Exam 13: How Well Am I Doing Financial Statement Analysis Online

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -A low price-earnings ratio suggests that investors anticipate that the business's earnings will increase in future periods.

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -In calculating earnings per share, net income is reduced by the amount paid out as dividends to the owners of the preferred shares.

Reference: 13-07 Financial statements for Orantes Company appear below: Orantes Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20X5 Current assets: Cash and marketable securities \ 120 \ 100 Accounts receivable, net 180 160 Inventory 130 130 Prepaid expenses 50 50 Total current assets 480 440 Noncurrent assets: Plant \& equipment, net 2,010 1,970 Total assets \ 2,490 \ 2,410 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 30 40 Notes payable, short term 170 170 Total current liabilities 320 330 Noncurrent liabilities: Bonds payable 270 300 Total liabilities 590 630 Shareholders' equity: Preferred shares, \1 0 par, 10\% 120 120 Common shares, \1 0 par 200 200 Additional paid-in capital--common shares 270 270 Orantes Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,510 Cost of goods sold 1,750 Gross margin 760 Operating expenses 300 Net operating income 460 Interest expense 30 Net income before taxes 430 Income taxes (30\%) 129 Net income \ 301 Dividends during 20X6 totalled $181 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $280. -Eral Company has $17,000 in cash, $3,000 in marketable securities, $36,000 in curren? receivables, $24,000 in inventories, and $45,000 in current liabilities. ratio is closest to:

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -In determining whether a company's financial condition is improving or deteriorating over time, vertical analysis of financial statement data would be more useful than horizontal analysis.

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -Trend percentages state several years' financial data in terms of a base year. For example, sales for every year would be stated as a percentage of the sales in the base year.

Reference: 13-08 Financial statements for Oratz Company appear below: Oratz Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20X5 Current assets: Cash and marketable securities \ 150 \ 150 Accounts receivable, net 130 130 Inventory 180 180 Prepaid expenses 30 30 Total current assets 490 490 Noncurrent assets: Plant \& equipment, net 1,430 1,370 Total assets Current liabilities: Accounts payable \ 70 \ 100 Accrued liabilities 100 70 Notes payable, short term 230 220 Total current liabilities 400 390 Noncurrent liabilities: Bonds payable 300 300 Total liabilities 700 690 Shareholders' equity: Preferred shares, \1 0 par, 5\% 120 120 Common shares, \1 5 par 140 140 Additional paid-in capital--common shares 240 240 Retained earnings 720 670 Total shareholders' equity Total liabilities \& shareholders' equity Oratz Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 1,630 Cost of goods sold 1,140 Gross margin 490 Operating expenses 190 Net operating income 300 Interest expense 30 Net income before taxes 270 Income taxes (30\%) 81 Net income \ 189 Dividends during 20X6 totalled $139 thousand, of which $6 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $260. -Oratz Company's average collection period (age of receivables)for 20X6 was closest to:

Reference: 13-13 Marcial Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20X5 Current assets: Cash and marketable securities \ 140 \ 140 Accounts receivable, net 110 110 Inventory 140 130 Prepaid expenses 50 50 Total current assets 440 430 Noncurrent assets: Plant \& equipment, net 1,550 1,480 Total assets \ 1,990 \ 1,910 Current liabilities: Accounts payable \ 120 \ 170 Accrued liabilities 10 40 Notes payable, short term 110 100 Total current liabilities 240 310 Noncurrent liabilities: Bonds payable 390 400 Total liabilities 630 710 Shareholders' equity: Preferred shares, \1 0 par, 8\% 120 120 Common shares, \5 par 200 200 Additional paid-in capital--common shares 250 250 Retained earnings 790 630 Total shareholders' equity $2$ Total shareholders' equity 1,360 1,200 Total liabilities \& shareholders' equity Marcial Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 1,630 Cost of goods sold 1,140 Gross margin 490 Operating expenses 190 Net operating income 300 Interest expense 40 Net income before taxes 260 Income taxes (30\%) 78 Net income \ 182 -Marcial Company's average sale period (turnover in days)for 20X6 was closest to:

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -The acid-test ratio is a test of the quality of accounts receivable-in other words, whether they are likely to be collected.

Irally Company, a retailer, had cost of goods sold of $150,000 last year. inventory balance was $26,000 and the ending inventory balance was $24,000. was closest to:

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -A comparative common-size balance sheet will help to highlight significant changes in the components of the balance sheet from year to year.

Reference: 13-07 Financial statements for Orantes Company appear below: Orantes Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20X5 Current assets: Cash and marketable securities \ 120 \ 100 Accounts receivable, net 180 160 Inventory 130 130 Prepaid expenses 50 50 Total current assets 480 440 Noncurrent assets: Plant \& equipment, net 2,010 1,970 Total assets \ 2,490 \ 2,410 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 30 40 Notes payable, short term 170 170 Total current liabilities 320 330 Noncurrent liabilities: Bonds payable 270 300 Total liabilities 590 630 Shareholders' equity: Preferred shares, \1 0 par, 10\% 120 120 Common shares, \1 0 par 200 200 Additional paid-in capital--common shares 270 270 Orantes Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,510 Cost of goods sold 1,750 Gross margin 760 Operating expenses 300 Net operating income 460 Interest expense 30 Net income before taxes 430 Income taxes (30\%) 129 Net income \ 301 Dividends during 20X6 totalled $181 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $280. -Frabine Company had $150,000 in sales on account last year. receivable balance was $14,000 and the ending accounts receivable balance was $18,000. The company's accounts receivable turnover was closest to:

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -Working capital equals current assets less current liabilities.

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -Oratz Company's earnings per share of common stock for 20X6 were closest to:

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -Only credit sales (i.e. are included in the computation of the accounts receivable turnover.

Reference: 13-07 Financial statements for Orantes Company appear below: Orantes Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20X5 Current assets: Cash and marketable securities \ 120 \ 100 Accounts receivable, net 180 160 Inventory 130 130 Prepaid expenses 50 50 Total current assets 480 440 Noncurrent assets: Plant \& equipment, net 2,010 1,970 Total assets \ 2,490 \ 2,410 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 30 40 Notes payable, short term 170 170 Total current liabilities 320 330 Noncurrent liabilities: Bonds payable 270 300 Total liabilities 590 630 Shareholders' equity: Preferred shares, \1 0 par, 10\% 120 120 Common shares, \1 0 par 200 200 Additional paid-in capital--common shares 270 270 Orantes Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,510 Cost of goods sold 1,750 Gross margin 760 Operating expenses 300 Net operating income 460 Interest expense 30 Net income before taxes 430 Income taxes (30\%) 129 Net income \ 301 Dividends during 20X6 totalled $181 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $280. -Orantes Company's return on total assets for 20X6 was closest to:

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -When computing the return on total assets, the after-tax effect of interest expense must be subtracted from net income.

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -The inventory turnover ratio is equal to the average inventory balance divided by the cost of goods sold.

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -Larned Company's dividend payout ratio for 20X6 was closest to:

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -The gross margin percentage is computed taking the difference between sales and cost of goods sold and then dividing the result by sales.

Reference: 13-02 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 120 \ 120 Accrued liabilities 110 80 Notes payable, short term 170 160 Total current liabilities 400 360 Noncurrent liabilities: Bonds payable 370 400 Total liabilities 770 760 Shareholders' equity: Preferred shares, \2 0 par, 10\% 120 120 Common shares, \1 0 par 180 180 Additional paid-in capital--common shares 110 110 Retained earnings 860 780 Total shareholders' equity 1,270 1,190 Total liabilities \& shareholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. 7 -Assuming that a company has a current ratio greater than 1.0 to 1, repaying a short-term note payable will increase the current ratio.