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Exam 13: Analyzing and Interpreting Financial Statements

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Question 51

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In order to be classified as an extraordinary gain or loss,the item must be both (1)________ and (2)________.

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unusual; infrequent ...

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Question 52

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A component of operating efficiency and profitability,calculated by expressing net income as a percent of net sales,is the:

A) Acid-test ratio.
B) Merchandise turnover.
C) Price earnings ratio.
D) Accounts receivable turnover.
E) Profit margin ratio.

F) None of the above
G) B) and E)

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Question 53

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For the following financial statement items,calculate trend percentages using Year 1 as the base year: $\begin{array} { l r r r r r } & \text { Year 5 } & \text { Year 4 } & \text { Year 3 } & \text { Year 2 } & \text { Year 1 } \\\text { Sales } & \$ 1,195,400 & \$ 1,118,000& \$ 1,049,000 & \$ 963,200 & \$ 860,000 \\\text { Cost of sales } & 752,400& 704,000& 671,000 & 616,700 & 559,000\\\text { Gross profit } & \$ 443,000 & \$ 414,000 & \$ 378,000 & \$ 346,500 & \$ 301,000\end{array}$

The higher the accounts receivable turnover,the more quickly accounts receivable are collected.

A corporation reports the following year-end balance sheet data.The company's debt ratio equals: $\begin{array} { l r l r r } \text { Cash } & \$ 40,000 & \text { Current liabilities } & \$ 5,000 \\\text { Accourts receivable } & 55,000 & \text { Long-temn liabilities } & 35,000 \\\text { Irventory } & 60,000 & \text { Cormon stock } & 100,000 \\\text { Equiprment } & \underline{145,000} & \text { Retaired earnirgs } & \underline{90,000} \\\text { Total assets } & \underline{\$ 300,000} & \text { Total liabilities ard equity } & \underline{\$ 300,000}\end{array}$

Martinez Corporation reported Net sales of $765,000 and Net income of $142,000.The Profit margin is:

The common-size percent is computed by:

Three of the most common tools of financial analysis include horizontal analysis,vertical analysis,and ratio analysis.

The following selected financial information for a company was reported for the current year end.Calculate the following company ratios: (a)Accounts receivable turnover. (b)Inventory turnover. (c)Days' sales uncollected Accounts receivable,beginning-year…………….$170,000 Accounts receivable,year-end…………………… 190,000 Merchandise inventory,beginning-year………….80,000 Merchandise inventory,year-end………………… 60,000 Cost of goods sold………………………………...580,000 Credit sales………………………………………...1,000,000

Graphical analysis of the balance sheet can be useful in assessing sources of financing.

An advantage of common-size statements is that they reflect the dollar magnitude (size)of the different companies under analysis.

Dividing Accounts receivable,net by Net sales and multiplying the result by 365 is the:

The ability to generate future revenues and meet long-term obligations is referred to as:

Refer to the following selected financial information from Marston Company.Compute the company's accounts receivable turnover for Year 2. $\begin{array}{lrr}& \text { Year 2 } & \text { Year 1 } \\\text { Accounts receivable, net } & 86,500 & 82,750 \\\text { Net sales }& 723,000 & 693,000\end{array}$

Internal users of accounting information make the strategic and operating decisions of a company.

A trend percent,or index number,is calculated by dividing the analysis period amount by the base period amount and multiplying the result by 100.

Desjardin Landscaping's income statement reports net income of $75,300,which includes deductions for interest expense of $11,500 and income taxes of $34,900.Its times interest earned is:

Use the following selected information from Wheeler,LLC to determine the 2018 and 2017 common size percentages for cost of goods sold using Net sales as the base. $\begin{array}{lrrl}&2018&&2017\\Net ~sales&\$ 276,200& & \$ 231,400 \\Cost ~of ~goods ~sold&151,90 0 & & 129,590 \\Operatirg ~expenses&55,240 & & 53,240 \\Net ~earmirgs&27,820 & & 19,820\end{array}$

The percent change of a comparative financial statement item is computed by subtracting the analysis period amount from the base period amount,dividing the result by the base period amount and multiplying that result by 100.

Yeats Corporation's sales in Year 1 were $396,000 and in Year 2 were $380,000.Using Year 1 as the base year,the percent change for Year 2 compared to the base year is: