FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 9: Financial Statement Analysis

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 71

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following is not included in the computation of the quick ratio?

A) Cash
B) Prepaid expenses
C) Accounts receivable
D) Marketable securities

E) All of the above
F) A) and D)

Correct Answer

verified

Show Answer

Question 72

Multiple Choice

Review LaterAdd Note

Review Later

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

A) In horizontal percentage analysis, an item from the financial statements is expressed as a percentage of the same item from a previous year's financial statements.
B) Vertical analysis compares two or more financial statement items within the same time period.
C) Horizontal analysis for several years can be done by choosing one year as a base year and calculating increases or decreases in relation to that year.
D) The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.

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

Correct Answer

verified

Show Answer

Question 73

Multiple Choice

Review LaterAdd Note

Starwood Corporation has current assets of $200,000, total current liabilities of $750,000, net credit sales of $1,300,000, beginning accounts receivable of $65,000, and ending accounts receivable of $69,000. What is Starwood's accounts receivable turnover?

Denver Corporation and Cheyenne Company are in different industries. Denver's current ratio is 1.89, while Cheyenne's current ratio is 1.65. Therefore, is it safe to conclude that Denver's liquidity position is better than that of Cheyenne?

Solvency ratios are used to assess a company's:

Which of the following statements regarding the return on equity (ROE) measure is incorrect?

Which of the following statements regarding net margin is incorrect?

In terms of solvency, the higher the number of times interest is earned, the better.

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

The following balance sheet information is provided for Gaynor Company: $\begin{array}{lrr}\text { Assets } & \text { Year 2 } &{\text { Year 1 }} \\\text { Cash } & \$ 4,000 & \$ 2,000 \\\text { Accounts receivable } & 15,000 & 12,000 \\\text { Inventory } & \$ 35,000 & \$ 38,000\end{array}$ Assuming Year 2 cost of goods sold is $153,300, what is the company's inventory turnover?

The following balance sheet information is provided for Patton Company: $\begin{array}{lrr}\text { Assets } & \text { Year 2 } &{\text { Year 1 }} \\\text { Cash } & \$ 4,000 & \$ 2,000 \\\text { Accounts receivable } & 15,000 & 12,000 \\\text { Inventory } & \$ 35,000 & \$ 38,000\end{array}$ Assuming Year 2 cost of goods sold is $730,000, what is the company's average days to sell inventory? (Use 365 days in a year. Do not round your intermediate calculations.)

Financial analysis typically involves some form of comparison, such as changes in the same item over a number of years.

Select the correct statement regarding vertical analysis.

The following balance sheet information is provided for Greene Company for Year 2: $\begin{array}{lr}\text { Assets }\\\text { Cash } & \$ 5,400 \\\text { Accounts receivable } & 15,500 \\\text { Inventory } & 18,000 \\\text { Prepaid expenses } & 1,600 \\\text { Plant and equipment, net of depreciation } & 20,200 \\\text { Land } & \underline{ 19,950 }\\\text { Total assets } &\underline{ \$ 80,650}\\\text { Liabilities and Stockholders' Equity }\\\text { Accounts payable } & \$ 4,500 \\\text { Salaries payable } & 11,500 \\\text { Bonds payable (Due in ten years) } & 19,000 \\\text { Common stock, no par } & 30,000 \\\text { Retained earnings } &\underline{ 15,650} \\\text { Total liabilities and stockholders' equity }& \$ 80,650\end{array}$ What is the company's quick (acid-test) ratio?

Alpha Company provided the following balance sheet for Year 2: $\begin{array}{lr}\text { Assets }\\\text { Cash } & \$ 4,800 \\\text { Accounts receivable } & 6,950 \\\text { Inventory } & 10,750 \\\text { Prepaid expenses } & 1,800 \\\text { Plant and equipment, net of depreciation } &30,400 \\\text { Land } & \underline{ 23,000 }\\\text { Total assets } &\underline{ \$77,700}\\\text { Liabilities and Stockholders' Equity }\\\text { Accounts payable } & \$ 3,100 \\\text { Salaries payable } & 6,900 \\\text { Bonds payable (Due in ten years) } & 13,000 \\\text { Common stock, no par } &17,000 \\\text { Retained earnings } &\underline{ 37,700} \\\text { Total liabilities and stockholders' equity }& \$77,700\end{array}$ What is the company's plant assets to long-term liabilities ratio?

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

The following income statement was prepared by Case Company for Year 2: $\begin{array}{lr}\text {Sales}&\$100,000\\\text {Cost of goods sold}&\underline{65,000}\\\text {Gross margin}&\$43,500\\\text {Selling and administrative expense}&26,000\\\text { Interest expense } & \underline{5,000} \\\text { Total expenses }& \underline{31,000}\\ \text {Income before taxes } & \$12,000 \\\text { Income tax expense } & \underline{ 4,000} \\\text { Net income } & \underline{\$8,500}\end{array}$ Required: Perform vertical analysis for Case Company's Year 2 income statement.

When debt is used to finance the purchase of assets, the term or time span of the debt should always be shorter than the life span of the assets.

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 recorded cost of goods sold of $4,100. As a result of this transaction, Gant's quick ratio will:

The following information is from the financial records of Newton Company for Year 2: $\begin{array} { l r } \text { Sales } & \$ 620,000 \\\text { Interest expense } & 26,000 \\\text { Income tax expense } & 46,000 \\\text { Net income } & 104,000\end{array}$ Required: Calculate the number of times interest is earned for Newton in Year 2. (Round your answer to one decimal place.)