MOS3370 Chapter 14 Concept Overview Videos

Questions

Question 1

We learn to prepare financial statements in comparative and common-size form. We see how horizontal analysis involves analyzing financial data over time, such as computing year-to-year dollar and percentage changes within a set of financial statements and how it can help in computing trend percentages. We also see how preparing statements in common-size form can overcome differences in sizes of companies and help in comparisons.

Knowledge Check 01

Which of the following is not a reason why managers use financial statement analysis?

multiple choice 1

Enables managers to understand how stockholders and creditors will interpret their financial results.
Estimates stock price appreciation.
Provides valuable feedback on company’s performance.

Knowledge Check 02

Which of the following is not a limitation of financial statement analysis?

multiple choice 2

Comparing financial data across companies
Viewing ratios as the only information needed to make decisions
Providing trends of accounting information

Question 2

Wilson Corporation Income Statement
	2016		2015
Sales	$	90,000	$	75,000
Cost of goods sold		27,000		23,000
Gross margin		63,000		52,000
Selling and administrative expenses		29,000		26,000
Net income before taxes		34,000		26,000
Income taxes (30%)		10,200		7,800
Net income	$	23,800	$	18,200

Knowledge Check 01

From the horizontal analysis prepared using the income statements of Wilson Corporation, we determine that cost of goods sold _____ in 2016.multiple choice 1

is 30.7% of total sales
increased by 17.4%
is 69.3% of total sales
increased by 21.5%

Assume the following sales data for a company:


2015	$1,200,000
2014	960,000
2013	840,000
2012	600,000

Knowledge Check 02

If 2012 is the base year, what is the percentage increase in sales from 2012 to 2014?multiple choice 2

100%
160%
60%
62.5%

Question 3

Knowledge Check 01

Which of the following is correct?multiple choice

A common-size income statement expresses each item as a percentage of net income.
A common-size income statement expresses each item as a percentage of net sales.
A common-size income statement expresses each item as a percentage of total assets.

Question 4

We learn that managers assess liquidity with measures such as working capital, the current ratio, and the quick ratio. These ratios compare a company’s current assets with its current liabilities.

Knowledge Check 01

Match the term and the definition.


1	May provide some assurance that the company can pay its creditors in full and on time.	Working capital
2	Should be interpreted with care.	Current ratio
3	Computed by dividing quick assets by current liabilities.	Acid-test ratio

Knowledge Check 02

On January 1, James Company reported total current assets of $658,000 and total current liabilities of $365,000. During the year, James purchased $2,000 worth of equipment for cash, paid $560 towards salaries, and borrowed $80,000 from its bank to be repaid after 5 years. Compute James’ working capital as of December 31.multiple choice 1

$293,000
$335,400
$370,440
$290,440

Knowledge Check 03

Coastal Company’s balance sheet reported total assets of $473,000, which include: cash, $35,000; accounts receivable, $150,000; land, $100,000; inventory, $180,000; and prepaid expenses, $8,000. Total liabilities amounted to $244,000, which include: accounts payable, $130,000; short-term notes payable, $8,000; unearned revenue, $6,000; and long-term liabilities, $100,000. Compute the current ratio.multiple choice 2

2.59
1.53
1.58
2.00

Knowledge Check 04

Mark Company’s balance sheet reported total assets of $754,000, which include: cash, $48,000; accounts receivable, $130,000; land, $200,000; inventory, $220,000; short-term notes receivable, $150,000; and prepaid expenses, $6,000. Total liabilities amounted to $408,000, which include: accounts payable, $230,000; short-term notes payable, $10,000; unearned revenue, $8,000; and long-term liabilities, $160,000. Compute Mark’s acid-test ratio.multiple choice 3

2.23
1.85
2.00
1.32

Question 5

We learn that managers use the accounts receivable turnover ratio and the inventory turnover ratio for asset management purposes. These ratios help determine how quickly a company can collect its receivables and sell its inventories.

Knowledge Check 01

Match the term and the definition.


1	Measures how quickly credit sales are converted into cash.	Accounts receivable turnover ratio
2	Computed as 365 days divided by the accounts receivable turnover ratio.	Average collection period
3	Measures the elapsed time from when inventory is received from suppliers to when cash is received from customers.	Operating cycle

Knowledge Check 02

Kelly Inc. sold $930,000 worth of goods during the year, out of which $820,000 was on credit. Accounts receivable at the beginning of the year amounted to $95,000 and $115,000 at the end of the year. Compute Kelly’s accounts receivable turnover for the year.multiple choice 1

8.63
7.81
7.13
8.86

Knowledge Check 03

Modern Textiles Company sold $2,500,000 worth of goods during the year, out of which $550,000 were cash sales. Accounts receivable at the beginning of the year amounted to $225,000 and $265,000 at the end of the year. Assuming 365 days a year, compute the average collection period for the year.multiple choice 2

33 days
36 days
46 days
50 days

Knowledge Check 04

Micro Manufacturing Company’s sales revenue amounted to $1,880,000 during the year. Cost of goods sold as a percentage of sales was 30%. Beginning inventory balance was $125,000 and ending inventory balance was $165,000. Compute the inventory turnover ratio for the year.multiple choice 3

3.89
12.97
13.93
4.18

Knowledge Check 05

Micro Manufacturing Company’s sales revenue amounted to $4,400,000 during the year. Cost of goods sold as a percentage of sales was 35%. Beginning inventory balance was $360,000 and ending inventory balance was $345,000. Assuming 365 days a year, compute the average sale period for the year.multiple choice 4

29.4 days
83.52 days
81.77 days
127.75 days

Knowledge Check 06

At the beginning of the year, Carson Company reported total current assets of $658,000 and total assets of $2,450,000. Carson reported sales of $6,000,000 for the year. At the end of the year, Carson reported total current assets of $790,000 and total assets of $2,800,000. Compute the total asset turnover.multiple choice 5

2.45
2.29
8.29
2.14

Question 6

We look at various ratios that managers use to assess a company’s market performance. These include earnings per share, price-earnings ratio, dividend payout ratio, and the dividend yield ratio.

Knowledge Check 01

James Company reported a net income of $700,000 for the year. During the year, the company declared a dividend of $3.80 per share to the 50,000 common shares outstanding. The dividends were paid by the end of the year. What will be the company’s dividend payout ratio?

multiple choice 1

Knowledge Check 02

Dennis Company reported a net income of $550,000 for the year. During the year, the company had an average of 200,000 common shares outstanding. All the dividends declared were paid by the end of the year, including $3.60 per share on its common stock. At the end of the year, the company’s common stock is selling at $62 per share. What will be the company’s dividend yield ratio?

multiple choice 2

38%
3.6%
2.6%
5.8%

Solution – Chapter 14 Concept Overview Videos

Which of the following is not a reason why managers use financial statement analysis?

multiple choice

Enables managers to understand how stockholders and creditors will interpret their financial results.
Estimates stock price appreciation. – Correct Answer
Provides valuable feedback on company’s performance.

Explanation

Managers use financial statement analysis to understand how stockholders and creditors will interpret their financial results and for feedback on the company’s performance. Stockholders and creditors analyze a company’s financial statements to estimate stock price appreciation.

Which of the following is not a limitation of financial statement analysis?

multiple choice

Comparing financial data across companies
Viewing ratios as the only information needed to make decisions
Providing trends of accounting information – Correct Answer

Explanation

Financial statement analysis is limited in its ability to compare financial data across companies due to differences in accounting methods and viewing ratios as the answer to all questions. The ability to provide trends is an advantage of financial statement analysis.

Please click on the Icon below to purchase the full answer at only $10