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Exam 9: Financial Statement Analysis

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Question 41

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The current ratio is one of the most common measures of solvency.

A) True
B) False

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Question 42

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Benson Company received cash of $1,000,000 from issuing common stock. As a result of this transaction, the company's debt to equity ratio will:

A) Decrease.
B) Increase.
C) Remain the same.
D) Cannot be determined.

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

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Question 43

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The Bernard Company provided the following information from its financial records: $\begin{array} { | l | r | l | r | } \hline \text { Net income } & \$ 250,000 & \text { Total stockhoklers' equity } & \$ 1,000,000 \\\hline \text { Common dividends } & \$ 15,000 & \text { Common shares outstanding, 12/31 } & 150,000 \\\hline \text { Preferred rights } & \$ 175,000 & & \\\hline\end{array}$ What is the company's book value per share?

Benson Company received cash of $5,000,000 by issuing 20-year bonds payable. As a result of the this transaction, the company's current ratio will:

Select the incorrect statement regarding the information disclosed in financial statements.

In vertical analysis, each item is expressed as a percentage of:

The following balance sheet information is provided for Greene Company for 2014: What is the company's quick (acid-test) ratio?

Ratios can be used for different purposes. For example, a variety of ratios have been developed to assess a firm's liquidity. Similarly, ratios have been developed to assess solvency, profitability, and stock market strength. A sample of commonly used ratios for these purposes is provided in the table below. Required: In the middle column of the table, provide the formula to compute the specified ratio. In the final column, indicate the purpose (Liquidity, Solvency, Profitability, and Stock market strength) for which the ratio is most commonly used. The first item is completed as an example.

Factor(s) involved in communicating useful information is/are:

Osgood Company provided the following income statement for 2013 and 2014: Required: (a) Perform vertical analysis on Osgood's income statements for 2013 and 2014. Round your answer to one decimal place (i.e. 22.4%) (b) Comment on the results, comparing 2013 to 2014.

A company has an obligation to provide highly detailed information on its financial statements.

Indicate whether each of the following statements about financial statement analysis is true or false. 1. Working capital is a measure of the amount of current assets a company would have left after paying its current liabilities. 2. If a transaction causes a company's working capital to increase, the transaction caused the company to become less liquid. 3. Interpretation of a company's current ratio can be difficult because it is an absolute amount. 4. The quick ratio is a more conservative variation of the current ratio. 5. The quick ratio is usually calculated by using the following equation: cash + receivables + current marketable securities/current liabilities.

Which ratio compares the earnings per share of a company to the market price for a share of the company's stock?

As of December 31, 2013, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, 2014, Gant issued common stock for $10,000 cash. Which of the following statement is true?

Financial ratios can be used to assess which of the following aspects of a firm's performance?

Accrual accounting requires the use of many estimates, including:

Vertical analysis always involves comparing financial statement elements over a span of time.

All of the following are considered to be measures of a company's short-term debt-paying ability except:

Comparative income statements for Chicago Company are provided below: Required: Perform a horizontal analysis of Chicago Company's income statement by computing horizontal percentages for each item. Round your answer to one decimal place (i.e. 22.5%).

Maynard Company's balance sheet and income statement are provided below: The company paid cash dividends of $2.00 per share during 2014. On December 31, 2014, the stock was listed on the stock exchange at a price of $78.25 per share. Required: Compute the following ratios for 2014: (a) Accounts receivable turnover (b) Average days to collect receivables (c) Inventory turnover (d) Average days to sell inventory (e) Debt to assets ratio (f) Debt to equity ratio (g) Net margin (h) Asset turnover (i) Return on investment (j) Dividend yield Round your answers to one decimal place.