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Exam 13: Analysis of Financial Statements

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Question 91

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A _____________________________ is a part of a company's operations that serves a particular line of business or class of customers.

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Question 92

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A company has an inventory turnover ratio of 2.81,merchandise inventory for 2014 of $93,303,and average inventory of $83,397.What is the cost of goods sold?

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2.81 = Cost of goo...

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Question 93

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Comparative statements for Kool Corporation are shown below: $\begin{array}{c} \text { KOOL CORPORATION}\\ \text { Comparative Income Statement}\\ \text { For the Years Ended December 31}\\ \begin{array}{|l|r|r|r|}\hline&2014&2013&2012\\\hline \text { Sales } & \$ 14,800 & \$ 13,229 & \$ 13,994 \\\hline \text { Cost of goods sold } & 8,225 & 8,661 & 8,375 \\\hline \text { Gross profit } & 6,575 & 4,568 & 5,619 \\\hline \text { Operating expenses } & \underline{3,664} & \underline{3,576} & \underline{3,487} \\\hline \text { Operating income } & \$ 2.911 & \$ 992 & \$ 2.132\\\hline\end{array}\end{array}$ Calculate trend percentages for all income statement amounts shown and comment on the results.Use 2012 as the base year.

External users of financial information:

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

The three most common tools of financial analysis are:

The following current year information is available from a manufacturing company: $\begin{array} { | l | r | } \hline \text { Sales } & \$ 640,000 \\\hline \text { Gross profit on sales } & 276,000 \\\hline \text { Operating income } & 64,000 \\\hline \text { Income before taxes } & 44,000 \\\hline \text { Net income } & 33,600 \\\hline \text { Accounts receivable, beginnirg-year } & 58,000 \\\hline \text { Accounts receivable, end-of-year } & 70,000 \\\hline\end{array}$ Calculate the company's accounts receivable turnover and its days' sales uncollected.

Extraordinary items are reported in the operating section of the income statement.

Oakley Corporation has the following comparative income statements.Which of the following statements is false with regard to this comparative data? $\begin{array}{c} \text {OAKLEY CORPORATION}\\ \text {Comparative Income Statements}\\ \text {For Years Ended December 31, 2014 and 2013}\\ \begin{array}{|l|r|r|}\hline&2014&2013\\\hline \text { Sales } & \$ 360,000 & \$ 267,500 \\\hline \text { Cost of goods sold } & 237,600 & 140,170 \\\hline \text { Gross profit } & 122,400 & 127,330 \\\hline \text { Operating expenses } & \underline{75,600} & \underline{51,895} \\\hline \text { Net income } & \$ 46,800 & \$ 75,435 \\\hline\end{array}\end{array}$

______________________ ratios include the price-earnings ratio and dividend yield.

Which of the following items is not likely to be considered an extraordinary item?

The current ratio and acid-test ratio are used to reflect the ____________ of a business.

A company reports the following comparative income statements: $\begin{array}{|l|r|r|}\hline&2014&2013\\\hline \text { Net sales } & \$ 736,000 & \$ 840,000 \\\hline \text { Cost of goods sold } & 518,880 & 571,200 \\\hline \text { Gross profit } & \$ 217,120 & \$ 268,800 \\\hline \text { Operating expenses } & 104,800 & 130,000 \\\hline \text { Net income } & \$ 112,320 & \$ 138,800 \\\hline\end{array}$ What are the costs of goods sold in common-size percents for 2013 and 2014,respectively?

Comparative horizontal analysis is used to reveal patterns in data covering successive periods.

If a company's activities include operations that are being discontinued,the income or loss from the discontinued operations are included on the income statement as part of income from continuing operations.

Corona Company's balance sheet accounts follow: $\begin{array}{lrrr}\text {At December 31}&2014&2013&2012\\\text {Assets}\\ \text { Cash } & \$ 25,868 & \$ 31,163 & \$ 31,182 \\\text { Accounts receivable, net } & 78,034 & 53,995 & 41,152 \\\text { Merchandise inventory } & 95,120 & 73,491 & 46,095\\\text { Prepaid expenses } & 8,330 & 8,099 & 3,429 \\\text { Plant assets,net } & 241,854 & 218,932 & 199,542\\\text { Total assets}&\$449,206&\$385,680&\$321,400\\\text {Liabilities and Equity}\\\text {Accounts payable}& \$ 108,058&\$ 67,135&\$ 42,849 \\\\text { Long-term notes payable secured by mortgages on}\\\text { plant assets}&85,791&87,819&71,029\\\text { Common stock, \$ 10 par value}&162,500&162,500&162,500\\\text { Retained earnings } & 92,857 & 68,226 & 45,022 \\ \text { Total liabilities and equity } & \$ 449,206 & \$ 385,680 & \$ 321,400 \\ \end{array}$ What is Corona Company's days' sales uncollected ratio for 2014 assuming net sales and gross profit for the period were $1,236,783,$927,587 respectively?

Quick assets divided by current liabilities is equal to the:

Match the following definitions with the appropriate terms

Liquidity and efficiency are measures of a company's ability to meet short-term obligations.

A company that has days' sales uncollected of 30 days and days' sales in inventory of 18 days implies that inventory will be converted to cash in about 12 days.