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Exam 14: Financial Statement Analysis

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Question 21

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The quick ratio although similar to the current ratio is more conservative.

A) True
B) False

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Question 22

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Working capital is current assets minus current liabilities.

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B) False

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Question 23

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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.)

The Fortune Company reported the following income for Year 2: $\begin{array}{lr}\text { Sales}&\$130,000\\\text {Cost of goods sold }&80,000\\\text { Gross margin}&\$50,000\\\text {Selling and administrative expense }&15,000\\\text { Operating income}&\$35,000\\\text { Interest expense}&5,000\\\text {Income before taxes }&\$30,000\\\text {income tax expense }&10,000\\\text {Net income }&\$20,000\\\end{array}$ What is the company's number of times interest earned ratio?

Assume that you are considering purchasing some of a company's long-term bonds as an investment.Which of the company's financial statement ratios would you probably be most interested in?

Which of the following statements regarding the information disclosed in financial statements is not true?

The only requirement involved in communicating useful information is that the information be accurate.

Net income divided by net sales is the formula for which of these analytical measures?

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:

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

Lilly Corporation has working capital of $620,000,and Harmon Corporation has working capital of $840,000.Which of the following statements is not true?

The most frequently quoted measure of earnings performance is the stockholders' equity ratio.

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

Long-term creditors are usually most interested in evaluating:

Dennis Company reported net income of $50,000 on sales of $300,000.The company has average total assets of $500,000 and average total liabilities of $100,000.What is the company's return on equity ratio?

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

The following balance sheet information was provided by Western 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 net credit sales totaled $270,000,what was the company's average days to collect receivables? (Use 365 days in a year.Do not round your intermediate calculations.)

Benson Company declared and paid a cash dividend totaling $500,000 on its common stock.As a result of this transaction,the company's debt to assets ratio will:

Knell Company paid its sales employees $15,000 in sales commissions.What impact will this transaction have on the firm's working capital?

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