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Exam 17: Analysis of Financial Statements

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Question 41

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

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verified

The purpose of financial statement analy...

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Question 42

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

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Question 43

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

The ability to generate positive market expectations is called:

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

External users of accounting information manage and operate the company.

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

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

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

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:

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

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

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

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. $\begin{array}{|l|r|r|}\hline & \mathbf{2 0 1 7} &2016 \\\hline \text { Net sales } & \$ 276,200 & \$ 231,400 \\\hline \text { Cost of goods sold } & 151,900 & 129,590 \\\hline \text { Operating expenses } & 55,240 & 53,240 \\\hline \text { Net earnings } & 27,820 & 19,820\\\hline\end{array}$

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

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

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

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