Q&A Hero

Q: The number of days' sales in inventory is one means of expressing the relationship between the cost of merchandise sold and merchandise inventory. a. True b. False

Q: Using vertical analysis of the income statement, a company's net income as a percentage of sales is 15%; therefore, the cost of merchandise sold as a percentage of sales must be 85%. a. True b. False

Q: The auditor's report is where the auditor certifies that the financial statements present fairly the financial position, results of operations, and cash flows of the company. a. True b. False

Q: When you are interpreting financial ratios, it is useful to compare a company's ratios to the same ratios from a prior period or to the ratios of another company in the same industry. a. True b. False

Q: When a corporation discontinues a segment of its operations at a loss, the loss should be reported as a separate item after income from continuing operations on the income statement. a. True b. False

Q: The excess of current assets over current liabilities is referred to as working capital. a. True b. False

Q: When computing the return on common stockholders' equity, preferred stock dividends are subtracted from net income. a. True b. False

Q: Ratios and various other analytical measures are not a substitute for sound judgment, nor do they provide definitive guides for action. a. True b. False

Q: The number of days' sales in receivables is one means of expressing the relationship between average daily sales and accounts receivable. a. True b. False

Q: In horizontal analysis, the current year is the base year. a. True b. False

Q: Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency, profitability, and liquidity. a. True b. False

Q: Unusual items affecting the current periods income statement consist of changes in accounting principles and discontinued operations. a. True b. False

Q: The ratio of fixed assets to long-term liabilities provides a measure of a firms ability to pay dividends. a. True b. False

Q: If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been an acceleration in the collection of receivables. a. True b. False

Q: The denominator for the computation of the return on total assets is average total assets. a. True b. False

Q: The relationship of each asset item as a percent of total assets is an example of vertical analysis. a. True b. False

Q: A financial statement showing each item on the statement as a percentage of one key item on the statement is called a common-sized financial statement. a. True b. False

Q: The report on internal control required by the Sarbanes-Oxley Act of 2002 may be prepared by either management or the companys auditors. a. True b. False

Q: A firm selling food should have a higher inventory turnover rate than a firm selling office furniture. a. True b. False

Q: On a common-sized income statement, all items are stated as a percent of total assets or equities at year-end. a. True b. False

Q: Vertical analysis refers to comparing the financial statements of a single company over several years. a. True b. False

Q: If a firm has a quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase. a. True b. False

Q: In a common-sized income statement, each item is expressed as a percentage of net income. a. True b. False

Q: An unusual item is often related to current operations and occurs infrequently. a. True b. False

Q: A 15% change in sales will result in a 15% change in net income. a. True b. False

Q: Reporting unusual items separately on the income statement allows investors to isolate the effects of these items on income and cash flows. a. True b. False

Q: Unusual items affecting the prior periods income statement consist of changes in or errors in applying accounting principles. a. True b. False

Q: Earnings per share amounts are only required to be presented for income from continuing operations and net income on the face of the statement. a. True b. False

Q: Using measures to assess a business's ability to pay its current liabilities is called current position analysis. a. True b. False

Q: In computing the asset turnover ratio, the numerator is net income. a. True b. False

Q: The analysis of increases and decreases in the amount and percentage of comparative financial statement items is referred to as horizontal analysis. a. True b. False

Q: If Epsilon Company's price-earnings ratio on common stock is greater than Iota Company's, then Iota Company would be expected to have the best potential for future common stock price appreciation. a. True b. False

Q: The effects of differences in accounting methods are of little importance when analyzing comparable data from competing businesses. a. True b. False

Q: A company can compare its financial data to the data of other companies and industry averages to evaluate its position. a. True b. False

Q: A clean audit opinion is not the same as an unmodified opinion. a. True b. False

Q: Dollar amounts of working capital are difficult to assess when comparing companies of different sizes or in comparing such amounts with industry figures. a. True b. False

Q: When the return on total assets is greater than the return on common stockholders' equity, the management of the company has effectively used leverage. a. True b. False

Q: In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities. a. True b. False

Q: Current position analysis is used by short-term creditors to assess how quickly they will be repaid. a. True b. False

Q: If a firm has a current ratio of 2, the subsequent collection of a 60-day note receivable on account will cause the ratio to decrease. a. True b. False

Q: Solvency analysis focuses on the ability of a business to pay its long-term liabilities. a. True b. False

Q: Comparative financial statements are designed to compare the financial statements of two or more corporations. a. True b. False

Q: If two companies have the same current ratio, their ability to pay short-term debt is the same. a. True b. False

Q: A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for creditors. a. True b. False

Q: The return on total assets measures the profitability of total assets, without considering how the assets are financed. a. True b. False

Q: The ratio of the market price per share of common stock on a specific date to the annual earnings per share is referred to as the price-earnings ratio. a. True b. False

Q: The ratio of the sum of cash, receivables, and temporary investments to current liabilities is referred to as the current ratio. a. True b. False

Q: In computing the return on total assets, interest expense is subtracted from net income before dividing by average total assets. a. True b. False

Q: The dividend yield is equal to the dividends per share divided by the par value per share of common stock. a. True b. False

Q: An increase in the accounts receivable turnover may be due to a change in how credit is granted and/or in collection practices. a. True b. False

Q: Comparing dividends per share to earnings per share indicates the extent to which the corporation is retaining its earnings for use in operations. a. True b. False

Q: If a company has issued only one class of stock, the earnings per share are determined by dividing net income plus interest expense by the number of shares outstanding. a. True b. False

Q: An advantage of the current ratio is that it considers the makeup of the current assets. a. True b. False

Q: In a company's annual report, the section called Management's Discussion and Analysis provides critical information for interpreting the financial statements and assessing the future of the company. a. True b. False

Q: Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in inventory management. a. True b. False

Q: A balance sheet shows cash, $75,000; temporary investments, $115,000; accounts receivable, $150,000; inventories, $222,500; and accounts payable, $225,000. The current ratio is 2.5. a. True b. False

Q: Analyzing a company's performance should take into account conditions peculiar to the industry and the general economic conditions. a. True b. False

Q: A company reports the following:Sales$1,200,000Average accounts receivable (net)50,000Determine (a) the accounts receivable turnover and (b) the number of days sales in receivables. (Round answers to one decimal place.)

Q: The balance sheet for Seuss Company at the end of the current fiscal year indicated the following:Bonds payable, 10% (20-year term)$5,000,000Preferred 10% stock, $100 par1,000,000Common stock, $10 par2,000,000Income before income tax was $1,500,000, and income taxes were $200,000 for the current year. Cash dividends paid on common stock during the current year totaled $150,000. The common stock sells for $75 per share at the end of the year.Determine each of the following:a. Times interest earnedb. Earnings per share on common stockc. Price-earnings ratiod. Dividends per share of common stocke. Dividend yieldRound to one decimal place except earnings per share and dividends per share, which should be rounded to two decimal places.

Q: Gallant Company reported net income of $2,500,000. The income statement included a $200,000 loss on discontinued operations, after applicable income tax. There were 100,000 shares of $10 par common stock and 40,000 shares of 4% preferred stock of $100 par outstanding throughout the current year. Prepare the earnings per share section of Gallant Companys income statement.

Q: The following information has been condensed from the December 31 balance sheets of Gabriel Co.: Year 2 Year 1Assets: Current assets$ 825,500$ 674,300 Fixed assets (net) 1,473,600 1,275,300Total assets$2,299,100$1,949,600 Liabilities: Current liabilities$ 313,500$ 309,600 Long-term liabilities 703,000 545,000Total liabilities$1,016,500$ 854,600Stockholders' equity$1,282,600$1,095,000Total liabilities and stockholders' equity$2,299,100$1,949,600a. Determine the ratio of fixed assets to long-term liabilities for each year.b. Determine the ratio of liabilities to stockholders' equity for each year.c. Comment on the year-to-year changes for both ratios.(Round answers to two decimal places.)

Q: Why would you or why wouldnt you compare an organization like Ford Motor Company to the local car dealer Johnson City Ford/Lincoln/Mercury using vertical and horizontal analysis?

Q: A company reports the following:Net income$270,000Preferred dividends$10,000Shares of common stock outstanding20,000Market price per share of common stock$36.40Determine the companys price-earnings ratio. (Round to one decimal place.)

Q: The following items are reported on Denver Companys balance sheet:Cash$190,000Marketable securities160,000Accounts receivable (net)240,000Inventory350,000Accounts payable600,000Determine (a) the current ratio and (b) the quick ratio. (Round answers to one decimal place.)

Q: What is a major advantage of using percentages rather than dollar changes in doing horizontal and vertical analyses?

Q: Abigail Company reports the following:Net income$ 295,000Preferred dividends30,000Average stockholders’ equity1,000,000Average common stockholders’ equity 700,000Determine (a) the return on stockholders equity and (b) the return on common stockholders equity. (Round answers to one decimal place.)

Q: The following information was taken from the financial statement of Fox Resources for December 31 of the current fiscal year:Common stock, $20 par value (no change during the year)$5,000,000Preferred 10% stock, $40 par (no change during the year)2,000,000The net income was $600,000, and the declared dividends on the common stock were $125,000 for the current year. The market price of the common stock is $20 per share.Determine for the common stock:a. Earnings per shareb. Price-earnings ratioc. Dividends per shared. Dividend yield(Round to one decimal place except earnings per share, which should be rounded to two decimal places.)

Q: Income statement information for Lucy Company is as follows: Sales $175,000 Cost of merchandise sold 105,000 Gross profit $ 70,000 Prepare a vertical analysis of the income statement for Lucy Company.

Q: A company reports the following income statement and balance sheet information for the current year: Net income $ 180,000 Interest expense 20,000 Average total assets 2,000,000 Determine the return on total assets.

Q: Condensed data taken from the ledger of St. Louis Company at December 31, for the current and preceding years, are as follows: Year 2 Year 1Current assets$160,000$130,000Property, plant, and equipment450,000400,000Intangible assets20,70030,000Current liabilities70,00080,000Long-term liabilities210,000250,000Common stock225,000150,000Retained earnings125,70080,000Prepare a comparative balance sheet, with horizontal analysis, for December 31, Year 2 and Year 1. (Round percentages to one decimal place.)

Q: Comparative information taken from Friction Company's financial statements is as follows: Year 2 Year 1a.Notes receivable$ 25,500$ 30,000b.Accounts receivable106,20090,000c.Retained earnings77,00070,000d.Sales654,000600,000e.Operating expenses160,000200,000f.Income taxes payable28,00020,000Using horizontal analysis, show the percentage change and direction (increase or decrease) from Year 1 to Year 2 with Year 1 as the base year.

Q: The following data are taken from the financial statements: Current YearPreceding YearSales$3,600,000$4,000,000Cost of merchandise sold 2,000,000 2,700,000Average merchandise inventory 372,000 352,000a. Determine for each year:(1) Inventory turnover (Round answer to one decimal place.)(2) Number of days sales in inventory (Round intermediate computation to the nearest whole number and the final answer to two decimal places.)b. What conclusions can be drawn from these data concerning the inventories?

Q: Cash and accounts receivable for Ashfall Co. are as follows: Current YearPrior YearCash$62,400$58,000Accounts receivable (net) 42,000 50,000Based on this information, what is the amount and percentage of increase or decrease that would be shown on a balance sheet with horizontal analysis? Round percentages to one decimal place.

Q: A company reports the following: Sales $2,520,000 Average total assets 1,400,000 Determine the asset turnover ratio. (Round to one decimal place.)

Q: The following items are reported on a companys balance sheet: Cash $400,000 Marketable securities 50,000 Accounts receivable 150,000 Inventory 200,000 Accounts payable 250,000 Determine (a) the current ratio and (b) the quick ratio. (Round answers to one decimal place.)

Q: A company reports the following: Sales $720,000 Average accounts receivable (net) 45,000 Determine (a) the accounts receivable turnover and (b) the number of days sales in receivables. (Round answers to one decimal place.)

Q: CorpCo gathered the following information as of the end of the current fiscal year: Dividends on common stock $125,000 Market price per share of common stock $115 Shares of common stock outstanding 5,000 Dividends on preferred stock $65,000 Shares of preferred stock outstanding 600 Earnings per share on common stock $102 Dividends per share of common stock $25 Net income $575,000 What is CorpCo's dividend yield? Give the answer as a percent (rounded to one decimal place).

Q: Revenue and expense data for Bluestem Company are as follows: Year 2 Year 1Administrative expenses$ 37,000$ 20,000Cost of merchandise sold350,000320,000Income tax expense 40,00032,000Sales800,000700,000Selling expenses150,000110,000a. Prepare a comparative income statement, with vertical analysis, stating each item for both years as a percent of sales. (Round percentages to one decimal place.)b. Comment on significant changes disclosed by the comparative income statement.

Q: The following items were taken from the financial statements of Tilden, Inc., over a 3-year period:Item Year 3 Year 2 Year 1Sales $360,000$335,000$290,000Cost of merchandise sold 225,000 205,000 185,000Gross profit $135,000 $130,000 $105,000Compute the following for each of the items listed:a. The amount and percentage change from Year 2 to Year 3.b. The amount and percentage change from Year 1 to Year 2.(Round percentages to one decimal place.)

Q: A company reports the following: Net income $ 350,000 Preferred dividends 50,000 Average stockholders equity 1,000,000 Average common stockholders equity 800,000 Determine the (a) return on stockholders equity and (b) return on common stockholders equity. (Round percentages to one decimal place.)