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Exam 12: Financial Statement Analysis

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Question 41

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A partial balance sheet for Captain D's Sportswear is shown below.(dollars in thousands) The current ratio is (rounded to two decimal places) : $\begin{array} { | l | r | l | r | } \hline \text { Assets: } & & \text { Liabilities: } & \\\hline \text { Cash } & \$ 60 & \text { Accounts payable } & \$ 240 \\\hline \text { Accounts receivable (net) } & 170 & \text { Other liabilities } & \underline{ 80 } \\\hline \text { Investments } & 50 & \text { Total current liabilities } & 320 \\\hline \text { Inventory } & 200 & \text { Long-term liabilities } & \underline { 110 } \\\hline \text { Prepaid rent } & \underline{25} & \text { Total liabilities } & \underline { 430 } \\\hline \text { Total current assets } & \underline { 505 } & \text { Stockholders' equity: } & \\\hline \text { Property \& Equipment, (net) } & \underline { 255 } & \text { Common stock } & 150 \\\hline & & \text { Retained earnings } & \underline { 180 } \\\hline &\_\_\_ & \text { Total stockholders' equity } & \underline { 330 } \\\hline \text { Total assets } & \underline{\$ 760} & \text { Total liabilities and equity } & \underline{\$ 760} \\\hline\end{array}$

A) 1.98.
B) 1.58.
C) 1.17.

D) A) and C)
E) None of the above

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Question 42

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Excerpts from TPX Company's December 31,2018 and 2017,financial statements are presented below: TPX Company's 2018 gross profit ratio is: $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 80,000 & \$ 72,000 \\\hline \text { Inventory } & 84,000 & 70,000 \\\hline \text { Net sales } & 400,000 & 372,000 \\\hline \text { Cost of goods sold } & 254,000 & 216,000 \\\hline \text { Total assets } & 850,000 & 810,000 \\\hline \text { Total stockholders' equity } & 500,000 & 450,000 \\\hline \text { Net income } & 75,000 & 56,000 \\\hline\end{array}$

A) 57.5%.
B) 36.5%.
C) 63.5%.

D) A) and C)
E) A) and B)

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Question 43

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Which of the following is not a common type of comparison in accounting?

Profit margin measures the income earned on each dollar of sales,and is calculated by dividing net income by net sales.

______ analysis identifies the relative contribution made by each financial statement line item.

Which of the following types of analysis allows for the comparison of financial statement items between companies of different size?

Which of the following is a negative sign that a company is not selling its inventory quickly?

Return on assets is calculated as net income divided by ending total assets.Return on assets is calculated as net income divided by average total assets.

Which of the following statements is not true?

Changes in accounting estimates usually have no effect on a company's underlying cash flows.

The average days in inventory converts the inventory turnover ratio into days.

Richard's Sporting Goods reports net income of $100,000,net sales of $500,000,and average assets of $1,000,000.The asset turnover is:

When using vertical analysis,we express balance sheet accounts as a percentage of

Which of the following is a sign that a company can quickly turn its receivables into cash?

Which of the following is a result of aggressive accounting practices?

Aggressive accounting practices result in reporting higher income,higher assets,and lower liabilities.

Excerpts from Stealth Company's December 31,2018 and 2017,financial statements are presented below: Stealth Company's 2018 return on equity is (rounded to one decimal place) : $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 40,000 & \$ 36,000 \\\hline \text { Inventory } & 28,000 & 36,000 \\\hline \text { Net sales } & 190,000 & 186,000 \\\hline \text { Cost of goods sold } & 114,000 & 108,000 \\\hline \text { Total assets } & 425,000 & 405,000 \\\hline \text { Total stockholders' equity } & 240,000 & 225,000 \\\hline \text { Net income } & 32,500 & 28,000 \\\hline\end{array}$

Nerf Mania reports net income of $500,000,net sales of $4,000,000,and average assets of $2,000,000.The profit margin is:

We calculate the times interest earned ratio by dividing net income by interest expense.We calculate the times interest earned ratio by dividing net income before interest expense and income taxes by interest expense.

For vertical analysis,we express each balance sheet item as a percentage of sales.For vertical analysis,we express each balance sheet item as a percentage of total assets.