Question 1

Ontario Appliances has the following data: $\begin{array}{llc}
&2X13&2X12\
\text { Sales } & \$ 930 & \$ 700 \
\text { Less: Cost of Goods Sold } & \underline{410} & \underline{235} \
\text { Gross Profit } & 520 & 465 \
\text { Less: Operating Expenses } & \underline{260} & \underline{231} \
\text { Operating Income } & 260&234 \
\text { Less: Other Expense: Interest Expense } & \underline{(30)} & \underline{(30)} \
\text { Income before Tax } &230&204 \
\text { Less: Income Tax Expense } &\underline{92} & \underline{82} \
\text { Net Income }& \$ 138 & \$ 122
\end{array}$ What is the interest coverage for Ontario Appliances in 2X13? Has the interest coverage improved or not improved since 2X12?

Accepted Answer

The answer of Ontario Appliances has the following data: \(\begin{array}{llc}
&2X13&2X12\
\text...

Question 2

Lorna Company has the following data available: $\begin{array} { l l l l } 
\text { Current Assets: } & 2X13  & 2 X12 & 2 X11 \
\quad \text { Cash } & \$ 25 & \$ 20 & \$ 15 \
\quad \text { Accounts Receivable } & 90 & 70 & 60 \
\text { Inventcry } & 65 & 50 & 40 \
\quad \text { Prepaid Rent } & \underline { 10 } & \underline { 15 } & \underline { 5 } \
\text { Total Current Assets } & \underline { \$ 190 } & \underline { \$ 155 } & \underline { \$ 120 } \
\text { Total Long-term Assets } & \$ 60 & \$ 60 & \$ 55
\end{array}$ 
$\text{Current Liabilities:}$
$\begin{array} { c l l l } 
\text { Accounts Payable } & \$ 50 & \$ 30 & \$ 20 \
\text { Wages Payable } & 20 & 10 & 5 \
\text { Taxes Payable } & 10 & 5 & 15 \
\text { Current Long-Term Debt } & \underline { 10 } & \underline { 15 } & 5 \
\text { Total Curent Liabilities } & \underline { \$ 90 } & \underline { \$ 60 } & \$ 45 \
\text { Total Long-term Liabilities } & \$ 35 & \$ 45 & \$ 50
\end{array}$ 
What is the working capital for Lorna Company in 2X13? Has the working capital improved or not improved since 2X12?

Accepted Answer

The answer of Lorna Company has the following data available:...

Question 3

Wetzel Company has the following data: 
$\begin{array}{lccc}
2X13 & 2X12& 2X11\
\hline
\end{array}$ Current Liabilities:
$\begin{array} { l l l l } 
\text { Accounts Payable } & \mathbf { \$ } 50 & \mathbf { \$ } 30 & \mathbf { \$ 2 0 } \
\text { Wages Payable } & 20 & 10 & 5 \
\text { Taxes Payable } & 10 & 5 & 15 \
\text { Current Long-Term Debt } & \underline { 10 } & \underline { 15 } & 5 \
\text { Total Curent Liabilitief } & \mathbf { \$ 9 0 } & \mathbf { \$ } 60 & \$ 45
\end{array}$
 Long-Term Liabilities:
$\begin{array}{lccc}
\text { Long-Term Debt}  &35&45&40 \
\text { Total I iabilities} & \$ 125 & \$ 105 & \$85
\end{array}$
 Stockholders' Equity:
$\begin{array}{llll}
\text { Common Stock } \$ 5 \text { par } & \$ 50 & \$ 50 & \$ 50 \
\text { Retained Earnings } & \underline{75} & \underline{60} & \underline{40} \
\text { Total Stockholders' Equity } &\$ 125&\$ 110 & \underline{\$ 90} \
\text { Total Liab. \& Stk. Equity } & \$ 250 & \$215&\$175
\end{array}$ 
What is the total-debt-to-total-assets ratio for Wetzel Company in 2X13? Has the total-debt-to-total-assets ratio improved or not improved since 2X12?

Accepted Answer

The total-debt-to-total-assets ratio for 2X13 is calculated by dividing the total liabilities by the total assets. For 2X13, the total liabilities are $125, and the total assets (Total Liab. & Stk. Equity) are $250, so the ratio is $125 / $250 = 0.50. Comparing 2X13 to 2X12, where the total liabilities were $105 and the total assets were $215 (giving a ratio of $105 / $215 = 0.488), the ratio has increased, indicating that the company's leverage has increased, or in other words, it has not improved.

Question 4

Kornowski Company has the following data: $\begin{array}{llll}
&2X13&2X12&2X11\
\text { Sales (all credit sales) } & \$ 800 & \$ 740 & \$ 675 \
\text { Less Cost of Goods Sold } & \underline{525} & \underline{490} &450\
\text { Gross Profit }& \$ 275 &\$ 250 &\$ 225\
\end{array}$ 
$\begin{array}{lccc}
\text { Inventory  } &&&&&&& \$65 && \$ 50& \ & \$40
\end{array}$
 What is the inventory turnover for Kornowski Company in 2X13? Has the inventory turnover improved or not improved since 2X12?

Accepted Answer

The answer of Kornowski Company has the following data: \(\begin{array}{llll}
&2X13&2X12&2X11\
\text...

Question 5

Beck Company has the following data available: 
$\begin{array}{l}
\begin{array}{lll}
\
\text { Net Income}\
\
 \underline{\text { Stockholders' Equity:}}\
\text { Common Stock \$5 par}\
\text { Retained Earnings}\
\text { Total Stockholders' Equity}\
\end{array}
\begin{array}{lll}
 \underline{2 X 13}& \underline{2 X 12} & \underline{2 X 11}  \
\underline{\$ 64} & \underline{\underline{\$ 56}} & \underline{\underline{\$ 52}}\
\
\
\$ 50 & \$ 50 & \$ 50 \
\underline{75} & \underline{60} & \underline{40} \
\underline{\$ 125} & \underline{\underline{\$ 110}} & \underline{\underline{\$ 90}}\
\end{array}
\end{array}$
What are the earnings per share for Beck Company in 2X13? Have the earnings per share improved or not improved since 2X12?

Accepted Answer

The answer of Beck Company has the following data available:...

Question 6

Yellow Company has the following data available: $\begin{array} { l l l l } 
\text { Current Assets: } & 2X13  & 2 X12 & 2 X11 \
\quad \text { Cash } & \$ 25 & \$ 20 & \$ 15 \
\quad \text { Accounts Receivable } & 90 & 70 & 60 \
\text { Inventcry } & 65 & 50 & 40 \
\quad \text { Prepaid Rent } & \underline { 10 } & \underline { 15 } & \underline { 5 } \
\text { Total Current Assets } & \underline { \$ 190 } & \underline { \$ 155 } & \underline { \$ 120 } \
\text { Total Long-term Assets } & \$ 60 & \$ 60 & \$ 55
\end{array}$ 
Current Liabilities:
$\begin{array} { c l l l } 
\text { Accounts Payable } & \$ 50 & \$ 30 & \$ 20 \
\text { Wages Payable } & 20 & 10 & 5 \
\text { Taxes Payable } & 10 & 5 & 15 \
\text { Current Long-Term Debt } & \underline { 10 } & \underline { 15 } & 5 \
\text { Total Curent Liabilities } & \underline { \$ 90 } & \underline { \$ 60 } & \$ 45 \
\text { Total Long-term Liabilities } & \$ 35 & \$ 45 & \$ 50
\end{array}$ 
What is the quick ratio for Yellow Company in 2X13? Has the quick ratio improved or not improved since 2X12?

Accepted Answer

The quick ratio is calculated as (Cash + Accounts Receivable) / Current Liabilities. For 2X13, it is (25 + 90) / 90 = 1.28. For 2X12, it is (20 + 70) / 60 = 1.5. The quick ratio has not improved from 2X12 to 2X13.

Question 7

The following financial statements are available for Jerry Company:
 
 $ \quad$ $ \quad$ $ \quad$ $ \quad$$\text { Comparative Income Statements  }$
$\text { For the Years Ending December } 31,2 \times 13 \text { and } 2 \times 12$

$ \quad$$\begin{array}{lrr}
&\underline{2 X 13}& \underline{2 X} 12 \
\text { Sales (all credit) } & \$ 750 & \$ 690 \
\text { Cost of Goods Sold } &\underline{ 440 }& \underline{400}\
\text { Gross Profit } & \$ 310 & \$ 290 \
\text { Less: Operating Expenses } & \underline{220} & \underline{205}\
\text { Operating Income } & \$ 90 & \$ 85 \
\text { Less: Income Tax Expense } & \underline{40} & \underline{37} \
\text { Net Income } & \underline{\$ 50}& \underline{\underline{48}}
\end{array}$

$ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$$ \quad$$ \quad$$\text { Comparative Balance Sheets }$
 $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$$\text { December } 31,2 \times 13 \text { and } 2 \times 12$

\(\begin{array}{l}
\begin{array}{lll}
&\underline{2 X 13}& \underline{2 X} 12 \
 \underline{\text { Current Assets: }} \
 \text { Cash } & \$ 20 & \$ 15 \
\text { Accounts Receivable } & 45 & 37 \
\text { Inventory } & \underline{60} & \underline{70} \
\text { Total Current Assets } & \$ 125 & \$ 122\
 \underline{\text { Long-Term Assets: }} \
\text { Equipment } & \$ 290 & \$ 200 \
\text { Less: Accum. Depr. } & \underline{(160)} & \underline{(140)} \
\text { Total Long-Term Assets } & \underline{\$ 130} & \underline{\$ 60}\
\
\
\text { Total Assets} & \underline{\$ 255} & \underline{\$ 180}\
\end{array}
\begin{array}{lll}
&\underline{2 X 13}& \underline{2 X} 12 \
\underline{ \text { Current Liabilities: }}\
\text { Accounts Payable } & \$ 24 & \$ 20 \
\text { Taxes Payable } & 11 & 15 \
\text { Note Pavable } & \underline{ 7} &  \underline{18}\
\text { Total Current Liab. } & \$ \overline{42} & \$ \overline{53} \
\text { Long-Term Liabilities } & \underline{80} & \underline{30} \
\text { Total Liabilities } &  \underline{\$ 122} & \underline{ \$ 83}\
\underline{ \text { Stockholders' Equity: }}\
\text { Common Stock } & \$ 40 & \$ 40 \
\text { Retained Earnings } & \underline{93} & \underline{59} \
\text { ockholders' Equity } &\underline{ \$ 133} &\underline{ \$ 99}\
\text { Total Liab. \& } \
\text { Stockholders' Equity } &\underline{ \$ 255} &\underline{ \$ 182}\
\end{array}
\end{array}\)
 Use the above information to determine the following ratios for 2X13:
a.Quick ratio
b.Average collection period in days
c.Total-debt-to-total-equity
d.Pretax return on assets (ROA)
e.Return on common stockholder's equity (ROE)

Accepted Answer

The answer of The following financial statements are available for...

Question 8

Zeman Company has the following data: $\begin{array}{llll}
&2X13&2X12&2X11\
\text { Sales (all credit sales) } & \$ 800 & \$ 740 & \$ 675 \
\text { Less Cost of Goods Sold } & \underline{525} & \underline{490} &450\
\text { Gross Profit }& \$ 275 &\$ 250 &\$ 225\
\end{array}$ $\begin{array} { l l l l } 
\text { Operating Profit } &&&& \$ 125 & \$ 110 & \$ 104 \
\text { Net Income } &&&& \$ 4 & \$56 & \$52
\end{array}$ 
What is the return on sales for Zeman Company in 2X13? Has the return on sales improved or not improved since 2X12?

Accepted Answer

Return on sales = Gross profit/Sales= 275/800= 0.344 or 34.4%The return on sales has improved since 2X12, as it was 250/740 = 0.338 or 33.8% in 2X12.

Question 9

Liquidity focuses on whether there are sufficient current assets to satisfy current liabilities as they become due.

Accepted Answer

Liquidity is defined as the ability of a company to meet its short-term obligations using its current assets. Thus, it focuses on whether a company has enough current assets to satisfy its current liabilities when they become due.

Question 10

Valdo Vinyls has the following data available: $\begin{array}{lll}
&&&&2X13 & 2X12\
\text { Sales } &&&& \$ 930 & \$ 700 \
\text { Less Cost of Goods Sold } &&&& \underline{410} & \underline{235} \
\text { Gross Profit } &&&& \$ 520 & \$ 465
\end{array}$ $\begin{array}{lccc}
\text { Income Before Interest and Taxes} & \$ 200& \$ 222 \
 \text { Net Income } & \$ 138 & \$ 122
\end{array}$
 What is the return on sales for Valdo Vinyls in 2X13? Has the return on sales improved or not improved since 2X12?

Accepted Answer

The return on sales for 2X13 is calculated as Net Income/Sales = 138/930 = 14.8%. Comparing it to 2X12, which is 122/700 = 17.4%, the return on sales has not improved.

Question 11

A cross-sectional evaluation of financial ratios involves comparing a company's financial ratios with the ratios of other companies.

Accepted Answer

Cross-sectional evaluation of financial ratios involves comparing a company's financial ratios with the ratios of other companies. This is because financial ratios are most useful when they are compared with the ratios of other companies in the same industry or sector.

Question 12

Grady Company's inventory turnover was 8.2 in 2X13.After analyzing several similar,competing companies,Grady Company found that the average inventory turnover for those companies was 11.8.What should Grady Company consider doing?

Accepted Answer

Grady Company should consider decreasing inventory by increasing sales to improve their inventory turnover ratio. Compared to their competitors, their inventory turnover is lower, meaning they are holding onto inventory for a longer period of time than necessary. By decreasing inventory and increasing sales, they can improve their inventory turnover ratio and potentially increase their profitability. Purchasing more inventory or changing the calculation method for inventory turnover would not necessarily improve their ratio. Decreasing sales would also not be a viable solution for improving inventory turnover.

Question 13

The quick ratio is calculated as current assets divided by current liabilities.

Accepted Answer

The quick ratio is calculated as (current assets - inventory) divided by current liabilities.

Question 14

Purple Company has the following data available: $\begin{array} { l l l l } 
\text { Current Assets: } & 2X13  & 2 X12 & 2 X11 \
\quad \text { Cash } & \$ 25 & \$ 20 & \$ 15 \
\quad \text { Accounts Receivable } & 90 & 70 & 60 \
\text { Inventcry } & 65 & 50 & 40 \
\quad \text { Prepaid Rent } & \underline { 10 } & \underline { 15 } & \underline { 5 } \
\text { Total Current Assets } & \underline { \$ 190 } & \underline { \$ 155 } & \underline { \$ 120 } \
\text { Total Long-term Assets } & \$ 60 & \$ 60 & \$ 55
\end{array}$ 
Current Liabilities:
$\begin{array} { c l l l } 
\text { Accounts Payable } & \$ 50 & \$ 30 & \$ 20 \
\text { Wages Payable } & 20 & 10 & 5 \
\text { Taxes Payable } & 10 & 5 & 15 \
\text { Current Long-Term Debt } & \underline { 10 } & \underline { 15 } & 5 \
\text { Total Curent Liabilities } & \underline { \$ 90 } & \underline { \$ 60 } & \$ 45 \
\text { Total Long-term Liabilities } & \$ 35 & \$ 45 & \$ 50
\end{array}$ 
What is the current ratio for Purple Company in 2X13? Has the current ratio improved or not improved since 2X12?

Accepted Answer

The answer of Purple Company has the following data available:...

Question 15

Product Line Inc.has the following data: $\begin{array} { l l l l } 
& \underline { 2 \times 13 } & \underline { 2 \times 12 } & \underline { 2 \times 11 } \
\text { Sales (all credit sales) } & \$ 800 & \$ 740 & \$ 675 \
\text { Less: Cost of Goods Sold }  & \underline { 525 } & \underline { 490 } & \underline { 450 } \
\text { Grosi Profit }& \$ 275 & \$ 250 & \$ 225 \
 \text { Less: Operating Expenses } & \underline { 150 } & \underline { 140 } & \underline { 125 } \
\text { Operating Income }& \$ 125 & \$ 110 & \$ 100 \
\text { Less: Other Expense: Interest }  & \underline { 10 } & \underline { 8 } & \underline { 5 } \
\text { Income before Tax }& \$ 115 & \$ 102 & \$ 95 \
\text { Less: Income Tax Expense }  & \underline { 51 } & \underline { 46 } & \underline { 43 } \
\text { Net Income }& \underline { \$64 } & \underline { \$56 }&  \underline { \$52 } \

\end{array}$ What is the interest coverage for Product Line Inc.in 2X13? Has the interest coverage improved or not improved since 2X12?

Accepted Answer

The answer of Product Line Inc.has the following data: \(\begin{array}...

Question 16

The cornerstone of financial statement analysis is the use of ratios.

Accepted Answer

Ratios are used to analyze and interpret financial statements by measuring the relationship between different numbers on the financial statements, such as revenue to expenses, assets to liabilities, and profits to sales. These ratios are key tools for financial statement analysis and help investors, creditors, and other stakeholders make informed decisions about a company's financial health and performance.

Question 17

Vivian Company has the following data available: $\begin{array} { l l l l } 
& \underline { 2 \times 13 } & \underline { 2 \times 12 } & \underline { 2 \times 11 } \
\text { Total Current Assets } & \$ 338 & \$ 182 & \$ 150 \
\text { Totnl Long-term Assets } & \$ 468 & \$ 508 & \$ 400\
\text { Total Stockholders' Equity } & \$ 467& \$ 389& \$ 300\
\end{array}$ $\begin{array}{lll}

\text { Sales } &&\$930& \$ 700 & \$ 600 \
\text { Less Cost of Goods Sold } && \underline{410} & \underline{235} & \underline{300} \
\text { Gross Profit } && \$ 520 & \$ 465&\$300
\end{array}$ 
What is the total asset turnover for Vivian Company in 2X13? Has the total asset turnover improved or not improved since 2X12?

Accepted Answer

The total asset turnover for 2X13 is calculated as Sales (\$930) divided by Total Assets (\$338 + \$468 = \$806), which equals approximately 1.2. Comparing this to 2X12, where Sales (\$700) divided by Total Assets (\$182 + \$508 = \$690) equals approximately 1.01, the turnover has improved.

Question 18

Redwing Company has the following data: $\begin{array}{llll}
&2X13&2X12&2X11\
\text { Sales (all credit sales) } & \$ 800 & \$ 740 & \$ 675 \
\text { Less Cost of Goods Sold } & \underline{525} & \underline{490} &450\
\text { Gross Profit }& \$ 275 &\$ 250 &\$ 225\
\end{array}$ 
Current Assets:
$\begin{array} { l l l l } 
\text { Cash } & \$ 25 & \$ 20 & \$ 15 \
\text { Accounts Receivable } & 90 & 70 & 60 \
\text { Inventery } & 65 & 50 & 40 \
\text { Prepaid Rent } & \underline { 10 } & \underline { 15 } & 5 \
\text { Total Current Assets } & \$ 190 & \$ 155 & \$ 120
\end{array}$ 
What is the average collection period in days for Redwing Company in 2X13? Has the average collection period in days improved or not improved since 2X12?

Accepted Answer

The answer of Redwing Company has the following data: \(\begin{array}{llll}
&2X13&2X12&2X11\
\text...

Question 19

A comparison of a company's financial ratios with its own historical ratios is referred to as a cross-sectional comparison.

Accepted Answer

A cross-sectional comparison involves comparing the financial ratios of a company with those of its peers or competitors at a specific point in time. A comparison of a company's financial ratios with its own historical ratios is called a time-series analysis.

Question 20

Cider Company has the following data: 
$\begin{array}{lccc}
2X13 & 2X12& 2X11\
\hline
\end{array}$ 
Current Liabilities:
$\begin{array} { l l l l } 
\text { Accounts Payable } & \$ 50 & \$ 30 & \$ 20 \
\text { Wages Payable } & 20 & 10 & 5 \
\text { Taxes Payable } & 10 & 5 & 15 \
\text { Current Long-Term Debt } & \underline { 10 } & \underline { 15 } & 5 \
\text { Totel Curent Liabilitief } & \$ 90 & \$ 60 & \$ 45
\end{array}$ 
Long-Term Liabilities:
$\begin{array}{lccc}
\text { Long-Term Debt}  &35&45&40 \
\text { Total I iabilities} & \$ 125 & \$ 105 & \$85
\end{array}$
 Stockholders' Equity:
$\begin{array}{llll}
\text { Common Stock } \$ 5 \text { par } & \$ 50 & \$ 50 & \$ 50 \
\text { Retained Earnings } & \underline{75} & \underline{60} & \underline{40} \
\text { Total Stockholders' Equity } &\$ 125&\$ 110 & \underline{\$ 90} \
\text { Total Liab. \& Stk. Equity } & \$ 250 & \$215&\$175
\end{array}$ 
What is the total-debt-to-total-equity ratio for Cider Company in 2X13? Has the total-debt-to-total equity ratio improved or not improved since 2X12?

Accepted Answer

The total-debt-to-total-equity ratio for 2X13 is calculated as Total Liabilities (\$125) divided by Total Stockholders' Equity (\$125), which equals 1.00. Comparing this to 2X12, where the ratio was 105/110 = 0.95, the ratio has not improved as it has increased.

Quiz 12: Financial Statement Analysis