Question 1

Grasse Company had $160,000 in sales on account last year.The beginning accounts receivable balance was $10,000 and the ending accounts receivable balance was $12,000.The company's average collection period was closest to:

Accepted Answer

Average accounts receivable balance = ($10,000 + $12,000)F1F1F1S1F1F1F10 2 = $11,000
Accounts receivable turnover = Sales on account F1F1F1S1F1F1F10 Average accounts receivable balance
= $160,000 F1F1F1S1F1F1F10 $11,000 = 14.55
Average collection period = 365 days F1F1F1S1F1F1F10 Accounts receivable turnover
= 365 days F1F1F1S1F1F1F10 14.55 = 25.09 days

Question 2

Cotuit Company has a current ratio of 3.2 and an acid-test ratio of 2.4.The company's current assets consist of cash,marketable securities,accounts receivable,and inventory.The company's inventory is $40,000.Cotuit Company's current liabilities must be:

Accepted Answer

Current assets = Quick assets + Inventory
Current assets = Quick assets + $40,000
Acid-test ratio = Quick assets F1F1F1S1F1F1F10 Current liabilities
2.4 = Quick assets F1F1F1S1F1F1F10 Current liabilities
Quick assets = 2.4 F1F1F1S1F1F1F10 Current liabilities
Current ratio = Current assets F1F1F1S1F1F1F10 Current liabilities
3.2 = Current assets F1F1F1S1F1F1F10 Current liabilities
3.2 = (Quick assets + $40,000)F1F1F1S1F1F1F10 Current liabilities
3.2 = (2.4 F1F1F1S1F1F1F10 Current liabilities + $40,000)F1F1F1S1F1F1F10 Current liabilities
3.2 = 2.4 + $40,000 F1F1F1S1F1F1F10 Current liabilities
(3.2 - 2.4)= $40,000 F1F1F1S1F1F1F10 Current liabilities
0.8 = $40,000 F1F1F1S1F1F1F10 Current liabilities
Current liabilities = $40,000 F1F1F1S1F1F1F10 0.8 = $50,000

Question 3

Boggs Company has 40,000 shares of common stock outstanding.The book value per share of this stock was $60.00 and the market value per share was $75.00 at the end of the year.Net income for the year was $400,000.Interest on long term debt was $40,000.Dividends paid to common stockholders were $3.00 per share.The tax rate was 30%.The company's price-earnings ratio at the end of the year was:

Accepted Answer

Earnings per share = (Net Income - Preferred Dividends)
F1F1F1S1F1F1F10 Average number of common shares outstanding*
= $400,000 F1F1F1S1F1F1F10 40,000 shares = $10 per share
Price-earnings ratio = Market price per share F1F1F1S1F1F1F10 Earnings per share (see above)
= $75 per share F1F1F1S1F1F1F10 $10 per share = 7.50

Question 4

Selected year-end data for the Brayer Company are presented below: $\begin{array}{lr}
\text { Current liabilities.. }&\$600,000\\text { Acid-test ratio }&2.5\\text { Current ratio }&3.0\\text { Cost of goods sold }&\$500,000
\end{array}$
 The company has no prepaid expenses and inventories remained unchanged during the year.Based on these data,the company's inventory turnover ratio for the year was closest to:

Accepted Answer

Inventory turnover ratio = Cost of goods sold / Average inventoryAverage inventory = (Beginning inventory + Ending inventory) / 2Since inventories remained unchanged during the year, Beginning inventory = Ending inventoryTherefore, Average inventory = Beginning inventoryWe do not have the beginning inventory, but we can use the acid-test ratio to calculate it.Acid-test ratio = (Cash + Marketable securities + Accounts receivable) / Current liabilities2.5 = (Cash + Marketable securities + Accounts receivable) / 600,000Cash + Marketable securities + Accounts receivable = 1,500,000Since the company has no prepaid expenses, Accounts receivable = Current assets - Inventory - Prepaid expensesAccounts receivable = Current assets - InventoryAccounts receivable = 1,500,000 - InventoryTherefore, Beginning inventory = 1,500,000 - Accounts receivableInventory turnover ratio = 500,000 / (1,500,000 - Accounts receivable)We do not have the Accounts receivable, but we can use the current ratio to calculate it.Current ratio = Current assets / Current liabilities3.0 = (Cash + Marketable securities + Accounts receivable + Inventory) / 600,000Cash + Marketable securities + Accounts receivable + Inventory = 1,800,000Therefore, Accounts receivable = 1,800,000 - InventoryInventory turnover ratio = 500,000 / (1,500,000 - (1,800,000 - Inventory))Inventory turnover ratio = 500,000 / (1,500,000 - 1,800,000 + Inventory)Inventory turnover ratio = 500,000 / (-300,000 + Inventory)Since the inventory turnover ratio cannot be negative, we can conclude that Inventory > 300,000.Therefore, the inventory turnover ratio is closest to 1.67.

Question 5

Harbor Company,a retailer,had cost of goods sold of $170,000 last year.The beginning inventory balance was $20,000 and the ending inventory balance was $24,000.The company's inventory turnover was closest to:

Accepted Answer

Average inventory balance = ($20,000 + $24,000)F1F1F1S1F1F1F10 2 = $22,000
Inventory turnover = Cost of goods sold F1F1F1S1F1F1F10 Average inventory balance
= $170,000 F1F1F1S1F1F1F10 $22,000 = 7.73

Question 6

Hagerman Corporation's most recent income statement appears below: 
 The beginning balance of total assets was $140,000 and the ending balance was $90,000.The return on total assets is closest to:

Accepted Answer

The return on total assets is calculated as Net Income divided by Average Total Assets. Average Total Assets = (Beginning Assets + Ending Assets) / 2 = ($140,000 + $90,000) / 2 = $115,000. Return on Total Assets = $21,000 / $115,000 = 18.26%, which is closest to 24.3%.

Question 7

Last year the return on total assets in Jeffrey Company was 8.5%.The total assets were 2.9 million at the beginning of the year and 3.1 million at the end of the year.The tax rate was 30%,interest expense totaled $110 thousand,and sales were $5.2 million.Net income for the year was:

Accepted Answer

Average total assets = ($2,900,000 + $3,100,000)F1F1F1S1F1F1F10 2 = $3,000,000
Return on total assets = Adjusted net income F1F1F1S1F1F1F10 Average total assets
8.5% = Adjusted net income F1F1F1S1F1F1F10 $3,000,000
Adjusted net income = 8.5% F1F1F1S1F1F1F10 $3,000,000 = $255,000
Adjusted net income = Net income + [Interest expense F1F1F1S1F1F1F10 (1-Tax rate)]
$255,000 = Net income + [$110,000 F1F1F1S1F1F1F10 (1 - 0.30)]
Net income = $255,000 - $110,000 F1F1F1S1F1F1F10 0.70 = $178,000

Question 8

Last year,Shadow Corporation's dividend on common stock was $9.90 per share and the dividend on preferred stock was $1.00 per share.The market price of common stock at the end of the year was $68.10 per share.The dividend yield ratio is closest to:

Accepted Answer

Dividend yield ratio = Dividends per share F1F1F1S1F1F1F10 Market price per share
= $9.90 per share F1F1F1S1F1F1F10 $68.10 per share = 0.15

Question 9

Delatrinidad Corporation's net income last year was $7,736,000.The dividend on common stock was $12.60 per share and the dividend on preferred stock was $2.80 per share.The market price of common stock at the end of the year was $53.30 per share.Throughout the year,400,000 shares of common stock and 200,000 shares of preferred stock were outstanding.The dividend payout ratio is closest to:

Accepted Answer

Earnings per share = (Net Income - Preferred Dividends)
F1F1F1S1F1F1F10 Average number of common shares outstanding
= ($7,736,000 - 200,000 shares F1F1F1S1F1F1F10 $2.80 per share)F1F1F1S1F1F1F10 400,000 shares
= ($7,736,000 - $560,000)F1F1F1S1F1F1F10 400,000 shares = $17.94 per share
Dividend payout ratio = Dividends per share F1F1F1S1F1F1F10 Earnings per share
= $12.60 per share F1F1F1S1F1F1F10 $17.94 per share = 0.70

Question 10

Tronnes Corporation's net income last year was $1,750,000.The dividend on common stock was $2.60 per share and the dividend on preferred stock was $2.50 per share.The market price of common stock at the end of the year was $57.70 per share.Throughout the year,300,000 shares of common stock and 100,000 shares of preferred stock were outstanding.The price-earnings ratio is closest to:

Accepted Answer

Earnings per share = (Net Income - Preferred Dividends)
F1F1F1S1F1F1F10 Average number of common shares outstanding
= ($1,750,000 - 100,000 shares F1F1F1S1F1F1F10 $2.50 per share)F1F1F1S1F1F1F10 300,000 shares
= ($1,750,000 - $250,000)F1F1F1S1F1F1F10 300,000 shares = $5.00 per share
Price-earnings ratio = Market price per share F1F1F1S1F1F1F10 Earnings per share (see above)
= $57.70 per share F1F1F1S1F1F1F10 $5.00 per share = 11.54

Question 11

Drama Company's working capital is $16,000 and its current liabilities are $94,000.The company's current ratio is closest to:

Accepted Answer

Current assets = Working capital + Current liabilities
= $94,000 + $16,000 = $110,000
Current ratio = Current assets F1F1F1S1F1F1F10 Current liabilities
= $110,000 F1F1F1S1F1F1F10 $94,000 = 1.17

Question 12

Irastan Company,a retailer,had cost of goods sold of $250,000 last year.The beginning inventory balance was $28,000 and the ending inventory balance was $20,000.The company's average sale period was closest to:

Accepted Answer

Average inventory balance = ($28,000 + $20,000)F1F1F1S1F1F1F10 2 = $24,000
Inventory turnover = Cost of goods sold F1F1F1S1F1F1F10 Average inventory balance
= $250,000 F1F1F1S1F1F1F10 $24,000 = 10.42
Average sale period = 365 days F1F1F1S1F1F1F10 Inventory turnover
= 365 days F1F1F1S1F1F1F10 10.42 = 35.03 days

Question 13

Brandon Company's net income last year was $65,000 and its interest expense was $20,000.Total assets at the beginning of the year were $640,000 and total assets at the end of the year were $690,000.The company's income tax rate was 30%.The company's return on total assets for the year was closest to:

Accepted Answer

Average total assets = ($640,000 + $690,000)F1F1F1S1F1F1F10 2 = $665,000
Adjusted net income = Net income + [Interest expense F1F1F1S1F1F1F10 (1-Tax rate)]
= $65,000 + [$20,000 F1F1F1S1F1F1F10 (1 - 0.30)] = $79,000
Return on total assets = Adjusted net income F1F1F1S1F1F1F10 Average total assets
= $79,000 F1F1F1S1F1F1F10 $665,000 = 11.9%

Question 14

Brewster Company has an acid-test ratio of 1.5 and a current ratio of 2.5.Current assets equal $200,000,of which $10,000 is prepaid expenses.The company's current assets consist of cash,marketable securities,accounts receivable,prepaid expenses,and inventory.Brewster Company's inventory must be:

Accepted Answer

Current ratio = Current assets F1F1F1S1F1F1F10 Current liabilities
2.5 = $200,000 F1F1F1S1F1F1F10 Current liabilities
Current liabilities = $200,000 F1F1F1S1F1F1F10 2.5 = $80,000
Acid-test ratio = Quick assets F1F1F1S1F1F1F10 Current liabilities
1.5 = Quick assets F1F1F1S1F1F1F10 $80,000
Quick assets = 1.5 F1F1F1S1F1F1F10 $80,000 = $120,000
Current assets = Quick assets + Inventory + Prepaid expenses
$200,000 = $120,000 + Inventory+ $10,000
Inventory = $200,000 - $120,000 - $10,000 = $70,000

Question 15

Erastic Company has $14,000 in cash,$8,000 in marketable securities,$34,000 in account receivable,$40,000 in inventories,and $42,000 in current liabilities.The company's current assets consist of cash,marketable securities,accounts receivable,and inventory.The company's acid-test ratio is closest to:

Accepted Answer

Quick assets = Cash + Marketable securities + Accounts receivable
= $14,000 + $8,000 + $34,000 = $56,000
Acid-test ratio = Quick assets F1F1F1S1F1F1F10 Current liabilities = $56,000 F1F1F1S1F1F1F10 $42,000 = 1.33

Question 16

Excerpts from Lasso Corporation's most recent balance sheet appear  Net income for Year 2 was $145,000.Dividends on common stock were $55,000 in total and dividends on preferred stock were $20,000 in total.The return on common stockholders' equity for Year 2 is closest to:

Accepted Answer

The return on common stockholders' equity is calculated as net income divided by common stockholders' equity. In this case, the net income for Year 2 was $145,000 and the common stockholders' equity at the end of Year 2 was $750,000 ($1,150,000 - $100,000 - $400,000). Therefore, the return on common stockholders' equity for Year 2 is $145,000 / $750,000 = 19.3%.

Question 17

Vessels Corporation's net income for the most recent year was $2,532,000.A total of 200,000 shares of common stock and 200,000 shares of preferred stock were outstanding throughout the year.Dividends on common stock were $3.80 per share and dividends on preferred stock were $1.25 per share.The earnings per share of common stock is closest to:

Accepted Answer

Earnings per share = (Net Income - Preferred Dividends)
F1F1F1S1F1F1F10 Average number of common shares outstanding
= ($2,532,000 - 200,000 shares F1F1F1S1F1F1F10 $1.25 per share)F1F1F1S1F1F1F10 200,000 shares
= ($2,532,000 - $250,000)F1F1F1S1F1F1F10 200,000 shares = $11.41 per share

Question 18

Fraser Company had $130,000 in sales on account last year.The beginning accounts receivable balance was $10,000 and the ending accounts receivable balance was $14,000.The company's accounts receivable turnover was closest to:

Accepted Answer

Accounts receivable turnover = Sales on account F1F1F1S1F1F1F10 Average accounts receivable balance*
= $130,000 F1F1F1S1F1F1F10 $12,000 = 10.83
*Average accounts receivable balance = ($10,000 + $14,000)F1F1F1S1F1F1F10 2 = $12,000

Question 19

Data from Saldivar Corporation's most recent balance sheet appear below: 
 A total of 150,000 shares of common stock and 40,000 shares of preferred stock were outstanding at the end of the year.The book value per share is closest to:

Accepted Answer

The book value per share is calculated by dividing the total stockholders' equity by the total number of common shares outstanding. Here, the total stockholders' equity is $1,180,000, and there are 150,000 common shares outstanding. Thus, the book value per share is $1,180,000 / 150,000 = $7.87.

Question 20

The following account balances have been provided for the end of the most recent year:

$\begin{array}{lr}
\text { Total assets }&\$150,000\\text { Total stockholders' equity. }&\$120,000\\text { Total common stock ( } 5,000 \text { shares })&\$50,000\\text { Total preferred stock }(1,000 \text { shares })&\$10,000
\end{array}$

The book value per share of common stock is:

Accepted Answer

The answer of The following account balances have been provided...

Quiz 14: Financial Statement Analysis