29) Data for Martin Corp. and Tante, Inc. follow:
Martin Tante
Net Sales $25,000 $32,500
Cost of Goods Sold 18,500 22,360
Other Expenses 2,150 5,000
Net Income $4,350 $5,140
Prepare a comparative common-size income statement for each company for the year ending December
31, 2019. Round to two decimal places. Use a multi-step format for the income statement.
30) What is a common-size statement? Why are these statements useful?
31) Benchmarking is the practice of comparing a company with other leading companies.
32) Benchmarking is the comparison of a company’s current year results with a previous year‘s
performance.
33) Benchmarking often compares a company against a key competitor or the industry average.
34) In regards to benchmarking, which of the following statements is incorrect?
A) Benchmarking is the practice of comparing a company with other leading companies.
B) The industry average is not a useful benchmark for evaluating a company.
C) Providing common-size percentages in a graphical manner highlights differences.
D) The two main types of benchmarks in financial statement analysis include benchmarking against the
industry average and benchmarking against a key competitor.
35) In regards to benchmarking, which of the following statements is correct?
A) The two main types of benchmarks in financial statement analysis include benchmarking against a
prior year of the same company and benchmarking against a key competitor.
B) Benchmarking is the practice of comparing a company with information provided by the Financial
Standards Accounting Board.
C) The Risk Management Association provides common-size statements for most industries.
D) It is not helpful to provide common-size percentages in a graphical manner.
1) No single ratio tells the whole picture of any company’s performance.
2) Online financial databases provide data on companies which allows investors to compare the
companies’ future earnings.
3) Ratios can be used to analyze a company’s ability to pay long-term debt.
4) Which of the following is NOT a purpose of using of using ratios to explain different aspects of a
company?
A) evaluating profitability
B) evaluating stock as an investment
C) evaluating the ability to pay current liabilities
D) evaluating income tax return information
5) Working capital measures a business’s ability to meet its long-term obligations with its current assets.
6) The current ratio is calculated as total current assets divided by total current liabilities.
7) A high current ratio indicates that current liabilities are greater than current assets.
8) The cash ratio helps to determine a company’s ability to meet its short-term obligations using cash and
cash equivalents.
9) The acid-test ratio measures a company’s ability to pay all its current liabilities if they came due
immediately.
10) Merchandise inventory and prepaid expenses are excluded from the acid-test ratio.
11) The current ratio may indicate that the company is using its assets effectively.
12) Which of the following is NOT a decision tool based on working capital?
A) cash ratio
B) acid-test ratio
C) current ratio
D) dividend payout ratio
13) The financial statements of Carrier Office Furniture Company include the following items:
2019
2018
Cash
$42,500
$42,000
Short-term Investments
28,000
19,000
Net Accounts Receivable
102,000
98,000
Merchandise Inventory
166,000
148,000
Total Assets
527,000
547,000
Total Current Liabilities
273,000
285,000
Long-term Note Payable
64,000
60,000
What is working capital for 2019?
A) $190,000
B) $65,500
C) $37,500
D) $100,500
14) The financial statements for Uptown Service Company include the following items:
2019
2018
Cash
$50,500
$40,000
Short-term Investments
32,000
11,000
Net Accounts Receivable
52,000
55,000
Merchandise Inventory
157,000
49,000
Total Assets
531,000
554,000
Accounts Payable
124,500
124,000
Salaries Payable
16,000
18,000
Long-term Note Payable
56,000
52,000
Compute working capital for 2019.
A) $135,000
B) $95,000
C) $151,000
D) $31,000
15) The financial statements for Barrington Service Company include the following items:
2019
2018
Cash
$43,500
$47,000
Short-term Investments
31,000
16,000
Net Accounts Receivable
62,000
56,000
Merchandise Inventory
165,000
51,000
Total Assets
525,000
544,000
Accounts Payable
126,500
130,000
Salaries Payable
24,000
16,000
Long-term Note Payable
61,000
51,000
Compute the current ratio for 2018. (Round answer to two decimal places.)
A) 1.16
B) 0.86
C) 3.73
D) 6.55
16) The financial statements of Trenton Office Supply include the following items:
2019
2018
Cash
$47,500
$49,000
Short-term Investments
24,000
14,000
Net Accounts Receivable
102,000
100,000
Merchandise Inventory
127,000
126,000
Total Assets
525,000
546,000
Total Current Liabilities
253,000
238,000
Long-term Note Payable
55,000
50,000
What is the 2019 current ratio? (Round your answer to two decimal places.)
A) 0.84
B) 0.57
C) 1.19
D) 1.70
17) The financial statements of Denison Furniture Company include the following items:
2019
2018
Cash
$53,500
$53,000
Short-term Investments
29,000
15,000
Net Accounts Receivable
92,000
105,000
Merchandise Inventory
162,000
142,000
Total Assets
532,000
551,000
Total Current Liabilities
235,000
215,000
Long-term Note Payable
62,000
60,000
What is the 2019 cash ratio? (Round your answer to two decimal places)
A) 0.18
B) 0.10
C) 0.35
D) 0.23