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 -If the assets in which funds are invested have a rate of return lower than the fixed rate of return paid to the supplier of the funds, then financial leverage is positive.

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 by dividing net income before interest and taxes 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 -Paul Company has $17,000 in cash, $3,000 in marketable securities, $36,000 in current receivables, $24,000 in inventories, and $45,000 in current liabilities. The company's current 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 -The dividend yield ratio is calculated by dividing dividends paid by average total assets and the dividend payout ratio is calculated by dividends per share by earnings per share.

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 -Larosa Company's earnings per share of common stock for 20X6 were closest to:

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. -Selected financial data for Irvington Company appear below: Account Balances End of year Beginning of year Preferred shares \ 125,000 \ 125,000 Common shares \ 400,000 \ 300,000 Retained earnings \ 185,000 \ 75,000 During the year, the company paid dividends of $10,000 on its preferred shares. The company's net income for the year was $120,000. The company's return on common shareholders' equity for the year 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 -The price-earnings ratio is computed by dividing the current market price per share by the current earnings per share.

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 price-earnings ratio is determined by dividing the price of a product by its profit margin.

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. -Desktop Co. Prepaying next year's office rent of $50,000 will:

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 -If the market value of a share of stock is greater than its book value, the stock is probably necessarily overpriced.

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 -Which of the following is true regarding the calculation of return on total assets

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 -Granger Company had $180,000 in sales on account last year. 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 -Arquandt Company's net income last year was $550,000. shares of common stock and 50,000 shares of preferred stock outstanding. There was no change in the number of common or preferred shares outstanding during the year. The company declared and paid dividends last year of $1.20 per share on the common stock and $1.70 per share on the preferred stock. The earnings per share of common stock are 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 -Grapp Company had $130,000 in sales on account last year. 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 acid-test ratio, prepaid expenses are ignored.