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Exam 12: Financial Statement Analysis

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Question 51

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

A) 10%.
B) 20%.
C) 50%.

D) All of the above
E) None of the above

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Question 52

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Return on assets equals:

A) Gross profit ratio × Inventory turnover.
B) Profit margin × Inventory turnover.
C) Gross profit ratio × Asset turnover.
D) Profit margin × Asset turnover.

E) A) and B)
F) B) and C)

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Question 53

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

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

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

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

All of the following are profitability ratios except:

Using horizontal analysis,if the base year is negative and the following year is positive,the percentage change is just as useful as if the base year and the following year were both positive.If the base year is negative and the following year is positive,the percentage change is not useful.

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

The acid-test ratio is:

Conservative accounting practices are those that result in reporting higher income,higher assets,and lower liabilities.Conservative accounting practices are those that result in reporting lower income,lower assets,and higher liabilities.

Return on equity is calculated by dividing the stock return by average stockholders' equity.Return on equity is calculated by dividing net income by average stockholders' equity.

Which of the following is an aggressive accounting practice?

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

A larger estimation of the allowance for uncollectible accounts,the write-down of overvalued inventory and the use of a shorter useful life for depreciation are all examples of conservative accounting.

We report discontinued items separately,net of taxes,near the bottom of the income statement.

Comparing changes in net income for one company over time is an example of:

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

The price-earnings (PE) ratio is calculated as:

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