,000 \\\text { Long-term investments } & 100,000 \\\text { Marketable securities } & 75,000 \\\text { Notes payable short-term } & 36,000 \\\text { Property, plant, and equipment } & 20,000 \\\text { Prepaid expenses } & 400,000 \\& 2,000\end{array}$ -Based on the above data,what is the amount of quick assets?

A company reports the following income statement and balance sheet information for the current year: $\begin{array}{|l|r|}\hline \text { Net income } & \$ 180,000 \\\hline \text { Interest expense } & 20,000 \\\hline \text { Average total assets } & 2,000,000\\\hline\end{array}$ Determine the rate earned on total assets.Round your answer to one decimal place.

The rate earned on total assets measures the profitability of total assets,without considering how the assets are financed.

A company can use comparisons of its financial data to the data of other companies and industry averages to evaluate its position.