Question 1

Knife Corp.
Use the selected data presented below from the financial statements of Knife Corp.for 2018 and 2017 to answer the questions that follow.
​
 $\begin{array}{lrr}&2018&2017\
\text { Net income } & \$ 110,000 & \$ 123,000 \
\text { Cash dividends paid on preferred stock } & \$ 12,000 & \$ 15,000 \
\text { Cash dividends paid on common stock } & \$ 42,000 & \$ 38,000 \
\text { Weighted average number of common shares outstanding } & 105,000 & \$ 5,000 \
\text { Market price per share of common stock at the end of the year } & \$ 16.00 & \$ 13.00
\end{array}$ ​
-Refer to the data for Knife Corp.
​
Required
(A)Calculate the dividend yield ratio for 2018 for Knife.Explain.
(B)What factors could have caused the change in the market value of Knife's stock from 2017 to 2018? Explain.

Accepted Answer

The answer of Knife Corp.
Use the selected data presented below...

Question 2

Mother Nature Supplies
Following are selected data from the financial statements of Mother Nature Supplies:
​
 $\begin{array}{lrr}&2018&2017\
\text { Accounts receivable } & \$ 60,000 & \$ 38,000 \
\text { Merchandise inventory } & 12,000 & 16,000 \
\text { Total assets } & 450,000 & 380,000 \
\text { Net sales } & 380,000 & 270,000 \
\text { Cost of goods sold } & 160,000 & 210,000
\end{array}$ ​
-Refer to the data for Mother Nature Supplies.  
Which of the following would not result from a vertical analysis of its balance sheet?

Accepted Answer

A) Accounts receivable increased $22,000,or 36.7%,during 2017. 
B) Accounts receivable is five times larger than merchandise inventory in 2017. 
C) Accounts receivable is 13.3% of total assets for 2017. 
D) Merchandise inventory is 2.7% of total assets for 2018.

Question 3

The definition of a conglomerate is a company that operates in one industry and uses different inventory valuation techniques.

Accepted Answer

A) True 
 B)False

Question 4

Apple Company had terms of net 60 days for customers.The number of days' sales in accounts receivable for Apple was 42 days.Apple is efficient in the collection of its receivables.

Accepted Answer

A) True 
 B)False

Question 5

What do profitability ratios measure? Explain.

Accepted Answer

The answer of What do profitability ratios measure? Explain....

Question 6

Which of the following generally indicates a positive change?

Accepted Answer

A) Earnings per share decreases. 
B) The debt service coverage decreases. 
C) The acid-test ratio decreases. 
D) The number of days' sales in inventory decreases.

Question 7

Westmoreland Company
Following are selected data from Westmoreland Company's financial statements.
​
 $\begin{array}{lrr}&2018&2017\
\text { Current liabilities } & \$ 230,000 & \$ 160,000 \
\text { Long-term debt } & 120,000 & 320,000 \
\text { Stockhol ders' equity } & 420,000 & 540,000 \
\text { Cash payments for additions to plant and equipment } & 45,000 & 32,000 \
\text { Net cash flow from operating activities } & 80,000 & 51,000 \
\text { Interest and principal payments } & 12,000 & 8,000 \
\text { Net operating cash flows before interest and taxes } & 68,000 & 43,000 \
\text { Net income } & 90,000 & 72,000 \
\text { Interest expense } & 8,500 & 11,500 \
\text { Income taxes } & 16,000 & 14,500 \
\text { Dividends paid } & 15,000 & 30,000
\end{array}$ ​
-Refer to the Westmoreland Company data.  
The company's times interest earned ratio for 2018

Accepted Answer

A) shows an increase in the company's ability to pay its current debt when it comes due. 
B) indicates the company cannot meet its current year interest payments out of current year earnings. 
C) increased,which indicates the company's lenders will be pleased. 
D) decreased,which indicates the company has more cash to pay interest on its debt.

Question 8

Because of its relationship to dividends and market price,which ratio is important to investors?

Accepted Answer

A) Current ratio 
B) Debt-to-equity ratio 
C) Price/earnings ratio 
D) Asset turnover ratio

Question 9

Which of the following profitability ratios is most useful in indicating the "quality" of a company's earnings?

Accepted Answer

A) Price/earnings ratio 
B) Gross profit ratio 
C) Dividend payout ratio 
D) Dividend yield ratio

Question 10

Earnings per share is an indication of how much

Accepted Answer

A) the company paid as dividends for each share of stock held by stockholders. 
B) the company earned for each share of outstanding common and preferred stock. 
C) the company earned for each share of outstanding common stock. 
D) cash the company has for each share of all outstanding stock.

Question 11

Which of the following is considered a profitability ratio?

Accepted Answer

A) Earnings per share 
B) Debt-to-equity ratio 
C) Acid-test ratio 
D) Inventory turnover ratio

Question 12

Which profitability ratio requires the use of earnings per share and the current market price?

Accepted Answer

A) Return on common stockholders' equity 
B) Dividend payout ratio 
C) Dividend yield ratio 
D) Price/earnings ratio

Question 13

A financial analyst is comparing two companies.Which of the following would cause major problems in the evaluation process?

Accepted Answer

A) One company has a fiscal year that ends on October 31,while the other company has a fiscal year that ends on August 31. 
B) One company reported nonoperating activities,while the other company did not. 
C) The companies operate in different industries. 
D) Inflation has been low for the past several years.

Question 14

Which of the following statements is generally considered desirable?

Accepted Answer

A) A large decrease in the accounts receivable turnover ratio 
B) A decrease in the number of days' sales in receivables 
C) An increase in sales along with a larger decrease in the gross profit ratio 
D) A decrease in the cash flow from operations to current liabilities ratio

Question 15

Inventory is more liquid than accounts receivable because receivables must be collected and some customers may not be willing to pay,while inventory need only be sold in a retail store.

Accepted Answer

A) True 
 B)False

Question 16

Pinecrest Company
Use the selected data from Pinecrest Company's financial statements to answer the following question.
​
 $\begin{array}{lrr}&2018&2017\\text { Cash } & \$ 22,000 & \$ 14,000 \
\text { Accounts receivable } & 42,000 & 16,000 \
\text { Merchandise inventory } & 22,000 & 83,000 \
\text { Prepaid expenses } & 23,000 & 18,000 \
\text { Total current assets } & \$ 109,000 & \$ 131,000\\
\text { Total current liabilities } & \$ 65,000 & \$ 72,000 \
\text { Net credit sales } & 221,000 & 326,000 \
\text { Cost of goods sold } & 168,000 & 299,000 \
\text { Net cash flow from operating activities } & 16,000 & 29,000
\end{array}$ ​
-Refer to the data for Pinecrest Company.  
Competitors in Pinecrest Company's industry have an average inventory turnover of 20.8 times.Its inventory turnover for 2018

Accepted Answer

A) indicates that the company has too little inventory on hand at the end of 2018. 
B) indicates that the company is pricing its products too low. 
C) is equal to the number of days' sales in the company's inventory. 
D) indicates that the market may be reacting to problems in the sales department by reducing demand for the company's products.

Question 17

Seashell Company is considered "very liquid" for the year ended December 31,2017.This means that Seashell

Accepted Answer

A) has a small quick ratio. 
B) must decrease its liquidity in order to appear favorable to stockholders. 
C) should sell plant assets in order to remain in business. 
D) is able to pay its current debts using its current assets.

Question 18

Service-oriented companies have different needs than product-oriented companies when analyzing financial statements.
​
Required
Why is this true? Give an example of a financial ratio that is meaningless to a service business.

Accepted Answer

The answer of Service-oriented companies have different needs than product-oriented...

Question 19

Which of the following is an example of liquidity analysis?

Accepted Answer

A) Bonds payable are divided by total liabilities and stockholders' equity. 
B) Net income is divided by total assets. 
C) Net income is divided by the number of shares of stock outstanding 
D) Current assets are divided by current liabilities.

Question 20

​Starship Inc.'s gross profit ratio decreased from 36.5% in 2017 to 28.6% in 2018.What is the trend in this change?

Accepted Answer

A) It is an upward positive trend. 
B) It is a downward negative trend. 
C) It depends on whether net sales increased or decreased during the period. 
D) Trends cannot be determined without the dollar amount of the increase provided.

Exam 13: Financial Statement Analysis

The definition of a conglomerate is a company that operates in one industry and uses different inventory valuation techniques.

Apple Company had terms of net 60 days for customers.The number of days' sales in accounts receivable for Apple was 42 days.Apple is efficient in the collection of its receivables.

What do profitability ratios measure? Explain.

Which of the following generally indicates a positive change?

Because of its relationship to dividends and market price,which ratio is important to investors?

Which of the following profitability ratios is most useful in indicating the "quality" of a company's earnings?

Earnings per share is an indication of how much

Which of the following is considered a profitability ratio?

Which profitability ratio requires the use of earnings per share and the current market price?

A financial analyst is comparing two companies.Which of the following would cause major problems in the evaluation process?

Which of the following statements is generally considered desirable?

Inventory is more liquid than accounts receivable because receivables must be collected and some customers may not be willing to pay,while inventory need only be sold in a retail store.

Seashell Company is considered "very liquid" for the year ended December 31,2017.This means that Seashell

Service-oriented companies have different needs than product-oriented companies when analyzing financial statements. Required Why is this true? Give an example of a financial ratio that is meaningless to a service business.

Which of the following is an example of liquidity analysis?

Starship Inc.'s gross profit ratio decreased from 36.5% in 2017 to 28.6% in 2018.What is the trend in this change?

Exam 13: Financial Statement Analysis

The definition of a conglomerate is a company that operates in one industry and uses different inventory valuation techniques.

Apple Company had terms of net 60 days for customers.The number of days' sales in accounts receivable for Apple was 42 days.Apple is efficient in the collection of its receivables.

What do profitability ratios measure? Explain.

Which of the following generally indicates a positive change?

Because of its relationship to dividends and market price,which ratio is important to investors?

Which of the following profitability ratios is most useful in indicating the "quality" of a company's earnings?

Earnings per share is an indication of how much

Which of the following is considered a profitability ratio?

Which profitability ratio requires the use of earnings per share and the current market price?

A financial analyst is comparing two companies.Which of the following would cause major problems in the evaluation process?

Which of the following statements is generally considered desirable?

Inventory is more liquid than accounts receivable because receivables must be collected and some customers may not be willing to pay,while inventory need only be sold in a retail store.

Seashell Company is considered "very liquid" for the year ended December 31,2017.This means that Seashell

Service-oriented companies have different needs than product-oriented companies when analyzing financial statements. ​ Required Why is this true? Give an example of a financial ratio that is meaningless to a service business.

Which of the following is an example of liquidity analysis?

​Starship Inc.'s gross profit ratio decreased from 36.5% in 2017 to 28.6% in 2018.What is the trend in this change?

Service-oriented companies have different needs than product-oriented companies when analyzing financial statements. Required Why is this true? Give an example of a financial ratio that is meaningless to a service business.

Starship Inc.'s gross profit ratio decreased from 36.5% in 2017 to 28.6% in 2018.What is the trend in this change?