FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 14: Financial Statement Analysis

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 81

Matching

Review LaterAdd Note

Review Later

Match each definition that follows with the term it defines.

Premises

Responses

a percentage analysis of increases and decreases in related items on comparative financial statements

solvency

use debt to increase the return on an investment

leverage

an analysis of a company’s ability to pay its current liabilities

times interest earned

the percentage analysis of the relationship of each component in a financial statement to a total within the statement

horizontal analysis

a company's ability to make interest payments and repay debt at maturity

vertical analysis

focuses on a company’s ability to generate net income

common-sized financial statements

useful for comparing one company to another or to industry averages

current position analysis

measures the risk that interest payments will not be made if earnings decrease

profitability analysis

Premises

a percentage analysis of increases and decreases in related items on comparative financial statements

use debt to increase the return on an investment

an analysis of a company’s ability to pay its current liabilities

the percentage analysis of the relationship of each component in a financial statement to a total within the statement

a company's ability to make interest payments and repay debt at maturity

focuses on a company’s ability to generate net income

useful for comparing one company to another or to industry averages

measures the risk that interest payments will not be made if earnings decrease

Responses

solvency

leverage

times interest earned

horizontal analysis

vertical analysis

common-sized financial statements

current position analysis

profitability analysis

Show Answer

Correct Answer

Premises

Responses

a percentage analysis of increases and decreases in related items on comparative financial statements

use debt to increase the return on an investment

an analysis of a company’s ability to pay its current liabilities

the percentage analysis of the relationship of each component in a financial statement to a total within the statement

a company's ability to make interest payments and repay debt at maturity

focuses on a company’s ability to generate net income

useful for comparing one company to another or to industry averages

measures the risk that interest payments will not be made if earnings decrease

Premises

a percentage analysis of increases and decreases in related items on comparative financial statements

use debt to increase the return on an investment

an analysis of a company’s ability to pay its current liabilities

the percentage analysis of the relationship of each component in a financial statement to a total within the statement

a company's ability to make interest payments and repay debt at maturity

focuses on a company’s ability to generate net income

useful for comparing one company to another or to industry averages

measures the risk that interest payments will not be made if earnings decrease

Responses

Question 82

True/False

Review LaterAdd Note

Review Later

A financial statement showing each item on the statement as a percentage of one key item on the statement is called a common-sized financial statement.

A) True
B) False

Correct Answer

verified

Show Answer

Question 83

True/False

Review LaterAdd Note

An increase in the accounts receivable turnover may be due to a change in how credit is granted and/or in collection practices.

The balance sheets at the end of each of the first two years of operations indicate the following:​ $\text { Kellman Company }$ $\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\\text { Total current assets } & \$ 600,000 & \$ 560,000 \\\text { Total investments } & 60,000 & 40,000 \\\text { Total property, plant, and equipment } & 900,000 & 700,000 \\\text { Total current liabilities } & 125,000 & 65,000 \\\text { Total long-term liabilities } & 350,000 & 250,000 \\\text { Preferred } 9 \% \text { stock, } \$ 100 \text { par } & 100,000 & 100,000 \\\text { Common stock, } \$ 10 \text { par } & 600,000 & 600,000 \\\text { Paid-in capital in excess of par-Common stock } & 75,000 & 75,000 \\\text { Retained earnings } & 310,000 & 210,000\end{array}$ ​ ​ -Using the balance sheets for Kellman Company, if net income is $150,000 and interest expense is $20,000 for Year 2, what is the return on total assets for the year?

The balance sheets at the end of each of the first two years of operations indicate the following: $\text { Kellman Company }$ $\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\\text { Total current assets } & \$ 600,000 & \$ 560,000 \\\text { Total investments } & 60,000 & 40,000 \\\text { Total property, plant, and equipment } & 900,000 & 700,000 \\\text { Total current liabilities } & 125,000 & 65,000 \\\text { Total long-term liabilities } & 350,000 & 250,000 \\\text { Preferred } 9 \% \text { stock, } \$ 100 \text { par } & 100,000 & 100,000 \\\text { Common stock, } \$ 10 \text { par } & 600,000 & 600,000 \\\text { Paid-in capital in excess of par-Common stock } & 75,000 & 75,000 \\\text { Retained earnings } & 310,000 & 210,000\end{array}$ -Using the balance sheets for Kellman Company, if net income is $250,000 and interest expense is $30,000 for Year 2, what are the earnings per share on common stock for Year 2?

Reporting unusual items separately on the income statement allows investors to isolate the effects of these items on income and cash flows.

A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for creditors.

Define solvency and profitability. How are they alike?

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 return on total assets. Round your answer to one decimal place.

Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency, profitability, and liquidity.

The report on internal control required by the Sarbanes-Oxley Act of 2002 may be prepared by either management or the company's auditors.

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

Revenue and expense data for Bluestem Company are as follows: $\begin{array} { l r r } & \text { Year } 2 & \text { Year } 1 \\\text { Administrative expenses } & \$ 37,000 & \$ 20,000 \\\text { Cost of goods sold } & 350,000 & 320,000 \\\text { Income tax expense } & 40,000 & 32,000 \\\text { Sales } & 800,000 & 700,000 \\\text { Selling expenses } & 150,000 & 110,000\end{array}$ ​ (a) Prepare a comparative income statement, with vertical analysis, stating each item for both years as a percent of sales. (b) Comment upon significant changes disclosed by the comparative income statement. Round percentages to one decimal place.

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

Select the correct presentation for other comprehensive income on the financial statements of Puma Company.

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

The following data are taken from or calculated from the financial statements: $\begin{array}{lrr}&\text { Current } & \text { Preceding } \\&\text { Year } & \text { Year }\\\text { Average accounts receivable (net) } & \$ 123,000 & \$ 95,000 \\\text { Sales on account } & 950,000 & 825,000\end{array}$ ​ (a) Assuming that credit terms on all sales are $n / 45$ , determine for each year (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Round intermediate calculations to whole numbers and final answers to two decimal places. (b) Comment on any significant trends revealed by the data. ​

In horizontal analysis, the current year is the base year.

A company reports the following: $\begin{array} { l r } \text { Sales } & \$ 720,000 \\\text { Average accounts receivable (net) } & 45,000\end{array}$ ​ Determine the (a) accounts receivable turnover, and (b) number of days' sales in receivables. Round your answer to one decimal place.

Analyzing a company's performance should take into account conditions peculiar to the industry and the general economic conditions.