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Exam 17: Analysis of Financial Statements

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Question 41

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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:

A) 0.15 times
B) 7.5 times
C) 10.6 times
D) 4.0 times
E) 6.5 times

F) C) and E)
G) B) and D)

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Question 42

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Refer to the following selected financial information from McCormik, LLC. Compute the company's working capital for Year 2. $\begin{array}{|l|r|r|}\hline & \text { Year 2 } & {\text { Year 1 }} \\\hline \text { Cash } & \$ 37,500 & 36,850 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100 & 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\hline \text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,000 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$

A) $111,700.
B) $220,600.
C) $147,200.
D) $142,700.
E) $232,700.

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

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Question 43

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The current ratio is calculated as current liabilities divided by current assets.

Comparative financial statements in which each individual financial statement amount is expressed as a percentage of a base amount are called:

The ability to provide financial rewards sufficient to attract and retain financing is called:

Evaluation of company performance does not include analysis of (1)past and current performance, (2)current financial position, and (3)future performance and risk.

A corporation reported cash of $14,000 and total assets of $178,300. Its common-size percent for cash equals 7.85%.

Explain the purpose of financial statement analysis for both external and internal users.

A corporation reports the following year-end balance sheet data. The company's equity ratio equals: $\begin{array} { l | r | l | r } \hline\text { Cash } & \$ 40,000 & \text { Curtent liabilities } & \$ 75,000 \\\hline \text { Accounts receivable } & 55,000 & \text { Iong-term liabilities } & \mathbf { 3 5 , 0 0 0 } \\\hline \text { Inventory } & 60,000 & \text { Common stock } & 100,000 \\\hline \text { Equipment } & \underline { 145,000 } & \text { Retaned eamings } & 90,000 \\\hline \text { Total assets } & \underline { \$3 00,000 } & \text { Total liabilities and equity } & \$ 300,000 \\\hline\end{array}$

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

Use the following selected information from Wheeler, LLC to determine the 2017 and 2016 common size percentages for operating expenses using Net sales as the base. $\begin{array}{|l|r|r|}\hline & \mathbf{2 0 1 7} &2016 \\\hline \text { Net sales } & \$ 276,200 & \$ 231,400 \\\hline \text { Cost of goods sold } & 151,900 & 129,590 \\\hline \text { Operating expenses } & 55,240 & 53,240 \\\hline \text { Net earnings } & 27,820 & 19,820\\\hline\end{array}$

The ability to generate positive market expectations is called:

All of the following statements regarding a business segment are true except:

Describe the purpose of horizontal financial statement analysis and how it is applied.

Vertical analysis is the comparison of a company's financial condition and performance across time.

Profitability is the ability to provide financial rewards sufficient to attract and retain financing.

Refer to the following selected financial information from Graceworks Corp. Compute the company's inventory turnover for Year 2. $\begin{array}{|l|r|r|}\hline & \text { Year 2 } & {\text { Year 1 }} \\\hline \text { Merchandise inventory } & 271,000 & 253,500 \\\hline \text { Cost of goods sold } & 486,400 & 433,100\\\hline\end{array}$

Match each of the following terms with the appropriate formulas. - $\frac{\text {Net sales - Cost of goods sold }}{\text {Net sales }}$

Use the following selected information from Wheeler, LLC to determine the 2017 and 2016 common size percentages for cost of goods sold using Net sales as the base. $\begin{array}{|l|r|r|}\hline & \mathbf{2 0 1 7} &2016 \\\hline \text { Net sales } & \$ 276,200 & \$ 231,400 \\\hline \text { Cost of goods sold } & 151,900 & 129,590 \\\hline \text { Operating expenses } & 55,240 & 53,240 \\\hline \text { Net earnings } & 27,820 & 19,820\\\hline\end{array}$

External users of accounting information manage and operate the company.