Exam 13: Analyzing and Interpreting Financial Statements

Intracompany standards for financial statement analysis:

Explain where each of the following items should appear in the financial statements of a corporation: (1)The accounting department discovered that an entry was made last year to Prepaid Insurance instead of to Insurance Expense.The after-tax effect of the charge to Prepaid Insurance was $11,000. (2)One of the company's plants was destroyed by an earthquake.The area has never reported an earthquake.The amount of the loss,net of tax,was $850,000.

A company reports the following comparative income statements: 2011 2010 Net sales \ 736,000 \ 840,000 Cost of goods sold 518,880 571,200 Gross profit \ 217,120 \ 268,800 Operating expenses 104,800 130,000 Net income \ 112,320 \ 138,800 What are the costs of goods sold in common-size percents for 2010 and 2011,respectively?

Profitability is the ability to generate positive market expectations.

Current assets minus current liabilities is equal to:

Corona Company's balance sheet accounts follow: At December 31 2011 2010 2009 Assets Cash \ 25,868 \ 31,163 \ 31,182 Accounts receivable, net 78,034 53,995 41,152 Merchandise inventory 95,120 73,491 46,095 Prepaid expenses 8,330 8,099 3,429 Plant assets,net 241,854 218,932 199,542 Total assets \ 449,206 \ 385,680 \ 321,400 Liabilities and Equity Accounts payable \ 108,058 \ 67,135 \ 42,849 Long-term notes payable secured by mortgages on plant assets 85,791 87,819 71,029 Common stock, \ 10 par value 162,500 162,500 162,500 Retained earnings 92,857 68,226 45,022 Total liabilities and equity \4 49,206 \ 385,680 \ 321,400 What is Corona Company's accounts receivable turnover ratio for 2010 assuming net sales for the period were $1,236,783?

Calculate the percent increases for each of the following selected balance sheet items. Cash \ 569 \4 48 Accounts receivable 2,234 2,337 Merchardise irveritory 1,062 1,071 Plant assets 2,432 2,138 Bonds payable 1,164 1,666 Equity 2,777 2,894

Comparative financial statements in which each amount is expressed as a percentage of a base amount and in which the base amount is expressed as 100%,are called:

Current assets divided by current liabilities is equal to the:

The four building blocks of financial analysis are (1)____________________, (2)__________________________, (3)____________________ and (4)_____________________.

Financial reporting refers to:

Capital structure refers to a company's long-run financial viability and its ability to cover long-term obligations.

The evaluation of company performance and financial condition includes evaluation of (1)past and current performance, (2)current financial position and (3)future performance and risk.

Simple Simon's balance sheet and income statement accounts follow: At December 31 2011 2010 2009 Assets Cash \ 30,872 \ 36,086 \ 37,974 Accounts receivable, net 89,476 63,151 50,632 Merchandise inventory 112,499 83,450 54,467 Prepaid expenses 9,942 9,473 4,219 Plant assets, net 291,143 268,126 244,108 Total assets \ 533,932 \ 460,286 \ 391,400 Liabilities and Equity Accounts payable \ 130,290 \ 76,233 \ 50,632 Long-term notes payable secured by 98,372 103,748 107,769 mortgages on plant assets 142,500 132,500 102,500 Common stock, \ 10 par value 182,770 147,805 130,499 Total liabilities and equity \5 33.932 \4 60,286 \3 91,400 What is Simple Simon's profit margin ratio for 2011?

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

Selected comparative income statement amounts for a company are shown below.Using 2010 as the base year for a horizontal analysis,compute the account with the most significant change. 2010 2011 Sales \ 400,000 \ 520,000 General and Administrative Expenses \ 27,000 \ 29,700 Interest Expense \ 1,000 \ 1,700 Miscellaneous Expense \ 100 \ 200

Financial statements with data for two or more successive accounting periods placed in columns side by side,sometimes with changes shown in dollar amounts and percents,are referred to as:

A company had a market price of $37.50 per share,earnings per share of $1.25 and dividends per share of $0.40.Its price-earnings ratio is equal to:

Trend analysis is also called:

Given the following information about a corporation's current year activities,answer the questions below: Debit Credit Sales \ 250,000 Cost of goods sold \ 90,000 Other operating expenses 54,000 Income from operation of discontinued Division W (net of \ 9.200 ) 30,800 Extraordinary loss from hurricane damage (net of \ 11,000 tax benefit) 37,000 Loss from disposal of Division W (net of \ 15,000 tax benefit) 45,000 Unusual loss on sale of equipment Correction of error made in recording depreciation last year (net of \ 3,000 tax) 9,500 Effect on prior years' income of changing depreciation methods (net of \ 4,000 ) 13,500 Compute the amounts that should be reported on the income statement as: (1)Income from continuing operations. (2)Income before extraordinary items and cumulative effect of changes in accounting principles. (3)Net income.