Exam 17: Understanding and Analyzing Consolidated Financial Statements

The following are the income statements and balance sheets for Marvin Company: 20X2 Sales only credit sales) \1 ,606.0 Less cost of goods sold 1,062.0 Gross profit \5 44.0 Less operating expenses 322.0 Operating income \2 22.0 Less other expense: Interest 9.6 Income before tax \2 12.4 Less income tax expense 85.0 Net income \1 27.4 20X2 20X1 20X2 20X1 Current assets: Current liabilities: Cash \ 36 \ 38 Accts payable \ 98 \ 64 Accts receivable 180 144 Wages payable 18 16 Inventory 120 100 Taxes payable 28 4 Prepaid rent 20 24 Current portion Total current assets \3 56 \3 06 of long-term debt 30 6 Long-term assets: Total current Fixed assets \ 320 \ 316 liabilities \ 174 \ 90 Accum. deprec. ) ) Long-term liabilities Total long-term assets \1 14 \1 36 Total liabilities \2 40 \1 82 Owners' equity: Common stock, \ 5 par \8 0 \8 0 Retained income 150 180 Total owners' equity \2 30 \2 60 Total assets \4 70 \4 42 Total liab. and own. equity \4 70 \4 42 $\text {December 31 market price per share:}\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\$120\quad\quad\$106$ The earnings per share for Marvin Company in 20X2 is _____.

The following are the income statements and balance sheets for Allen Company: 20X2 Sales only credit sales) \1 ,606.0 Less cost of goods sold 1,062.0 Gross profit \5 44.0 Less operating expenses 322.0 Operating income \2 22.0 Less other expense: Interest 9.6 Income before tax \2 12.4 Less income tax expense 85.0 Net income \1 27.4 20X2 20X1 20X2 20X1 Current assets: Current liabilities: Cash \ 36 \ 38 Accts payable \ 98 \ 64 Accts receivable 180 144 Wages payable 18 16 Inventory 120 100 Taxes payable 28 4 Prepaid rent 20 24 Current portion Total current assets \3 56 \3 06 of long-term debt 30 6 Long-term assets: Total current Fixed assets \ 320 \ 316 liabilities \ 174 \ 90 Accum. deprec. ) ) Long-term liabilities Total long-term assets \1 14 \1 36 Total liabilities \2 40 \1 82 Owners' equity: Common stock, \ 5 par \8 0 \8 0 Retained income 150 180 Total owners' equity \2 30 \2 60 Total assets \4 70 \4 42 Total liab. and own. equity \4 70 \4 42 $\text {December 31 market price per share:}\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\$120\quad\quad\$106$ The price?earnings ratio for Allen Company in 20X2 is _____times.

All other things being equal, a higher current ratio indicates that _____.

On January 1, 20X6, Parent Company acquired 80% of the outstanding shares of Subsidiary Company.At the time of the acquisition, Parent Company's current and long-term liabilities were $30 and $180, respectively.Subsidiary Company's current and long-term liabilities were $80 and $200, respectively.The balance in liabilities on the consolidated balance sheet immediately after the acquisition of Subsidiary Company's stock is _____.

An efficient capital market is one in which an order to trade can be placed and executed in a relatively short period.

The market method is the method of accounting for investments in equity securities used when one company owns less than 20% of the common stock of another company.

Presented below are the balance sheets of Monty Company and Hall Company at January 1, 20X6: Hall Company Monty Company Balance Sheet Balance Sheet January 1,206 January 1,206 Cash \ 100 Cash \ 400 Net fixed assets 400 Net fixed assets 380 Total assets \ 500 Total assets \ 780 Accounts payable \ 20 Accounts payable \1 20 Long-term bonds Long-term bonds payable 220 payable 280 Stockholders' equity Stockholders' equity Total liabilities and - Total liabilities and stockholders' equity \ 500 stockholders' equity \ 780 On January 1, 20X6, Monty Company acquired 100% of the outstanding common stock of Hall Company for $260 in cash.Which of the following statements regarding the consolidated balance sheet immediately after the acquisition is not correct?

The following information pertains to Barnum Company: Balance Sheet At December $31,20 \mathrm{X} 2$ Current assets \ 18,700 Current liabilities \ 7,600 Long-term assets 29,700 Long-term liabilities 13,250 Stockholders' equity 27,550 Total assets \ 48,400 Total assets \ 48,400 Barnum Company Income Statement For the Year Ended December $31,20 \mathrm{X} 2$ Sales \ 106,950 Less: Cost of goods sold Gross profit \ 45,150 Less: Operating expenses Operating income \ 13,450 Less other expenses: interest Income before taxes \ 12,150 Less: Income tax expense Net income \ 7,300 There were 1,000 shares of common stock outstanding with a market value of $75 as of December 31, 20X2.Dividends declared and paid was $5 per share.The dividend yield ratio for 20X2 is _____.

Goodwill can be recognized only when one company is acquired by another company.

A subsidiary is a company that owns more than 50% of another business's stock.

Marketable securities can be further classified as _____.

_____ are profitability ratios.

The financial maintenance concept focuses on recovering the investor's original capital.

Below is a comparative income statement for Zachary Company: azchary Company Income Statement For the Years Ended December 31,20X6 and 20X5 20X6 20X5 Sales \ 1,744 \ 1,562 Less: Cost of goods sold 992 806 Gross profit \ 752 \ 756 Less operating expenses: Wage expense \ 172 \ 160 Depreciation expense 28 26 Rent expense 36 36 Miscellaneous expense 40 70 Total operating expenses \ 276 \ 292 Operating income \ 476 \ 464 Less other expenses: Interest 20 60 Income before tax \ 456 \ 404 Less: Income tax expense 182 162 Net income \ 274 \ 242 If a common-size income statement were prepared, _____ would be attributable to the 20X6 income tax expense of Zachary Company.

Historical cost/nominal dollars is the traditional method of measuring income.

Mel Company holds a minority interest in Gibson Company.Mel Company owns _____ of Gibson Company's stock.

The following information pertains to Barnum Company: Balance Sheet At December $31,20 \mathrm{X} 2$ Current assets \ 18,700 Current liabilities \ 7,600 Long-term assets 29,700 Long-term liabilities 13,250 Stockholders' equity 27,550 Total assets \ 48,400 Total assets \ 48,400 Barnum Company Income Statement For the Year Ended December $31,20 \mathrm{X} 2$ Sales \ 106,950 Less: Cost of goods sold Gross profit \ 45,150 Less: Operating expenses Operating income \ 13,450 Less other expenses: interest Income before taxes \ 12,150 Less: Income tax expense Net income \ 7,300 There were 1,000 shares of common stock outstanding with a market value of $75 as of December 31, 20X2.Dividends declared and paid was $5 per share.The gross profit rate for 20X2 is _____.

The evaluation of operating performance should exclude extraordinary items.

Which of the following statements) describe the principal reasons) why investors and creditors use financial statement analysis? 1. To assess the risks associated with expected returns 2. To establish recommended dividend and interest payments 3. To evaluate top and middle level management 4. To predict the amount of expected returns

Hamandeggs Company owns a 60% interest in Hormel Company.The consolidated balance sheet of Hamandeggs Company, prepared at the beginning of the year, showed a minority interest of $30.The net income of Hamandeggs Company and Hormel Company were $80 and $10, respectively.The ending balance in the Minority Interest account is _____.