Q&A Hero

Q: Prepare an income statement using the following data for New Orleans Adventures for the year ended December 31, 20Y3:Sales$24,500,000Cost of merchandise sold10,900,000Operating expenses6,300,000Income tax expense500,000Loss on discontinued operations100,000

Q: Zeus Company reports the following for the current year:Income from continuing operations before income tax$500,000 Loss from discontinued operations$90,000* Weighted average number of common shares outstanding40,000 Applicable tax rate40%*Net of any tax effecta. Prepare a partial income statement for Zeus Company beginning with income from continuing operations before income tax expense.b. Compute the earnings per common share for Zeus.

Q: A company reports the following: Cost of merchandise sold $610,000 Average merchandise inventory 80,000 Determine (a) the inventory turnover and (b) the number of days sales in inventory. (Round answers to one decimal place.)

Q: The following data are available for Martin Solutions, Inc.: Year 2 Year 1Sales$1,139,600$1,192,320Beginning merchandise inventory80,00064,000Cost of merchandise sold500,800606,000Ending merchandise inventory72,00080,000a. Determine for each year:(1) Inventory turnover(2) Number of days sales in inventory (Round the intermediate computation to the nearest whole number and the final answer to one decimal place.)b. What conclusions can be drawn from these data concerning the inventories?

Q: What information is generally included in the Management's Discussion and Analysis (MD&A) section of a corporate annual report?

Q: Rho, Sigma, and Tau companies have the following data for the current year: Rho CompanySigma CompanyTau CompanyPrice-earnings ratio23.716.930.1Which company would be expected to have the best potential for future common stock price appreciation?

Q: The following data are taken from the balance sheet at the end of the current year: Cash $154,000 Temporary investments 350,000 Accounts receivable 210,000 Inventory 240,000 Prepaid expenses 15,000 Property, plant, and equipment 375,000 Accounts payable 245,000 Accrued liabilities 4,000 Income tax payable 10,000 Notes payable, short-term 85,000 Determine the (a) working capital, (b) current ratio, and (c) quick ratio. (Round ratios to one decimal place.)

Q: The following information was taken from Slater Companys balance sheet: Fixed assets (net) $1,250,000 Long-term liabilities 500,000 Total liabilities 672,000 Total stockholders equity 1,680,000 Determine the companys (a) ratio of fixed assets to long-term liabilities and (b) ratio of liabilities to stockholders equity. (Round answers to one decimal place.)

Q: The following selected data were taken from the financial statements of the Winter Group for the 3 most recent years of operations: Dec. 31, Year 3 Dec. 31, Year 2 Dec. 31, Year 1Total assets$3,000,000$2,700,000$2,400,000Notes payable (10% interest)1,000,0001,000,0001,000,000Common stock400,000400,000400,000Preferred $6 stock, $100 par200,000200,000200,000Retained earnings1,126,000896,000600,000The Year 3 net income was $242,000, and the Year 2 net income was $308,000. No dividends on common stock were declared during the 3 years.a. Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders' equity for Years 2 and 3. (Round percentages to one decimal place.)b. What conclusions can be drawn from these data as to the company's profitability?

Q: Define solvency and profitability. How are they interrelated?

Q: For Garrison Corporation, the working capital at the end of the current year is $10,000 more than the working capital at the end of the preceding year, reported as follows: Year 2 Year 1Current assets: Cash, marketable securities, and receivables$ 80,000$ 84,000 Inventories 120,000 66,000Total current assets$200,000$150,000Current liabilities 100,000 60,000Working capital$100,000$ 90,000Has the current position of Garrison Corporation improved? Explain.

Q: The balance sheet data for Randolph Company for 2 recent years are as follows:AssetsYear 2Year 1Current assets$ 445 $280Plant assets 680 520Total assets$1,125 $800 Liabilities & Stockholders' Equity Current liabilities $ 285 $120Long-term debt255 160Common stock325 320Retained earnings 260 200Total liabilities and stockholders' equity$1,125 $800a. Using horizontal analysis, show the percentage change for each balance sheet item using Year 1 as the base year.b. Using vertical analysis, prepare a comparative balance sheet.Round percentages to one decimal place.

Q: A company reports the following: Income before income tax expense $600,000 Interest expense 150,000 Determine the times interest earned ratio. (Round to one decimal place.)

Q: Cash and accounts receivable for Adams Company are as follows: Current YearPrior YearCash $70,000 $50,000Accounts receivable (net) 70,400 80,000What are the amounts and percentages of increase or decrease that would be shown with horizontal analysis?

Q: The following data are taken from the financial statements: Current YearPreceding YearAverage accounts receivable (net)$123,000$ 95,000Accounts receivable (net), end of year 129,012 87,516Sales on account 950,000 825,000a. Assuming that credit terms on all sales are n/45, determine for each year:(1) Accounts receivable turnover (Round to two decimal places.)(2) Number of days sales in receivables (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 accounts receivable and credit policies?

Q: The following items are reported on a companys balance sheet:Cash$230,000Marketable securities50,000Accounts receivable200,000Inventory240,000Accounts payable300,000Determine (a) the current ratio and (b) the quick ratio. (Round answers to one decimal place.)

Q: Revenue and expense data for Young Technologies Inc. are as follows: Year 2 Year 1Sales$500,000$440,000Cost of merchandise sold325,000242,000Selling expenses70,00079,200Administrative expenses75,00070,400Income tax expense10,50016,400a. Prepare an income statement in comparative form, stating each item for both years as an amount and as a percent of sales. Round to the nearest whole percent.b. Comment on the significant changes disclosed by the comparative income statement.

Q: Match each of the following ratios to its use (ah). Items may be used more than once.a. Assesses the profitability of the assetsb. Assesses how effectively assets are usedc. Indicates the ability to pay current liabilitiesd. Indicates how much of the company is financed by debt and equitye. Indicates instant debt-paying abilityf. Assesses the profitability of the investment by common stockholdersg. Indicates future earnings prospectsh. Indicates the extent to which earnings are being distributed to common stockholdersEarnings per share (EPS) on common stock

Q: Match each of the following descriptions to the term (ah) it describes.a. Solvencyb. Leveragec. Times interest earnedd. Horizontal analysise. Vertical analysisf. Common-sized financial statementsg. Current position analysish. Profitability analysisMeasures the risk that interest payments will not be made if earnings decrease

Q: The particular analytical measures chosen to analyze a company may be influenced by all of the following excepta. industry typeb. general economic environmentc. diversity of business operationsd. product quality or service effectiveness

Q: The following information pertains to Dallas Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Assets Cash and short-term investments $ 40,000Accounts receivable (net) 30,000Merchandise inventory 25,000Property, plant, and equipment 280,000Total assets$375,000 Liabilities and Stockholders’ Equity Current liabilities $ 60,000Long-term liabilities 95,000Stockholders’ equity—common 220,000Total liabilities and stockholders’ equity$375,000 Income Statement Sales $90,000Cost of merchandise sold 45,000Gross profit $45,000Operating expenses 15,000Net income$30,000Number of shares of common stock 6,000Market price of common stock $20.00Dividends per share $1.00Net cash flows from operating activities $40,000What is the return on stockholders equity (rounded to one decimal place)?a. 7.3%b. 13.6%c. 20.5%d. 40.9%

Q: Times interest earned is computed as a. net income plus interest expense, divided by interest expense b. income before income tax plus interest expense, divided by interest expense c. net income divided by interest expense d. income before income tax divided by interest expense

Q: The numerator for the return on total assets computation is a. net income b. net income plus tax expense c. net income plus interest expense d. net income minus preferred dividends

Q: The relationship of $325,000 to $125,000, expressed as a ratio, is a. 2.0 b. 2.6 c. 2.5 d. 0.5

Q: Using the balance sheets for Kellman Company, if net income is $250,000 and interest expense is $20,000 for Year 2, and the market price of common shares is $30, what is the price-earnings ratio on common stock for Year 2? (Round intermediate computation to two decimal places and final answer to one decimal place.)a. 7.5b. 13.4c. 12.1d. 8.5

Q: Use this information for Kellman Company to answer the questions that follow.The balance sheets at the end of each of the first 2 years of operations indicate the following: Kellman Company Year 2 Year 1Total current assets$600,000$560,000Total investments60,00040,000Total property, plant, and equipment900,000700,000Total current liabilities125,00065,000Total long-term liabilities350,000250,000Preferred 9% stock, $100 par100,000100,000Common stock, $10 par600,000600,000Paid-in capital in excess of par—common stock75,00075,000Retained earnings310,000210,000Using the balance sheets for Kellman Company, if net income is $150,000 and interest expense is $20,000 for Year 2, what is the return on stockholders' equity for Year 2 (rounded to two decimal places)?a. 6.9%b. 14.49%c. 16.04%d. 13.80%

Q: All of the following are typically included in the Managements Discussion and Analysis in annual reports excepta. explanations of any significant changes between the current and prior years financial statementsb. managements assessment of liquidityc. journal entriesd. off-balance-sheet arrangements

Q: Richards Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000. It had 50,000 shares of common stock outstanding during the entire year. Richards Corporation's common stock is selling for $35 per share. The price-earnings ratio is a. 7 b. 14 c. 2 d. 5

Q: Which of the following is not included in the computation of the quick ratio? a. inventory b. marketable securities c. accounts receivable d. cash

Q: The following information is available for Jase Company:Market price per share of common stock $25.00Earnings per share on common stock 1.25Which of the following statements is correct?a. The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of the year.b. The price-earnings ratio is 5% and a share of common stock was selling for 5% more than the amount of earnings per share at the end of the year.c. The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of the year.d. The market price per share and the earnings per share are not statistically related to each other.

Q: Leverage implies that a company has a. debt financing b. equity financing c. a high current ratio d. a high earnings per share

Q: A company reports the following: Net income $160,000 Preferred dividends $10,000 Shares of common stock outstanding 20,000 Market price per share of common stock $35 The companys earnings per share on common stock is a. $13.33 b. $8.50 c. $7.50 d. $35.00

Q: Dividend yield on common stock is computed as a. dividends on common stock divided by shares of common stock outstanding b. net income minus preferred dividends divided by shares of common stock outstanding c. dividends per share of common stock divided by earnings per share d. dividends per share of common stock divided by market price per share of common stock

Q: Which of the following ratios provides a solvency measure that shows the margin of safety of bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis? a. ratio of fixed assets to long-term liabilities b. asset turnover ratio c. number of days' sales in receivables d. return on stockholders' equity

Q: Use the information provided for Privett Company to answer the questions that follow.Privett CompanyAccounts payable$ 30,000Accounts receivable35,000Accrued liabilities7,000Cash25,000Intangible assets40,000Inventory72,000Long-term investments100,000Long-term liabilities 75,000Notes payable (short-term) 20,000Property, plant, and equipment 400,000Prepaid expenses2,000Temporary investments36,000Based on the data for Privett Company, what is the amount of working capital?a. $213,000b. $113,000c. $153,000d. $39,000

Q: An analysis in which all the components of an income statement are expressed as a percentage of sales is aa. vertical analysisb. horizontal analysisc. liquidity analysisd. solvency analysis

Q: Which of the following measures a companys ability to pay its current liabilities? a. earnings per share b. inventory turnover c. current ratio d. times interest earned

Q: The following information pertains to Newman Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Assets Cash and short-term investments $ 40,000 Accounts receivable (net) 30,000 Merchandise inventory 25,000 Property, plant, and equipment 215,000 Total assets$310,000 Liabilities and Stockholders’ Equity Current liabilities $ 60,000 Long-term liabilities 95,000 Stockholders’ equity—common 155,000 Total liabilities and stockholders’ equity$310,000 Income Statement Sales $90,000 Cost of merchandise sold 45,000 Gross profit $45,000 Operating expenses (16,200)Interest expense (3,800)Net income$25,000 Number of shares of common stock 6,000Market price of common stock $40.00Dividends per share $1.00Net cash flows from operating activities $40,000What is the return on total assets for Newman Company (rounded to one decimal place)?a. 9.3%b. 6.8%c. 10.5%d. 16.1%

Q: The ability of a business to pay its debts as they come due and to earn a reasonable net income includes a. solvency and leverage b. solvency and profitability c. solvency and liquidity d. solvency and equity

Q: Which of the following items should be classified as an unusual item on an income statement? a. gain on the retirement of a bond payable b. gain on a sale of a long-term investment c. loss due to a discontinued operation in Colorado d. selling treasury stock for more than the company paid for it

Q: A company with working capital of $720,000 and a current ratio of 2.2 pays a $125,000 short-term liability. The amount of working capital immediately after payment is a. $845,000 b. $595,000 c. $720,000 d. $125,000

Q: Corporate annual reports typically do not contain a. management discussion and analysis b. an SEC statement expressing an opinion c. accompanying notes d. an auditor's report

Q: An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to a. decrease b. remain the same c. either increase or decrease d. increase

Q: Which of the following is the most useful in analyzing companies of different sizes?a. comparative statementsb. common-sized financial statementsc. price-level accountingd. audit report

Q: A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will a. both decrease b. both increase c. increase and remain the same, respectively d. remain the same and decrease, respectively

Q: In horizontal analysis, each item is expressed as a percentage of thea. base year figureb. retained earnings figurec. total assets figured. net income figure

Q: Balance sheet and income statement data indicate the following:Bonds payable, 10% (due in 2 years)$1,000,000Preferred 5% stock, $100 par (no change during year)300,000Common stock, $50 par (no change during year)2,000,000Income before income tax for year550,000Income tax for year80,000Common dividends paid50,000Preferred dividends paid15,000Based on the data presented, what is the times interest earned ratio? (Round to one decimal place.)a. 1.5 timesb. 6.4 timesc. 6.5 timesd. 5.5 times

Q: Short-term creditors are typically most interested in analyzing a company's a. marketability b. profitability c. operating results d. liquidity

Q: The numerator for the computation of accounts receivable turnover is a. total assets b. sales c. accounts receivable at year-end d. average accounts receivable

Q: The percentage analysis of increases and decreases in individual items on comparative financial statements is called a. vertical analysis b. solvency analysis c. profitability analysis d. horizontal analysis

Q: Which of the following is considered an unusual item affecting the prior periods income statement? a. a change in accounting principles b. fixed asset impairments c. sale of company stores in Florida d. discontinued operations

Q: A change from one acceptable accounting method to another is reported a. on the statement of retained earnings, as a correction to the beginning balance b. on the income statement, below income from continuing operations c. on the income statement, above income tax expense d. through a retroactive restatement of prior period earnings

Q: Which of the following items appear on the corporate income statement before income from continuing operations? a. cumulative effect of a change in accounting principle b. income tax expense c. presentation of earnings per share d. loss on discontinued operations

Q: Which of the following is required by the Sarbanes-Oxley Act? a. price-earnings ratio b. report on internal control c. vertical analysis d. common-sized statement

Q: A common measure of liquidity is a. the asset turnover ratio b. dividends per share of common stock c. the accounts receivable turnover d. gross profit

Q: The current ratio is a. used to evaluate a company's liquidity and short-term debt-paying ability b. a solvency measure that indicates the margin of safety for bondholders c. computed by dividing current liabilities by current assets d. computed by subtracting current liabilities from current assets

Q: Percentage analyses, ratios, turnovers, and other measures of financial position and operating results are a. a substitute for sound judgment b. useful analytical measures c. enough information for analysis; industry information is not needed d. unnecessary for analysis if industry information is available

Q: Financial information for Brock Company is provided as follows. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Assets Cash and short-term investments$ 40,000Accounts receivable (net)30,000Merchandise inventory25,000Property, plant, and equipment 215,000Total assets$310,000 Liabilities and Stockholders’ Equity Current liabilities$ 60,000Long-term liabilities95,000Stockholders’ equity—common 155,000Total liabilities and stockholders’ equity$310,000 Income Statement Sales$90,000Cost of merchandise sold 45,000Gross profit$45,000Operating expenses 20,000Net income$25,000Number of shares of common stock6,000Market price of common stock$20What is the current ratio?a. 1.42b. 1.17c. 1.58d. 0.67

Q: Which of the following is not an unusual item? a. a segment of the business being sold b. corporate income tax being paid c. a change from one accounting method to another acceptable accounting method d. closure of all outlet stores

Q: Hsu Company reported the following on its income statement:Income before income taxes $420,000Income tax expense 120,000Net income $300,000Interest expense was $80,000. Hsu Company's times interest earned ratio isa. 8.00b. 6.25c. 5.25d. 5.00

Q: One reason that a common-sized statement is a useful tool in financial analysis is that it enables the user to a. judge the relative potential of two companies of similar size in different industries b. determine which companies in a single industry are of the same value c. determine which companies in a single industry are of the same size d. make a better comparison of two companies of different sizes in the same industry

Q: The following information is available for Meyer Company: Dividends per share of common stock $ 1.80 Market price per share of common stock 30.00 Which of the following statements is correct? a. The dividend yield is 6.0%, which is of interest to investors seeking an increase in market price of their stocks. b. The dividend yield is 6.0%, which is of special interest to investors seeking to earn revenue on their investments. c. The dividend yield is 16.7%, which is of interest to bondholders. d. The dividend yield is 16.7%, which is an important measure of solvency.

Q: The beginning and ending balances of Accounts Receivable for the year are $40,000 and $32,000, respectively. Income reported on the income statement for the year is $110,000. Exclusive of the effect of other adjustments, the net cash flows from operating activities to be reported on the statement of cash flows using the indirect method is a. $118,000 b. $110,000 c. $102,000 d. $150,000

Q: Land costing $71,000 was sold for $50,000 cash. The loss on the sale was reported on the income statement as other expense. On the statement of cash flows, what amount should be reported as an investing activity from the sale of land? a. $50,000 b. $71,000 c. $121,000 d. $21,000

Q: A corporation uses the indirect method of preparing the statement of cash flows. A fixed asset has been sold for $25,000, representing a gain of $4,500. The value of this transaction appearing in the operating activities section of the statement of cash flows is a. $25,000 b. $(4,500) c. $29,500 d. $4,500

Q: Preferred stock issued in exchange for land would be reported on the statement of cash flows in a. the Cash Flows from (used for) Financing Activities section b. the Cash Flows from (used for) Investing Activities section c. a separate section of noncash investing and financing activities, usually at the bottom of the statement d. the Cash Flows from (used for) Operating Activities section

Q: A 10-year bond was issued at face value for $250,000 cash. This transaction should be shown on a statement of cash flows under a. investing activities b. financing activities c. noncash investing and financing activities d. operating activities

Q: Which of the following types of transactions would be reported as a cash flows from (used for) investing activity on the statement of cash flows? a. issuance of bonds payable b. issuance of capital stock c. purchase of treasury stock d. purchase of noncurrent assets

Q: A major disadvantage of the indirect method of reporting cash flows from operating activities is that the difference between the net amount of cash flows from operating activities and net income is emphasized. a. True b. False

Q: Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash flows. a. True b. False

Q: Rarely will the cash flows from operating activities, as reported on the statement of cash flows, be the same as the net income reported on the income statement. a. True b. False

Q: The statement of cash flows is not one of the basic financial statements. a. True b. False

Q: Net income was $51,000 for the year. The accumulated depreciation balance increased by $14,000 over the year. There were no sales of fixed assets or changes in noncash current assets or liabilities. Under the indirect method, the net cash flows from operations is $37,000. a. True b. False

Q: When using the spreadsheet (work sheet) method to prepare the statement of cash flows, no order of analysis is required, but it is more efficient to start with Retained Earnings and proceed upward in the account listing. a. True b. False

Q: Using the indirect method, if land costing $85,000 was sold for $145,000, the amount reported in the financing activities section of the statement of cash flows would be $85,000. a. True b. False

Q: There are two alternatives for reporting cash flows from operating activities on the statement of cash flows: (1) the direct method and (2) the indirect method. a. True b. False

Q: The direct method of preparing the operating activities section of the statement of cash flows reports major classes of cash receipts and cash payments related to the day-to-day operations of the business. a. True b. False

Q: In preparing the statement of cash flows, the correct order of reporting cash activities is financing, operating, and investing. a. True b. False

Q: To arrive at net cash flows from operating activities using the indirect method, it is necessary to convert the income statement from an accrual basis to the cash basis of accounting. a. True b. False

Q: Under the direct method of reporting cash flows from operating activities, the primary source of cash is cash received from customers. a. True b. False