Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Total liabilities and stockholders' equity
$300,000
Starman Corporation
Income Statement
For the Year Ended December 31, 20xx
Net sales
$400,000
Cost of goods sold
240,000
Gross margin
$160,000
Operating expenses
40,000
Income before income taxes
$120,000
Income taxes expense
30,000
Net income
$ 90,000
What is the return on assets for this corporation? Round your answer to one decimal place.
a.
75.0 percent
b.
53.3 percent
c.
40.0 percent
d.
30.0 percent
59. Following are the financial statements for Starman Corporation for the year ended December 31, 20xx.
Assume that all balance sheet amounts represent both average and ending figures.
Starman Corporation
Balance Sheet
December 31, 20xx
Assets
Cash
$ 20,000
Marketable securities
30,000
Accounts receivable
50,000
Inventory
100,000
Long-term receivables
35,000
Property, plant, and equipment
65,000
Total assets
$300,000
Liabilities and Stockholders' Equity
Current liabilities
$100,000
Long-term liabilities
60,000
Stockholders' equity
140,000
Total liabilities and stockholders' equity
$300,000
Starman Corporation
Income Statement
For the Year Ended December 31, 20xx
Net sales
$400,000
Cost of goods sold
240,000
Gross margin
$160,000
Operating expenses
40,000
Income before income taxes
$120,000
Income taxes expense
30,000
Net income
$ 90,000
What is the profit margin for this corporation? Round your answer to one decimal place.
a.
22.5 percent
b.
30.0 percent
c.
40.0 percent
d.
53.3 percent
60. Holiday Corporation provided these figures for the year ended December 31, 20xx:
Cost of goods sold, $516,117; change in inventory, $67,483 decrease; average accounts payable,
$52,529.
What is the company's payables turnover? Round your answer to one decimal place.
a.
9.1 times
b.
8.5 times
c.
10.9 times
d.
8.0 times
61. Days' payable is a measure of
a.
liquidity.
b.
volatility.
c.
long-term solvency.
d.
profitability.
62. The following information pertains to Jasmin Corporation. Assume that all balance sheet amounts
represent both average and ending figures.
Jasmin Corporation
Partial Balance Sheet
December 31, 20xx
Liabilities and Stockholders' Equity
Current liabilities
$ 60,000
Long-term liabilities
90,000
Stockholders' equity
150,000
Total liabilities and stockholders' equity
$300,000
Jasmin Corporation
Income Statement
For the Year Ended December 31, 20xx
Net sales
$80,000
Cost of goods sold
45,000
Gross margin
$35,000
Operating expenses
15,000
Income before income taxes
$20,000
Income taxes expense
5,000
Net income
$15,000
Jasmin Corporation had 6,000 shares of common stock issued and outstanding. The market price of
Jasmin common stock on December 31, 20xx, was $20. Jasmin paid dividends of $0.90 per share
during 20xx.
What is the return on assets for this corporation? Round your answer to one decimal place.
a.
5.0 percent
b.
10.0 percent
c.
11.7 percent
d.
26.7 percent
63. The following information pertains to Jasmin Corporation. Assume that all balance sheet amounts
represent both average and ending figures.
Jasmin Corporation
Partial Balance Sheet
December 31, 20xx
Liabilities and Stockholders' Equity
Current liabilities
$ 60,000
Long-term liabilities
90,000
Stockholders' equity
150,000
Total liabilities and stockholders' equity
$300,000
Jasmin Corporation
Income Statement
For the Year Ended December 31, 20xx
Net sales
$80,000
Cost of goods sold
45,000
Gross margin
$35,000
Operating expenses
15,000
Income before income taxes
$20,000
Income taxes expense
5,000
Net income
$15,000
Jasmin Corporation had 6,000 shares of common stock issued and outstanding. The market price of
Jasmin common stock on December 31, 20xx, was $20. Jasmin paid dividends of $0.90 per share
during 20xx.
What is the return on equity for this corporation? Round your answer to one decimal place.
a.
5.0 percent
b.
10.0 percent
c.
23.3 percent
d.
53.3 percent
64. The following information pertains to Jasmin Corporation. Assume that all balance sheet amounts
represent both average and ending figures.
Jasmin Corporation
Partial Balance Sheet
December 31, 20xx
Liabilities and Stockholders' Equity
Current liabilities
$ 60,000
Long-term liabilities
90,000
Stockholders' equity
150,000
Total liabilities and stockholders' equity
$300,000
Jasmin Corporation
Income Statement
For the Year Ended December 31, 20xx
Net sales
$80,000
Cost of goods sold
45,000
Gross margin
$35,000
Operating expenses
15,000
Income before income taxes
$20,000
Income taxes expense
5,000
Net income
$15,000
Jasmin Corporation had 6,000 shares of common stock issued and outstanding. The market price of
Jasmin common stock on December 31, 20xx, was $20. Jasmin paid dividends of $0.90 per share
during 20xx.
What is the debt to equity ratio for this corporation? Round your answer to one decimal place.
a.
0.4 times
b.
0.6 times
c.
1.0 times
d.
2.5 times
65. The following information pertains to Jasmin Corporation. Assume that all balance sheet amounts
represent both average and ending figures.
Jasmin Corporation
Partial Balance Sheet
December 31, 20xx
Liabilities and Stockholders' Equity
Current liabilities
$ 60,000
Long-term liabilities
90,000
Stockholders' equity
150,000
Total liabilities and stockholders' equity
$300,000
Jasmin Corporation
Income Statement
For the Year Ended December 31, 20xx
Net sales
$80,000
Cost of goods sold
45,000
Gross margin
$35,000
Operating expenses
15,000
Income before income taxes
$20,000
Income taxes expense
5,000
Net income
$15,000
Jasmin Corporation had 6,000 shares of common stock issued and outstanding. The market price of
Jasmin common stock on December 31, 20xx, was $22.50. Jasmin paid dividends of $0.90 per share
during 20xx.
What is the price/earnings (P/E) ratio for this corporation? Round your answer to 2 decimal places.
a.
8.00 times
b.
10.50 times
c.
7.00 times
d.
9.00 times
66. The following information pertains to Jasmin Corporation. Assume that all balance sheet amounts
represent both average and ending figures.
Jasmin Corporation
Partial Balance Sheet
December 31, 20xx
Liabilities and Stockholders' Equity
Current liabilities
$ 60,000
Long-term liabilities
90,000
Stockholders' equity
150,000
Total liabilities and stockholders' equity
$300,000
Jasmin Corporation
Income Statement
For the Year Ended December 31, 20xx
Net sales
$80,000
Cost of goods sold
45,000
Gross margin
$35,000
Operating expenses
15,000
Income before income taxes
$20,000
Income taxes expense
5,000
Net income
$15,000
Jasmin Corporation had 6,000 shares of common stock issued and outstanding. The market price of
Jasmin common stock on December 31, 20xx, was $20. Jasmin paid dividends of $1.25 per share
during 20xx.
What is the dividends yield of this corporation? Round your answer to two decimal places.
a.
6.25 percent
b.
5.00 percent
c.
7.50 percent
d.
3.75 percent
67. Cash flows to sales and cash flows to assets are measured in terms of
a.
times.
b.
a percentage.
c.
dollars.
d.
days.
68. A company with $50,000 in current assets, $25,000 in quick assets, and $30,000 in current liabilities
makes a payment of a $1,500 current debt. As a result of this transaction, the current ratio and quick
ratio will
a.
both decrease.
b.
increase and decrease, respectively.
c.
both increase.
d.
remain the same and decrease, respectively.
69. Which of the following is a long-term solvency ratio?
a.
Return on equity
b.
Dividends yield
c.
Debt to equity ratio
d.
Payables turnover
70. A high receivable turnover indicates that
a.
many customers are defaulting on their debts.
b.
a large proportion of the company's sales is on cash.
c.
the company's inventory is moving very quickly.
d.
customers are making payments very quickly.
71. The receivable turnover ratio is needed to calculate the
a.
days' sales uncollected.
b.
days' inventory on hand.
c.
inventory turnover.
d.
interest coverage ratio.
72. Which of the following is not a profitability ratio?
a.
Return on equity
b.
Asset turnover
c.
Return on assets
d.
Quick ratio
73. A company that is leveraged is one that
a.
contains debt financing.
b.
contains equity financing.
c.
has a high earnings per share.
d.
has minimized its risk of loss by acquiring a portfolio of investments.
74. The length of the operating cycle equals the days' sales uncollected plus the
a.
days' payable..
b.
days' inventory on hand.
c.
receivable turnover
d.
payables turnover.
SHORT ANSWER
1. Does the existence of conglomerates make financial performance evaluation easier or more difficult?
Why?
2. Lois Kent has owned and managed the operations of a small chain of sporting goods stores for the past
two years. She has asked her administrative assistant to provide her with some annual reports of other
companies that sell sporting goods as well as some published reports showing norms for the sporting
goods industry so that Lois can compare the financial ratios of her company with those of other
companies that sell sporting goods. Discuss the limitations of using comparisons with other companies
and industry norms, which Lois needs to remember.
3. Eva Gomez is considering investing money in the common stock of Casa Corporation. She has
obtained the annual report of the company and calculated the ratios presented in your text. Eva knows
that her calculations are accurate, but does not know if the ratios indicate favorable or unfavorable
things about the company. What three standards of comparison are available to Eva? What would each
of the standards tell her about her ratios?
4. Contrast the circumstances where horizontal analysis would be an effective analysis tool with those
where common-sized analysis would be more useful.
5. The following selected amounts were extracted from the financial statements of Flamingo Corporation.
Year 4
Year 3
Year 2
Year 1
Net sales
$175,000
$170,000
$165,000
$150,000
Cost of goods sold
109,000
104,500
100,500
93,000
Gross margin
66,000
65,500
64,500
57,000
Prepare a trend analysis for net sales, cost of goods sold, and gross margin. (Round answers to the
nearest tenth of 1 percent.) Use Year 1 as the base year.
6. The following selected amounts were extracted from the financial statements of H225 Corporation.
Year 4
Year 3
Year 2
Year 1
Net sales
$350,000
$340,000
$330,000
$300,000
Cost of goods sold
218,000
209,000
201,000
186,000
Gross margin
132,000
131,000
129,000
114,000
Compute the following for net sales, cost of goods sold, and gross margin. (Round answers to the
nearest tenth of 1 percent.)
a. The percentage change from Year 1 to Year 2
b. The percentage change from Year 2 to Year 3
c. The percentage change from Year 3 to Year 4
7. Using the income statement below, develop a common-size statement by filling in the blanks provided.
Show your work. Round to one decimal place.
20xx
20xx
Net sales
$200,000
_________
Cost of goods sold
116,000
_________
Gross margin
$ 84,000
_________
Operating expenses
46,000
_________
Income before income taxes
$ 38,000
_________
Income taxes expense
15,200
_________
Net income
$ 22,800
_________
8. Using the income statement below, develop a common-size statement by filling in the blanks provided.
Show your work. Round to one decimal place.
20xx
20xx
Net sales
$780,000
_________
Cost of goods sold
452,400
_________
Gross margin
$327,600
_________
Operating expenses
156,000
_________
Income before income taxes
$171,600
_________
Income taxes expense
124,800
_________
Net income
$ 46,800
_________
9. Prepare a trend analysis of the following data using Year 1 as the base year. Place your answers in the
chart provided. Comment on the trend.
Year 3
Year 2
Year 1
Net sales
$108,000
$110,000
$100,000
Gross margin
61,040
58,800
56,000
Net income
9,600
10,800
10,000
Year 3
Year 2
Year 1
Net sales
Gross margin
Net income
ANS:
10. Prepare a trend analysis of the following data, using Year 1 as the base year. Place your answers in the
chart provided. Comment on the trend.
Year 3
Year 2
Year 1
Net sales
$324,000
$330,000
$300,000
Net income
33,000
31,800
30,000
Year 3
Year 2
Year 1
Net sales
Net income
11. Prepare a horizontal analysis by computing the amounts and percentage changes for the following
balance sheet items; place your answers in the blanks provided.
Year 2
Year 1
Amount
Percentage
Assets
Current assets
$ 6,500
$ 5,000
Property, plant, and equipment
22,000
25,000
Total assets
$28,500
$30,000
Liabilities and Stockholders' Equity
Liabilities
$ 5,500
$10,000
Stockholders' equity
23,000
20,000
Total liabilities and stockholders' equity
$28,500
$30,000
12. What is vertical analysis, and why is it useful in performing financial performance measurement?
13. What is horizontal analysis, and why is it useful in performing financial performance measurement?
14. Given the following information, calculate the payables turnover and days' payable. Round answers to
two decimal places.
a. Payables turnover
b. Days' payable
15. a. Indicate the effect of a sale of merchandise on account (on credit) on each of the following items.
Assume the selling price exceeds the cost of the inventory. Use “Increase,” “Decrease,” or “No effect”
to express your answer for each, and place your answers in the spaces provided.
Current ratio
Quick ratio
Inventory turnover
Asset turnover
b. Indicate the effect of a payment of an account payable on each of the following items. Assume that
the first two ratios exceeded 1.0 before the transaction. Use “Increase,” “Decrease,” or “No effect” to
express your answer for each, and place your answers in the spaces provided.
Current ratio
Quick ratio
Return on equity
Receivable turnover
16. The following data pertain to Golden State Corporation:
Days' sales uncollected for 2010
25
Accounts receivable, 12/31/2009
$78,000
Accounts receivable, 12/31/2010
$82,000
Calculate the amount of net sales reported for 2010. Use 365 days per year.
