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Exam 14: Financial Statement Analysis

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Question 61

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Match each definition that follows with the term (a-h) it defines.

Premises

Responses

an analysis of a company's ability to pay its current liabilities

discontinued operations

an event or transaction that is both unusual and infrequent

current position analysis

occurs when a company abandons a segment

profitability analysis

a percentage analysis of increases and decreases in related items on comparative financial statements

common-sized financial statements

requires a restatement of prior-period financial statements

vertical analysis

focuses on a company's ability to generate net income

horizontal analysis

useful for comparing one company to another or a company with industry averages

change from one generally accepted accounting principle to another

the percentage analysis of the relationship of each component in a financial statement to a total within the statement

extraordinary items

Premises

an analysis of a company's ability to pay its current liabilities

an event or transaction that is both unusual and infrequent

occurs when a company abandons a segment

a percentage analysis of increases and decreases in related items on comparative financial statements

requires a restatement of prior-period financial statements

focuses on a company's ability to generate net income

useful for comparing one company to another or a company with industry averages

the percentage analysis of the relationship of each component in a financial statement to a total within the statement

Responses

discontinued operations

current position analysis

profitability analysis

common-sized financial statements

vertical analysis

horizontal analysis

change from one generally accepted accounting principle to another

extraordinary items

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Correct Answer

Premises

Responses

an analysis of a company's ability to pay its current liabilities

an event or transaction that is both unusual and infrequent

occurs when a company abandons a segment

a percentage analysis of increases and decreases in related items on comparative financial statements

requires a restatement of prior-period financial statements

focuses on a company's ability to generate net income

useful for comparing one company to another or a company with industry averages

the percentage analysis of the relationship of each component in a financial statement to a total within the statement

Premises

an analysis of a company's ability to pay its current liabilities

an event or transaction that is both unusual and infrequent

occurs when a company abandons a segment

a percentage analysis of increases and decreases in related items on comparative financial statements

requires a restatement of prior-period financial statements

focuses on a company's ability to generate net income

useful for comparing one company to another or a company with industry averages

the percentage analysis of the relationship of each component in a financial statement to a total within the statement

Responses

Question 62

Multiple Choice

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Based on the above data, what is the amount of working capital?

A) $213,000
B) $113,000
C) $153,000
D) $39,000

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

Correct Answer

verified

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Question 63

Short Answer

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The following data are taken from the financial statements: (a) Assuming that credit terms on all sales are n/45, determine for each year (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Round intermediate calculations to whole numbers and final answers to two decimal places. (b) Comment on any significant trends revealed by the data.

Solvency analysis focuses on the ability of a business to pay its current and noncurrent liabilities.

An advantage of the current ratio is that it considers the makeup of the current assets.

A company reported the following: Calculate the company's price-earnings ratio.  Round your answer to one decimal place.

A clean audit opinion is the same as a qualified audit opinion.

The number of times interest expense is earned is computed as

When computing the rate earned on total common stockholders' equity, preferred stock dividends are subtracted from net income.

The ability of a business to pay its debts as they come due and to earn a reasonable net income is

Horizontal analysis of comparative financial statements includes

A common measure of liquidity is

Which of the following is required by the Sarbanes-Oxley Act?

In a common-sized income statement, each item is expressed as a percentage of net income.

An extraordinary item can result from

Hsu Company reported the following on its income statement: Interest expense was $80,000.  Hsu Company's times interest earned is

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. What is the rate earned on total assets for this company?

The following information has been condensed from the December 31 balance sheets of Gabriel Co.: (a) 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 your answers to two decimal places.

The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. What is the rate earned on total assets for Diane Company?

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