Exam 5: Using Financial Statement Information

Sheena Company has current assets, current liabilities, and long-term liabilities of $20,000, $13,000, and $17,000, respectively. Within these amounts, $2,000 is accounts payable, and $3,500 is accounts receivable. If $2,000 of cash were used to pay off the accounts payable, what effect would this have on the current ratio?

Norton Company has the following assets on January 1, 2017 and January 1, 2016. 1/1/17 1/1/16 Cash \ 430,000 \ 370,000 Accounts receivables ? 333,000 Marketable securities 36,000 130,000 Irventory 220,000 ? Net plant and equipment 120,000 129,000 If Norton's current ratio is 2.20 for 2016 and its current liabilities are $600,000, what is the amount of its inventory?

The DuPont model is

Use the information that follows taken from Tyler Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 90 \5 0 Accounts receivable 60 80 Inventory 40 80 Land, building, and equipment Total Assets Liabilities and Shareholders' Equity Accounts payable \ 5 \ 85 Common stock 260 260 Retained earnings Total Liabilities \& Shareholders' Equity \ \ Income Statement Information Sale revenue \8 50 Cost of goods sold Gross profit \2 50 Operating expenses Net income The industry in which Tyler is a member has an average debt/equity ratio of 0.98. Determine if, as measured by Tyler's debt/equity ratio on December 31, 2017, Tyler is taking full advantage of investing borrowed capital in its operations relative to that of the average firm in its industry.

The quick ratio helps assess a company's

Buffalo Company has current assets, current liabilities, and long-term liabilities of $10,500, $3,000, and $4,000, respectively at the end of 2017. How much cash can Buffalo use to acquire equipment and retain a current ratio of at least 2.0?

Madison Company has current assets, current liabilities, and long-term liabilities of $8,000, $4,000, and $6,000, respectively. Within these amounts, inventory was $1,000, receivables were $3,000, cash was $4,000, and payables were $1,000. Calculate Madison's quick ratio. What information does this provide?

What role do investment services, such as Moody's and Standard & Poor's, play in the assessment of a business environment?

Monroe Company has total assets, liabilities, and shareholders' equity of $27,000, $20,000, and $7,000, respectively. Assume no material change occurred during the year to totals on the balance sheet. What amount of long-term debt must Monroe retire by issuing new shares of common stock issued in order to decrease its debt/equity ratio to 1.0?

The following ratios were computed from the financial statement of Darren Technologies: 2018 2017 2016 Return on equity 0.30 0.27 0.23 Return on assets 0.17 0.20 0.22 Common equity leverage 0.87 0.90 0.92 Capital structure leverage 2.22 1.60 1.24 Profit margin 0.11 0.10 0.09 Asset turnover 1.69 2.27 2.87 Which of the following statements is true?

Rudy Company has total assets, liabilities, and shareholders' equity of $28,000, $21,000, and $7,000, respectively. Assume no material change occurred during the year to totals on the balance sheet. What amount of long-term debt must Rudy exchange for new shares of common stock issued in order to decrease its debt/equity ratio to 1.0?

Use the information that follows taken from Carter Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 70 \ 80 Accounts receivable 40 40 Inventory 40 60 Land, building, and equipment Total Assets \ \ Liabilities and Shareholders' Equity Accounts payable \ 95 \ 245 Common stock 210 210 Retained earnings 135 35 Total Liabilities \& Shareholders' Equity $\begin{array}{lr}\text { Income Statement Information }\\\text { Sales (all sales are on credit) } & \$ 900 \\\text { Cost of goods sold } & \underline{300} \\\text { Gross profit } & {\$600}\\\text { Operating expenses } & \underline{ 500} \\\text { Net income } & \underline{ \$(100)} \end{array}$ If the industry in which Carter is a member has an average current ratio of 1.9, determine if, on December 31, 2017, Carter is more or less solvent than the average firm in its industry as measured by its current ratio.

Investors who use accounting information to guide trading in foreign securities

Use the information that follows taken from Tyler Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 90 \5 0 Accounts receivable 60 80 Inventory 40 80 Land, building, and equipment Total Assets Liabilities and Shareholders' Equity Accounts payable \ 5 \ 85 Common stock 260 260 Retained earnings Total Liabilities \& Shareholders' Equity \ \ Income Statement Information Sale revenue \8 50 Cost of goods sold Gross profit \2 50 Operating expenses Net income Using the current and quick ratios, indicate whether Tyler's solvency position improved or deteriorated during 2017.

Which of the following ratios would be of primary importance to a manager in evaluating the success of a computerized collection process?

Use the information that follows taken from Tyler Company's financial statements for the years ending December 31, 2017 and 2016. Balance Sheet Information 2017 2016 Assets Cash \ 90 \5 0 Accounts receivable 60 80 Inventory 40 80 Land, building, and equipment Total Assets Liabilities and Shareholders' Equity Accounts payable \ 5 \ 85 Common stock 260 260 Retained earnings Total Liabilities \& Shareholders' Equity \ \ Income Statement Information Sale revenue \8 50 Cost of goods sold Gross profit \2 50 Operating expenses Net income The industry in which Tyler is a member has an average accounts receivable turnover of 10 times. How does Tyler compare in 2017? Comment on what information is provided with this calculation and how credit managers might use it to make decisions. Assume all sales were credit sales.

Which one of the following is a reason a company's reported book value and its true value may differ?

Using borrowed funds to generate returns for the shareholders is called

Smith Company has total assets, liabilities, and shareholders' equity of $22,000, $7,000, and $15,000, respectively, at the beginning of 2017. At the end of 2017, total assets, liabilities, and shareholders' equity were reported at $20,000, $5,000, and $15,000, respectively. A. How much additional debt can Smith incur and still have its debt/equity ratio remain less than or equal to 1.00? B. What information does the debt/equity ratio provide you?

A company that reports high levels of common equity leverage is probably