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Exam 13: Analysis of Financial Statements

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Question 31

True/False

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The percent change of a comparative financial statement item is computed by subtracting the analysis period amount from the base period amount, dividing the result by the base period amount and multiplying that result by 100.

A) True
B) False

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Question 32

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Use the following selected information from Wheeler, LLC to determine the 2017 and 2016 common size percentages for cost of goods sold using Net sales as the base. $\begin{array} { | l | r | r| } \hline & { 2017 } & { \mathbf { 2 0 1 6 } } \\\hline \text { Net sales } & \$ 276,200 & \$ 231,400 \\\hline \text { Cost of goods sold } & 151,900 & 129,590 \\\hline \text { Operating expenses } & 55,240 & 53,240 \\\hline \text { Net earnings } & 27,82 \mathrm {~d} & 19,820 \\\hline\end{array}$

A) 36.4% for 2017 and 41.1% for 2016.
B) 55.0% for 2017 and 56.0% for 2016.
C) 119.4% for 2017 and 100.0% for 2016.
D) 117.2% for 2017 and 100.0% for 2016.
E) 65.1% for 2017 and 56.0% for 2016.

F) A) and D)
G) All of the above

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Question 33

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Standards for comparisons in financial statement analysis do not include:

Earnings per share are calculated only on income from continuing operations.

Trend analysis is a form of horizontal analysis that can reveal patterns in data across successive periods.

The base amount for a common-size balance sheet is usually total assets.

Evaluation of company performance does not include analysis of (1) past and current performance, (2) current financial position, and (3) future performance and risk.

The debt ratio, the equity ratio, pledged assets to secured liabilities, and times interest earned are all ________ ratios.

The comparison of a company's financial condition and performance to a base amount is known as ________.

When an item has a value in the base period and zero in the analysis period, the decrease is 0 percent.

Net sales divided by Average accounts receivable, net is the:

Powers Company reported Net sales of $1,200,000 and Accounts Receivable, net of $78,500. The Day's sales uncollected (rounded to whole days) is:

A common focus of financial statement users in evaluating a company's performance and financial condition includes evaluating its (1) ________, (2) ________, and (3) ________.

The comparison of a company's financial condition and performance to a base amount is known as:

Express the following balance sheets for Safety Company in common-size percentages. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text {Safety Company}$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text {Balance Sheets}$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text {December 31, 2017 and 2016}$ $\begin{array}{|l|c|c|} \hline & 2017 & 2016 \\\hline \text { Assets } & & \\\hline \text { Cash } & \$ 43,000 & \$ 22,000 \\\hline \text { Accounts receivable } & 38,000 & 42,000 \\\hline \text { Merchandise inventory } & 61,000 & 52,000 \\\hline \text { Prepaid insurance } & 6,000 & 9,000 \\\hline \text { Long-term investments } & 49,000 & 20,000 \\\hline \text { Plant assets (net) } & \underline{218,000} & 218,000 \\\hline \text { Total assets } & \$ 415,000 & \$ 363,000 \\\hline & & \\\hline \text { Liabilities and Equity } & & \\\hline \text { Current liabilities } & \$ 62,000 & \$ 75,000 \\\hline \text { Long-term liabilities } & 45,000 & 36,000 \\\hline\text { Common stock }&150.000&150.000 \\\hline \text { Retained earnings } & 158,000 & 102,000 \\\hline \text { Total liabilities and equity } & \$415,000&\$363,000\\\hline\end{array}$

Trend analysis of financial statement items can include comparisons of relations between items on different financial statements.

Quick assets divided by current liabilities is the:

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.) $\begin{array} { | l | r | r | } \hline & \text { Year 2 } &{ \text { Year 1 } } \\\hline \text { Accounts receivable, net } & 86,500 & 82,750 \\\hline \text { Net sales } & 723,000 & 693,000 \\\hline\end{array}$

The following information is available for the Starr Corporation: $\begin{array} { | l | l | } \hline \text { Sales } & \$ 750,000 \\\hline \text { Cost of goods sold } & 450,000 \\\hline \text { Gross profit } & 300,000 \\\hline \text { Operating income } & 85,000 \\\hline \text { Net income } & 42,000 \\\hline \text { Inventory, beginning-year } & 71,200 \\\hline \text { Inventory, end-of-year } & 48,800 \\\hline\end{array}$ Calculate the company's inventory turnover and its days' sales in inventory.

Dividing Accounts receivable, net by Net sales and multiplying the result by 365 is the: