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Exam 13: Analysis of Financial Statements

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Question 121

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What are the four standards for comparisons in financial analysis? Give an example of each.

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The standards are intra-company comparis...

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Question 122

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Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in both dollar amounts and percentages, are referred to as:

A) Period-to-period statements.
B) Controlling statements.
C) Successive statements.
D) Comparative statements.
E) Serial statements.

F) A) and D)
G) All of the above

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Question 123

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A good financial report does not link interpretations and conclusions of analysis with the underlying information.

For the following financial statement items, calculate trend percentages using 2016 as the base year: $\begin{array}{|l|r|r|r|r|r|r|} \hline &{2020} & {2019} & {2018} & {2017} & {2016} \\\hline \text { Sales.............. } & \$ 1,195,400 & \$ 1,118,000 & \$ 1,049,000 & \$ 963,200 & \$ 860,000 \\\hline \text { Cost of sales........... } & 752,400 & 704,000 & 671,000 & 616,700 & 559,000 \\\hline \text { Gross profit........... } & \$ 443,000 & \$ 414,000 & \$ 378,000 & \$ 346,500 & \$ 301,000\\\hline\end{array}$

A corporation reports the following year-end balance sheet data. The company's debt-to-equity ratio equals: $\begin{array} { | l | r |r| r | } \hline \text { Cash } & \$ 40,000 & \text { Current liabilities } & \$ 75,000 \\\hline \text { Accounts receivable } & 55,000 & \text { Long-term liabilities } & 35,000 \\\hline \text { nnventory } & 60,000 & \text { Common stock } & 100,000 \\\hline \text { Equipment } & \underline { 145,000 } & \text { Retained earnings } & \underline { 90,000 } \\\hline\text { Total assets } & \underline{\$ 300,000 }& \text { Total liabilities and equity } &\underline{ \$ 300,000 }\\\hline\end{array}$

All of the following statements regarding a business segment are true except:

A company with a high inventory turnover requires a smaller investment in inventory than one producing the same sales with a lower turnover.

Liquidity refers to the availability of resources to meet short-term cash requirements.

Refer to the following selected financial information from McCormik, LLC. Compute the company's working capital for Year 2. $\begin{array} { | l | r | r | } \hline & \text { Year 2 } & { \text { Year 1 } } \\\hline \text { Cash } & \$ 37,500 & 36,850 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100 & 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,00 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$

When a negative amount is in the base period and a positive amount is in the analysis period (or vice versa), a meaningful percent change cannot be calculated.

Current assets minus current liabilities is:

The comparison of a company's financial condition and performance across time is known as:

The dollar change for a comparative financial statement item is calculated by: