Ch12 Financial Statement Analysis – Test Bank | 2e

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Financial Accounting, 2nd Cdn. Ed. (Waybright)

Chapter 12 Financial Statement Analysis

12.1 Understand items on corporate income statements

1) Financial statement analysis indicates that a problem may exist and offers clues as to what the problem might be.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

2) In order to do a complete financial analysis, you should have at least five years of figures available for comparison.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

3) The three ways to analyze financial statements are by using horizontal, vertical, and ratio analysis.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

4) Financial statement analysis is only used for comparing the company's current performance with the company's past performance.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

5) Reporting income from continuing operations helps investors make predictions about a company's future earnings.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

6) Predictions about a company's future earnings can best be inferred from the:

A) cumulative effect of changes in the accounting principles section.

B) discontinued operations section.

C) continuing operations section.

D) extraordinary items section.

E) earnings per share.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

7) Other income (such as rental income) and other expenses (such as interest expense) are listed immediately after:

A) gross profit.

B) operating expenses.

C) operating income.

D) income tax expense.

E) profit.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

8) A(n) ________ is a distinguishable part of a business that is subject to a different set of risks and returns than other parts of the business.

A) extraordinary event

B) business segment

C) product line

D) manufacturing line

E) operating segment

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

9) Basic earnings per share (EPS) is determined using:

A) authorized common shares.

B) issued common shares.

C) outstanding common shares.

D) treasury shares.

E) authorized preferred shares.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

10) Diluted earnings per share is:

A) always lower than or the same as basic earnings per share.

B) always higher than basic earnings per share.

C) a figure that can be higher or lower than earnings per share.

D) computed only if the company does not have convertible preferred shares.

E) always the same as basic earnings per share.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

11) After income from continuing operations, the next section on an income statement is ________.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

12) The last section of an income statement report (before earnings per share data) is ________.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

13) After the figure for net income appears on the income statement, ________ data is computed.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

14) Everyday business activities are reported in the ________ section.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

15) When a company sells off part of the business, this would be reported in the ________ section.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

16) Which section of the income statement does NOT report net of income taxes or net of income tax savings?

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

17) A distinguishable part of a business that is subject to a different set of risks and returns than other parts of the business is called a ________.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

18) What is retrospective application?

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

19) What is other income/(expenses)? Provide three examples.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

20) What may an income statement include after continuing operations?

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

21) Explain the difference between basic EPS and diluted EPS.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

22) What type of application is required per IFRS and ASPE when changing from LIFO to FIFO method of inventory valuation.

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Concept

Blooms: Knowledge

23) Eagle Creek Outfitters sells hiking and other outdoor equipment. It also sells a few trail books and outdoor guides about the area. What would the revenue from the books and guides be recorded as in their income statement?

Diff: 1

LO: 12-1 Understand items on corporate income statements

Skill: Critical Thinking

Blooms: Evaluation

12.2 Perform a horizontal analysis of financial statements

1) Knowing the dollar amount of change from year-to-year in an account is less relevant than knowing the percentage change.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

2) Computing trend percentages over a period of years helps to indicate the direction in which the business is going.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

3) In computing trend percentages, the most recent year amounts become the base and are always set to 100%.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

4) Horizontal analysis is only done on the income statement.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

5) The sales of Mark's Online for the years 2013, 2014, and 2015 are $40,000, $60,000, and $80,000, respectively. If 2013 is the base year, the trend percentage for 2014 is:

A) 0%.

B) 150%.

C) 200%.

D) 133%.

E) 105%.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Application

Blooms: Application

6) The revenue of Rick's Motorcycles for the years 2013, 2014, and 2015 is $75,000, $100,000 ,and $200,000, respectively. If 2013 is the base year, the trend percentage for 2014 is:

A) 33%.

B) 100%.

C) 133%.

D) (62.5%).

E) 25%.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Application

Blooms: Application

7) Patty's Baker has cost of goods sold for the years 2015, 2014, and 2013 respectively of $28,600, $26,900, and $25,600. If 2013 is the base year, the trend percentage for 2015 is:

A) 111.72%.

B) 11.72%.

C) 105.08%.

D) 5.08%.

E) 104.9%.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Application

Blooms: Application

8) If current assets were $100,000 in 2013 and $88,000 in 2014, what was the amount of increase or decrease in percentage terms from 2013 to 2014? (Round to the nearest percent.)

A) Increase of 14%

B) Decrease of 14%

C) Increase of 12%

D) Decrease of 12%

E) Decrease of 25%

Diff: 3

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Application

Blooms: Application

9) The most recent period in a horizontal analysis is called the ________ period.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

10) Which analysis deals with the percentage of changes in certain items over a period of years?

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

11) What is the formula for determining the percentage change in an account from one year to the next year?

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

12) Determining the percentage changes in line items on financial statements for two consecutive years is called ________ analysis.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

13) A comparison of the amounts for the same item in the financial statements of two or more periods is called ________ analysis.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

14) Kacee's sales were $13,444 in 2010 and $12,898 in 2009. The percentage change in Kacee's sales from 2009 to 2010 was ________.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Application

Blooms: Application

15) Tayler Company's cash reported on the balance sheets for 2009 and 2010 was as follows: $235,000 in 2009; $245,300 in 2010. The percentage change for cash from 2009 to 2010 was ________.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Application

Blooms: Application

16) Rick's Sporting Goods reported $23,400 in A/R in 2010 and $25,100 in A/R in 2009. The percentage change for A/R from 2009 to 2010 was ________.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

17) If cash is $4,450 in 2010 and $3,670 in 2009, what is the percentage increase or decrease from 2009 to 2010?

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

18) Net income was $45,000 in 2009 and $60,000 in 2010. The percentage increase or decrease in net income from 2009 to 2010 was ________.

Diff: 1

LO: 12-2 Perform a horizontal analysis of financial statements

Skill: Concept

Blooms: Knowledge

12.3 Perform a vertical analysis of financial statements

1) A vertical analysis differs from a horizontal analysis in that an item is selected as the base amount and all other items are computed as a percentage of the base amount.

Diff: 1

LO: 12-3 Perform a vertical analysis of financial statements

Skill: Concept

Blooms: Knowledge

2) The base amounts for a vertical analysis are net income and total equity.

Diff: 1

LO: 12-3 Perform a vertical analysis of financial statements

Skill: Concept

Blooms: Knowledge

3) If net sales at Kelly's Bakery increased from $40,000 to $60,000 and its cost of goods sold increased from $20,000 to $40,000, then vertical analysis based on net sales would show the following percentages for each year for cost of goods sold (rounded to the nearest percent):

A) 40% and 20%.

B) 10% and 30%.

C) 50% and 67%.

D) 67% and 40%.

E) 33% and 50%

Diff: 2

LO: 12-3 Perform a vertical analysis of financial statements

Skill: Application

Blooms: Application

4) For vertical analysis purposes, the base item on the balance sheet is ________.

Diff: 2

LO: 12-3 Perform a vertical analysis of financial statements

Skill: Concept

Blooms: Knowledge

5) For vertical analysis purposes, the base item on the income statement is ________.

Diff: 2

LO: 12-3 Perform a vertical analysis of financial statements

Skill: Concept

Blooms: Knowledge

6) If Rick's net sales increased from $40,000 to $80,000 and its operating expenses increased from $30,000 to $50,000, then, using vertical analysis based on net sales, what percentages would show for operating expenses for the two periods (to the nearest tenth of a percent)?

Diff: 2

LO: 12-3 Perform a vertical analysis of financial statements

Skill: Application

Blooms: Application

12.4 Compare one company to another using common-size financial statements and benchmarking

1) Common-size statements are useful when comparing a company's performance against that of a similar, but not necessarily the same-sized, company.

Diff: 1

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Concept

Blooms: Knowledge

2) By using only percentages in common-size statements, the statements emphasize dollar value bias.

Diff: 1

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Concept

Blooms: Knowledge

3) If a person compares the net sales of two companies as absolutes, and ignores the relative percentages, we can infer that this comparison contains dollar value bias.

Diff: 1

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Concept

Blooms: Knowledge

4) Common-size statements should NOT be used to compare a company's performance against the industry average.

Diff: 1

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Concept

Blooms: Knowledge

5) A common-size comparative statement shows:

A) dollars and percents.

B) dollars only.

C) percents only.

D) dollar increases and decreases.

E) dollar decreases and increases.

Diff: 2

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Concept

Blooms: Knowledge

6) In a common-size income statement, selling expenses are 55%. This means they are 55% of:

A) net income.

B) net sales.

C) gross profit.

D) net profit.

E) total expenses.

Diff: 2

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Concept

Blooms: Knowledge

7) Sobey's would probably benchmark with other:

A) general merchandise retailers.

B) big box retailers.

C) grocery chains.

D) companies that sell food.

E) companies that produce food.

Diff: 2

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Analytic Skills

Blooms: Analysis

8) A useful tool to compare the performance of similar companies is to do a ________ analysis on each one.

Diff: 1

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Concept

Blooms: Knowledge

9) Comparing your company with a leading company in the same category of business is called ________.

Diff: 1

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Concept

Blooms: Knowledge

10) Common-size statements use the same percentages that are computed during a ________ analysis, but no dollar amounts are shown.

Diff: 1

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Concept

Blooms: Knowledge

11) Comparative reports in which each item is expressed as a percentage of a base amount without dollar amounts are called:

Diff: 2

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Concept

Blooms: Knowledge

12) Statements that are often used to compare similar businesses are called ________.

Diff: 2

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Concept

Blooms: Knowledge

13) If total assets are $6,000, what is the common-size figure of cash, assuming that cash has a balance of $2,400?

Diff: 2

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Application

Blooms: Application

14) The following is a common-sized income statement for Alpha and Beta Companies.

Which company has the best cost of goods sold?

Diff: 2

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Analytic Skills

Blooms: Evaluation

15) The following is a common-sized income statement for Alpha and Beta Companies.

Which company had the lower net income as a percentage of sales?

Diff: 2

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Analytic Skills

Blooms: Evaluation

16) From the following, complete the common-size income statement for Isaiah's Sporting Goods using net sales as the base. (Round to nearest tenth of a percent.)

* Due to rounding

Calculation: Divide each 2016 item by $600,000; then multiply by 100. Divide each 2015 item by $525,000; then multiply by 100.

Diff: 2

LO: 12-4 Compare one company to another using common-size financial statements and benchmarking

Skill: Application

Blooms: Application

12.5 Compute various financial ratios

1) Working capital is defined as total assets divided by total liabilities.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

2) The quick ratio is the most widely used liquidity ratio.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

3) A profitability ratio is defined as a measure of a company's ability to generate net income.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

4) A solvency ratio is defined as a way to evaluate a company's stock performance.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

5) A liquidity ratio is defined as the ability to meet short-term obligations with current assets.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

6) A solvency ratio is defined as the ability for a company to meet long-term obligations or take on more debt.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

7) Asset management ratios measure how efficiently a company utilizes its operating assets.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

8) To determine the ability of a company to service debt, you would calculate the debt ratio.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

9) According to the Risk Management Association, the debt ratio for most companies ranges from 57% to 67%.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

10) Inventory turnover would be highest for which of the following?

A) Home builder

B) Grocery store

C) Car dealership

D) Heavy equipment dealer

E) Plane manufacturer

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Critical Thinking

Blooms: Evaluation

11) The formula "net income minus preferred dividends divided by average common shareholders' equity" yields:

A) return on common shareholders' equity.

B) return on assets.

C) earnings per common share.

D) return on sales.

E) rate of return.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

12) Which of the following would NOT be a red flag to a loan officer doing a financial statement analysis?

A) Short number of days in accounts receivable

B) Decreased cash flow

C) High debt ratio

D) Low inventory turnover

E) Earning problems

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

13) Which of the following would be a red flag in a financial statement analysis?

A) High debt ratio

B) High inventory turnover

C) High current ratio

D) High earnings per share

E) Cash flow higher than net income

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

14) The lower the times interest earned ratio, the more likely:

A) a default in payment will occur.

B) a business will need to borrow money.

C) a business will suffer a loss.

D) interest payments will be made.

E) a business will pay its debt.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Critical Thinking

Blooms: Evaluation

15) The ratio that indicated how many days it takes to turn accounts receivable into cash is the:

A) accounts receivable turnover ratio.

B) average turnover ratio.

C) average collection period.

D) quick assets turnover ratio.

E) accounts receivable ratio.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

16) Carla's Fashions has an average days in receivable of 30 days. You could infer that Carla's:

A) bills her customers quarterly.

B) bills her customers monthly.

C) has an accounts receivable turnover of 6.

D) has an accounts receivable turnover of 4.

E) has an accounts receivable turnover of 0.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Analytic Skills

Blooms: Evaluation

17) If days in receivables is 35 days, this means that from the date of:

A) purchase to the date of payment is 35 days.

B) sale to the date of receipt of payment is 35 days.

C) discount to the date of receipt of payment is 35 days.

D) invoice to the date of payment is 35 days.

E) sale to the date of invoice is 35 days.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Analytic Skills

Blooms: Evaluation

18) If management wishes to determine the delinquency of charge customers, they could use the:

A) rate of return on total assets.

B) rate of return on equity.

C) accounts receivable turnover.

D) quick ratio.

E) current ratio.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

19) If management wishes to know the ability to pay off upcoming debts, they could use the ________ ratio.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

20) Merchandise inventory turnover measures the relationship between ________ and ________.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

21) Which ratio helps to evaluate how well a company is earning profit for the common shareholders?

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

22) Which ratio measures the earnings of a company on each sales dollar?

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

23) Current assets divided by current liabilities yields the ________ ratio.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

24) Inventory and prepaid expenses are NOT included in the computation of the ________ ratio.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

25) A company with an accounts receivable turnover of four means that the company collects its receivables approximately every ________ days.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

26) The debt ratio is the relationship between total ________ and total ________.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

27) The ratio that measures the productivity of total assets used is the ________.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Concept

Blooms: Knowledge

28) The current ratio for a company with current assets of $70,000, quick assets of $30,000, total assets of $150,000, current liabilities of $50,000, and net sales of $80,000 would be ________.

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

29) Isaiah Company has net income of $720,000, beginning total assets of $2,100,000, and ending total assets of $2,300,000. Isaiah's return on total assets is ________.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

30) Barry Builder's operating income for the year was $75,000. The interest expense was $11,500 and the tax expense was $6,500. Barry's times interest earned for the year is ________.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

31) The net income for the year ended was $300,000. Common shareholders' equity at the end of the year was $1,600,000 and $1,400,000 at the beginning of the year. The return on common shareholders' equity would be ________.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

32) Rick's has a cash balance of $80,000; short-term investments of $20,000; net receivables of $60,000; and inventory of $450,000. Current liabilities total $200,000. Rick's acid test (quick ratio) is ________.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

33) Topiary's Unlimited has a cost of goods sold of $1,600,000. The beginning merchandise inventory was $195,000 and the ending merchandise inventory is $205,000. Topiary's merchandise inventory turnover ratio is ________.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

34) Amanda's has a cost of goods sold of $1,900,000. The beginning and ending merchandise inventories are $133,000 and $125,000, respectively. Amanda's merchandise inventory turnover ratio is ________.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

35) Interest expense was $10,000; income tax expense was $20,000; and net income after taxes is $60,000. The number of times interest was earned is ________.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

36) What is Jane's rate of return on total assets if average total assets are $100,000; net income is $2,000; interest expense if $1,600; and income tax is $2,000?

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

37) What is the rate of return on equity if net income is $22,700; preferred dividends are $3,000; sales are $100,000; and average common shareholders' equity is $86,000?

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

38) Casey Company reported the following for 2015:

Net sales: $345,000

Net income: $29,600

Market price per common share: $35.50

Preferred dividends paid: $2,300

Number of common shares outstanding: 125,000

What are the earnings per share for Casey Company (to the nearest cent)?

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

39) Casey Company reported the following for 2015:

Net sales: $220,000

Net income: $37,000

Market price per common share: $35.50

Preferred dividends paid: $4,100

Number of common shares: 10,000

What are the earnings per share for Casey Company (to the nearest cent)?

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

40) Michele Company reported the following for 2015:

Earnings/share: $19.23

Market price per common share: $67.00

Number of common shares outstanding: 75,000

Net income: $54,000

Preferred dividends paid: $2,200

Dividends/share: $6.73

What is the dividend yield for Michele Company (to the nearest tenth of a percent)?

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

41) What would an acid test (quick ratio) of 0.75 indicate?

Diff: 1

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

42) Tammy Company has a beginning accounts receivable balance of $65,000 and an ending accounts receivable balance of $60,000. Net credit sales are $250,000. Tammy's accounts receivable turnover rate is ________.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

43) A company has $56,000 in cash; $12,000 in accounts receivable; $25,000 in short-term investments; and $100,000 in merchandise inventory. The company also has $60,000 in current liabilities. The company's quick ratio is ________.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

44) With a beginning accounts receivable balance of $80,000; an ending accounts receivable balance of $120,000; and net credit sales of $900,000; the accounts receivable turnover is ________.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

45) Mir Inc. reported a current ratio of 1.6:1 in the current fiscal year, which is higher than its current ratio last year of 1.3:1. It also reported a receivables turnover of 10 times, which is less than last year's receivables turnover of 13 times, and an inventory turnover of 7 times, which is less than last year's inventory turnover of 10 times. Is Mir's liquidity improving or deteriorating?

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

46) Without performing any calculations, use the DuPont model to predict the performance of a jewellery store versus a grocery store. Keep in mind the key determinants of the DuPont model and the core operations of both stores.

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

47) What are the red flags in financial statement analysis?

Diff: 2

LO: 12-5 Compute various financial ratios

Skill: Application

Blooms: Application

12.6 Cumulative Questions

1) Rick's net sales decreased from $90,000 in year 1 to $45,000 in year 2, and its cost of goods sold decreased from $30,000 in year 1 to $20,000 in year 2. Using vertical analysis based on sales , what percentages would show for the decreases in cost of goods sold for the two periods (rounded to nearest tenth of a percent)? Using horizontal analysis, what would be the percentage change for sales and cost of goods sold?

Diff: 2

LO: 12-2, 12-3

Skill: Application

Blooms: Application

2) Given the balance sheet below, calculate the following ratios for 2016:

a) current ratio

b) accounts receivable turnover

c) inventory turnover

d) debt ratio

Jessica's Jewellery Store

Comparative Balance Sheet

For Years Ended December 31, 2016 and 2015

(in thousands)

In addition, credit sales for 2016 were $525,000 and cost of goods sold was $1,255,500.

Diff: 2

LO: 5-7, 9-7, 12-5

Skill: Application

Blooms: Application

3) Assume that Jeanie Industries' inventory was $20,000 in 2016 and $19,000 in 2015, and cost of goods sold for 2016 was $585,000. In addition, assume that account receivables were $30,000 in 2016 and $20,000 in 2015 and credit sales were $750,000. Based on that information and an accounts payable turnover rate of 25, calculate the inventory turnover rate, accounts receivable turnover rate, and the cash conversion cycle for Jeanie Industries.

Diff: 2

LO: 11-5, 12-5

Skill: Application

Blooms: Application

4) What was the percentage of change in accounts receivable if the balance was $80,000 in 2015 and $60,000 in 2016? What form of analysis is this called?

Diff: 1

LO: 12-1, 12-2

Skill: Application

Blooms: Application

5) From the following balance sheet for Brandon's Bikes, compute:

a) the common-size statements using total assets as the base (Round to the nearest tenth of a percent.)

b) the current and debt ratios for 2016

c) cashflow from operating activities for 2016 assuming Net Income was $85,000

Note that cash remained constant at $5000 year over year.

a)

Calculation:

Divide each 2016 item by $400,000; then multiply by 100.

Divide each 2015 item by $430,000; then multiply by 100.

b) Current ratio: 40,000/100,000 = .4:1; debt ratio: (100,0 0 + 180,000)/(400,000) = 70%

c) Cash flow from operating activities = $85,000 + $10,000 + $25,000 = $120,000

Diff: 3

LO: 5-7, 9-7, 11-3, 12-4

Skill: Application

Blooms: Application