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Exam 17: Financial Statement Analysis

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Question 51

True/False

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A firm selling food should have a higher inventory turnover rate than a firm selling office furniture.

A) True
B) False

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Question 52

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A loss on disposal of a segment would be reported on the income statement as a (n)

A) administrative expense
B) other expense
C) deduction from income from continuing operations
D) selling expense

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

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Question 53

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The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Use this information to answer the questions that follow. ​ -Using the data provided for Diane Company, what is the dividend yield?

Use the information below for Privett Company to answer the questions that follow. ​ $\begin{array}{l}\text { Privett Company }\\\begin{array} { l r } \text { Accounts payable } & \$ 30,000 \\\text { Accounts receivable } & 35,000 \\\text { Accrued liabilities } & 7,000 \\\text { Cash } & 25,000 \\\text { Intangible assets } & 40,000 \\\text { Inventory } & 72,000 \\\text { Long-term investments } & 100,000 \\\text { Long-term liabilities } & 75,000 \\\text { Marketable securities } & 36,000 \\\text { Notes payable (short-term) } & 20,000 \\\text { Property, plant, and equipment } & 400,000 \\\text { Prepaid expenses } & 2,000\end{array}\end{array}$ -Based on the data for Privett Company, what is the amount of working capital?

A company reports the following: Sales................................$2,400,000 Average total assets (excluding long-term investments)......1,500,000? Determine the asset turnover ratio. Round your answer to one decimal place.

A 15% change in sales will result in a 15% change in net income.

A company reports the following:? $\begin{array}{lr}\text { Net income } & \$ 160,000 \\\text { Preferred dividends } & \$ 10,000 \\\text { Shares of common stock outstanding } & 20,000 \\\text { Market price per share of common stock } & \$ 35\end{array}$ The company's earnings per share on common stock is

Match each definition that follows with the term (a-h) it defines. -Focuses on a company's ability to generate net income

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.

Match each definition that follows with the term (a-h) it defines. -The percentage analysis of the relationship of each component in a financial statement to a total within the statement

Using vertical analysis of the income statement, a company's net income as a percentage of sales is 15%; therefore, the cost of goods sold as a percentage of sales must be 85%.

A balance sheet that displays only component percentages is a

A company reports the following: Sales............................................................$1,200,000 Average accounts receivable (net)...............50,000? Determine the (a) accounts receivable turnover and (b) number of days' sales in receivables. Round your answers to one decimal place.

An unusual item is often related to current operations and occurs infrequently.

The following selected data were taken from the financial statements of the Winter Group for the three most recent years of operations:​ The Year 3 net income was $242,000, and the Year 2 net income was $308,000. No dividends on common stock were declared during the three years.​ (a)Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders' equity for Years 2 and 3. Round to one decimal place. (b)What conclusion can be drawn from these data as to the company's profitability?

Income statement information for Lucy Company is provided below.​ $\begin{array} { l r } \text { Sales } & \$ 175,000 \\\text { Cost of goods sold } & 105,000 \\\text { Gross profit } & \$ 70,000\end{array}$ Prepare a vertical analysis of the income statement for Lucy Company.

Revenue and expense data for Young Technologies Inc. are as follows:​​ $\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\\text { Sales } & \$ 500,000 & \$ 440,000 \\\text { Cost of goods sold } & 325,000 & 242,000 \\\text { Selling expenses } & 70,000 & 79,200 \\\text { Administrative expenses } & 75,000 & 70,400 \\\text { Income tax expense } & 10,500 & 16,400\end{array}$ (a)Prepare an income statement in comparative form, stating each item for both years as an amount and as a percent of sales. Round to the nearest whole percent. (b)Comment on the significant changes disclosed by the comparative income statement.

When computing the return on common stockholders' equity, preferred stock dividends are subtracted from net income.

Comparative information taken from Friction Company's financial statements is shown below.Using horizontal analysis, show the percentage change and direction (increase or decrease) from Year 1 to Year 2 with Year 1 as the base year.

The following data are taken from the financial statements:? (a)Assuming that credit terms on all sales are n/45, determine for each year: (1)Accounts receivable turnover (2)Number of days' sales in receivables (Round intermediate calculation to the nearest whole number and your final answer to two decimal places.) (b)Comment on any significant trends revealed by the data.