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164)
Refer to the following selected financial information from Frankle Corp. Compute the company's
working capital.
Current Assets
306,450
Plant assets
338,000
Current Liabilities
107,800
Net sales
676,000
Net Income
75,000
A) $568,200. B) $198,650. C) $230,200. D) $536,650. E) $231,450.
165)
Refer to the following selected financial information from Frankle Corp. Compute the company's
current ratio.
Current assets
306,450
Plant assets
388,000
Current Liabilities
107,800
Net sales
676,000
Net Income
75,000
A) 1.44. B) 3.60. C) 6.27. D) 6.44. E) 2.84.
166)
Refer to the following selected financial information from Dodge Company. Compute the company's
acid-test ratio.
Cash
$42,250
Short-term investments
60,000
Accounts receivable, net
79,500
Merchandise inventory
115,000
Prepaid expenses
9,700
Accounts payable
111,400
A) 1.12. B) 0.92. C) 2.75. D) 1.63. E) 2.66.
167)
Refer to the following selected financial information from Marston Company. Compute the
company's accounts receivable turnover for Year 2.
Year 2
Year 1
Accounts receivable, net
86,500
82,750
Net sales
723,000
693,000
A) 4.78. B) 8.54. C) 8.59. D) 8.36. E) 8.37.
168)
Refer to the following selected financial information from Marston Company. Compute the
company's days' sales uncollected for Year 2. (Use 365 days a year.)
Year 2
Year 1
Accounts receivable, net
86,500
82,750
Net sales
723,000
693,000
A) 42.7. B) 46.2. C) 85.4. D) 43.9. E) 43.7.
169)
Refer to the following selected financial information from Graceworks Corp. Compute the
company's inventory turnover for Year 2.
Year 2
Year 1
Merchandise inventory
271,000
253,500
Cost of goods sold
486,400
433,100
A) 1.71. B) 1.75. C) 0.93. D) 1.79. E) 1.85.
170)
Refer to the following selected financial information from Graceworks, Corp. Compute the
company's days' sales in inventory for Year 2. (Use 365 days a year.)
Year 2
Year 1
Merchandise inventory
271,000
253,500
Cost of goods sold
486,400
433,100
A) 113.3. B) 228.4. C) 203.4. D) 179.5. E) 215.1.
171)
Refer to the following selected financial information from Shakley's Incorporated. Compute the
company's profit margin for Year 2.
Year 2
Year 1
Net sales
$478,500
$426,250
Cost of goods sold
276,300
250,120
Interest expense
9,700
10,700
Net income before tax
67,250
52,680
Net income after tax
46,050
39,900
Total assets
317,100
288,000
Total liabilities
181,400
167,300
Total equity
135,700
120,700
A) 14.1%. B) 33.9%. C) 11.7%. D) 9.6%. E) 16.7%.
172)
Refer to the following selected financial information from Shakley's Incorporated. Compute the
company's return on total assets for Year 2.
Year 2
Year 1
Net sales
$478,500
$426,250
Cost of goods sold
276,300
250,120
Interest expense
9,700
10,700
Net income before tax
67,250
52,680
Net income after tax
46,050
39,900
Total assets
317,100
288,000
Total liabilities
181,400
167,300
Total equity
135,700
120,700
A) 2.6%. B) 15.2%. C) 22.2%. D) 9.6%. E) 14.5%.
173)
Refer to the following selected financial information from Shakley's Incorporated. Compute the
company's debt-to-equity ratio for Year 2.
Year 2
Year 1
Net sales
$478,500
$426,250
Cost of goods sold
276,300
250,120
Interest expense
9,700
10,700
Net income before tax
67,250
52,680
Net income after tax
46,050
39,900
Total assets
317,100
288,000
Total liabilities
181,400
167,300
Total equity
135,700
120,700
A) 0.75. B) 2.63. C) 2.34. D) 1.34. E) 1.75.
174)
Refer to the following selected financial information from Shakley's Incorporated. Compute the
company's times interest earned for Year 2.
Year 2
Year 1
Net sales
$478,500
$426,250
Cost of goods sold
276,300
250,120
Interest expense
9,700
10,700
Net income before tax
67,250
52,680
Net income after tax
46,050
39,900
Total assets
317,100
288,000
Total liabilities
181,400
167,300
Total equity
135,700
120,700
A) 14.0. B) 7.9. C) 4.8. D) 5.8. E) 6.9.
175)
Refer to the following selected financial information from Graphics, Inc. Compute the company's
times interest earned.
Interest expense
$9,100
Income tax expense
22,700
Net income after tax
56,500
A) 9.7. B) 8.7. C) 3.7. D) 2.5. E) 6.2.
176)
Refer to the following selected financial information from Keller Company. Compute the company's
debt to equity for Year 2.
Year 2
Year 1
Total assets
$327,800
$301,000
Total liabilities
171,400
169,300
Total equity
156,400
131,700
A) 1.9. B) 0.5. C) 1.1. D) 0.9. E) 2.1.
91
SHORT ANSWER QUESTIONS
177)
Match each of the following terms with the appropriate definitions.
A. Comparative financial statement
B. Horizontal analysis
C. Liquidity and efficiency
D. Vertical analysis
E. Financial statement analysis
F. Market prospects
G. Solvency
H. Debt to equity ratio
I. Profitability
J. Common-size financial statement
(1) A company's ability to generate positive market expectations.
________ (2) The application of analytical tools to general-purpose financial statements and related
data for making business decisions.
________ (3) A measure of solvency presented as the ratio of total liabilities to total equity.
________ (4) A statement with data for two or more successive accounting periods placed in side-by-
side columns, often with changes shown in dollar amounts and percentages.
________ (5) A company's ability to provide financial rewards sufficient to attract and retain capital.
(6)A statement where each amount is expressed as a percent of a base amount to reveal
the relative importance of each financial statement item.
________ (7) The comparison of a company's financial condition and performance to a base amount.
(8) Examination of financial data across time.
________ (9) A company's ability to generate future revenues and meet long-term obligations.
________ (10) The availability of resources to meet short-term obligations and to efficiently
generate revenues.
178)
Match each of the following terms with the appropriate formulas.
A. Days' sales in inventory
B. Dividend yield
C. Total asset turnover
D. Inventory turnover
E. Return on common stockholders' equity
F. Gross margin ratio
G. Days' sales uncollected
H. Profit margin ratio
I. Times interest earned
J. Debt ratio
________ (1) Net income — Preferred dividends
Average common stockholders' equity
________ (2) Accounts receivable * 365
Net sales
________ (3) Total liabilities
Total assets
________ (4) Income before interest expense and income taxes
Interest expense
________ (5) Annual cash dividends per share
Market price per share
________ (6) Net sales — Cost of goods sold
Net sales
________ (7) Cost of goods sold
Average inventory
________ (8) ______Net sales
Average total assets
________ (9) Net income
Net sales
________ (10) Ending inventory * 365
Cost of goods sold
179)
Identify the financial analysis building block most appropriately associated with each ratio listed
below by placing the letter of the building block a through d beside each ratio 1 through 10. Each
building block may be used more than once.
A. Liquidity and Efficiency
B. Solvency
C. Profitability
D. Market Prospects
________ (1) Price Earnings Ratio
________ (2) Dividend Yield
(3) Accounts Receivable Turnover
(4) Days' Sales in Inventory
________ (5) Return on Total Assets
________ (6) Equity Ratio
________ (7) Debt Ratio
(8) Inventory Turnover
(9) Basic Earnings per Share
________ (10) Times Interest Earned
ESSAY QUESTIONS
180)
Explain the purpose of financial statement analysis for both external and internal users.
181)
Identify and explain the four building blocks of financial statement analysis.
182)
What are the four standards for comparisons in financial analysis? Give an example of each.
183)
Identify and describe three common tools of financial statement analysis.
184)
What is the purpose of a good financial statement analysis report? What are the key components?
185)
Describe the purpose of horizontal financial statement analysis and how it is applied.
186)
Describe the purpose of vertical financial statement analysis and how it is applied.
187)
Describe ratio analysis including its purpose, application, and interpretation.
SHORT ANSWER QUESTIONS
188)
A company's sales in Year 1 were $280,000, and its sales in Year 2 were $341,600. Using Year 1
as the base year, what is the sales trend percent for Year 2?
97
ESSAY QUESTIONS
189)
Calculate the percent increase or decrease for each of the following financial statement items:
Year 2
Year 1
Cash
$ 37,500
$ 30,000
Accounts receivable
63,000
52,500
Inventory
67,500
90,000
Accounts payable
35,100
27,000
Sales
187,500
150,000
Equipment
165,000
125,000
190)
Comparative statements for Warmer Corporation are shown below:
Warmer Corporation
Comparative Income Statements
For the years ended December 31
2018
2017
2016
Sales
$14,800
$13,229
$13,994
Cost of goods sold
8,225
8,661
8,375
Gross profit
6,575
4,568
5,619
Operating expenses
3,664
3,576
3,487
Operating income
$ 2,911
$ 992
$ 2,132
Calculate trend percentages for all income statement amounts shown and comment on the results.
Use 2016 as the base year.Comment on the results.
191)
Calculate the percent increases for each of the following selected balance sheet items.
2018
2017
Cash
$ 569
$ 448
Accounts receivable
2,234
2,337
Merchandise inventory
1,062
1,071
Plant assets
2,432
2,138
Bonds payable
1,164
1,666
Equity
2,777
2,894
192)
For the following financial statement items, calculate trend percentages using 2016 as the base year:
2020
2019
2018
2017
2016
Sales……………………
$1,195,400
$1,118,000
$1,049,000
$963,200
$860,000
Cost of sales…………..
752,400
704,000
671,000
616,700
559,000
Gross profit…………….
$443,000
$414,000
$378,000
$346,500
$301,000
