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Exam 12: Financial Statement Analysis

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Question 61

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LeBron's Bookstores has two divisions: media and books.The media division had another great year with net sales of $14 million,cost of goods sold of $8 million,operating expenses of $3 million,and income tax expense of $900,000.The book division did not do as well and was sold during the year.The loss from operations and sale of the book division was $400,000 before taxes and $280,000 after taxes.Assuming the sale of the book division is reported as a discontinued operation,at what amount did LeBron's Bookstores report the discontinued operations?

A) Gain of $1,820,000.
B) Loss of $280,000.
C) Loss of $400,000.

D) None of the above
E) A) and B)

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Question 62

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To perform a vertical analysis of an income statement,you would divide each line item on the statement by ______.

A) sales
B) net income
C) total assets

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

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Question 63

Multiple Choice

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The current ratio is calculated as:

Which of the following income statement items is least likely to persist into future periods?

Which of the following ratios is most useful in evaluating solvency?

To perform a vertical analysis of a balance sheet,you would divide each line item on the statement by ______.

Vertical analysis calculates the amount and percentage change of an account over time.Horizontal analysis calculates the amount and percentage change of an account over time.

Which of the following is NOT an example of aggressive accounting practices?

Other things being equal,the higher the debt to equity ratio,the higher the risk of bankruptcy.

Richard's Sporting Goods reports net income of $100,000,net sales of $500,000,and average assets of $1,000,000.The return on assets is:

Ronaldo Soccer Shop's income statement reports sales of $100,000;cost of goods sold of $46,000,operating expenses of $34,000,interest expense of $15,000,income tax expense of $2,000,and net income of $3,000.If you were to perform a vertical analysis of this income statement,you would divide each of these income statement line items by:

The location where a loss is reported in the income statement does not really matter as long as the loss is reported.The location of a loss in the income statement does matter as investors attempt to determine if the loss is recurring or a one-time occurrence.

We use vertical analysis for income statement accounts,but not balance sheet accounts.We use vertical analysis for income statement and balance sheet accounts.

Excerpts from TPX Company's December 31,2018 and 2017,financial statements are presented below: TPX Company's 2018 average collection period is (round intermediate calculations to one decimal place and final answer to the nearest day) : $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 80,000 & \$ 72,000 \\\hline \text { Inventory } & 84,000 & 70,000 \\\hline \text { Net sales } & 400,000 & 372,000 \\\hline \text { Cost of goods sold } & 254,000 & 216,000 \\\hline \text { Total assets } & 850,000 & 810,000 \\\hline \text { Total stockholders' equity } & 500,000 & 450,000 \\\hline \text { Net income } & 75,000 & 56,000 \\\hline\end{array}$

Popson Inc.incurred a material gain on the sale of land.This gain should be reported as:

A low inventory turnover ratio usually is a positive sign and indicates that inventory is selling quickly.A high inventory turnover ratio usually is a positive sign and indicates that inventory is selling quickly.

A low current ratio indicates that a company has sufficient current assets to pay current liabilities as they become due.A high current ratio indicates that a company has sufficient current assets to pay current liabilities as they become due.

Which of the following is an example of vertical analysis?

We measure income statement accounts at a point in time and balance sheet accounts over a period of time.We measure income statement accounts over a period of time and balance sheet accounts at a point in time.

Excerpts from TPX Company's December 31,2018 and 2017,financial statements are presented below: TPX Company's 2018 debt to equity ratio is: $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 80,000 & \$ 72,000 \\\hline \text { Inventory } & 84,000 & 70,000 \\\hline \text { Net sales } & 400,000 & 372,000 \\\hline \text { Cost of goods sold } & 254,000 & 216,000 \\\hline \text { Total assets } & 850,000 & 810,000 \\\hline \text { Total stockholders' equity } & 500,000 & 450,000 \\\hline \text { Net income } & 75,000 & 56,000 \\\hline\end{array}$