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Exam 15: Financial Statement Analysis

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Question 51

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Interpreting financial analysis should be considered in light of conditions peculiar to the industry and the general economic conditions.

A) True
B) False

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Question 52

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-Based on the above data,what is the amount of quick assets?

A) $205,000
B) $203,000
C) $131,000
D) $66,000

E) A) and C)
F) A) and B)

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Question 53

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Unusual items affecting the prior period's income statement consist of errors and changes in accounting principles.

The following selected data were taken from the financial statements of the Winter Group for the three most recent years of operations: $\begin{array}{|l|r|r|r|}\hline&\text { Dec. 31, } &\text { Dec. 31, }&\text { Dec. 31, }\\&\text { Year 3 }&\text { Year 2 }&\text { Year 1 }\\\hline \text { Total assets } & \$ 3,000,000 & \$ 2,700,000 & \$ 2,400,000 \\\hline \text { Notes payable } 10 \% \text { interest } & 1,000,000 & 1,000,000 & 1,000,000 \\\hline \text { Common stock } & 400,000 & 400,000 & 400,000 \\\hline \text { Preferred } \$ 6 \text { stock, } \$ 100 \text { par } & 200,000 & 200,000 & 200,000 \\\hline \text { Retained earnings } & 1,126,000 & 896,000 & 600,000 \\\hline\end{array}$ 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 3 years. a. Determine the rate earned on assets,the rate earned on stockholders' equity,and the rate earned 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?

The balance sheets at the end of each of the first two years of operations indicate the following: -If net income is $150,000 and interest expense is $20,000 for Year 2,what is the rate earned on stockholders' equity for Year 2?

One reason that a common-sized statement is a useful tool in financial analysis is that it enables the user to

If a company has issued only one class of stock,the earnings per share are determined by dividing net income plus interest expense by the number of shares outstanding.

Selected data from the Carmen Company at year end are presented below: $\begin{array}{lr}\text { Total assets } & \$ 2,000,000 \\\text { Average total assets } & 2,200,000 \\\text { Net income } & 250,000 \\\text { Sales } & 1,300,000 \\\text { Average common stockholders' equity } & 1,000,000 \\\text { Net cash provided by operating activities } & 275,000 \\\text { Shares of common stock outstanding } & 10,000\end{array}$ Calculate: a ratio of sales to assets; b rate earned on total assets; c rate earned on common stockholders' equity and d earnings per share on common stock.Assume the company had no preferred stock or interest expense.Round percentage values to one decimal place and dollar values to zero decimal place.

A clean audit opinion is the same as a qualified audit opinion.

In a common-sized income statement,100% is the

-Based on the above data,what is the quick ratio,rounded to one decimal point?

Cash and accounts receivable for Ashfall Co.are provided below: $\begin{array}{lrr}& \underline {\text { Current Year }}& \underline {\text { Prior Year}}\\\text { Cash} &\$ 62,400 & \$ 58,000 \\\text { Accounts receivable net} &42,000 & 50,000\end{array}$ Based on this information,what is the amount and percentage of increase or decrease that would be shown on a balance sheet with horizontal analysis?

The numerator of the rate earned on total assets ratio is

Cash and accounts receivable for Adams Company are provided below: $\begin{array}{lrr}&\underline {\text { Current Year}}&\underline {\text { Prior Year}}\\\text { Cash } & \$ 70,000 & \$ 50,000 \\\text { Accounts receivable net } & 70,400 & 80,000\end{array}$ What is the amount and percentage of increase or decrease that would be shown with horizontal analysis?

The particular analytical measures chosen to analyze a company may be influenced by all of the following except

Which of the following is considered an unusual item affecting the prior period's income statement?

The purpose of an audit is to

The number of days' sales in receivables is one means of expressing the relationship between average daily sales and accounts receivable.

Horizontal analysis is a technique for evaluating financial statement data

An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to