Q&A Hero

Q: Costs that flow directly to the income statement as expenses are called: A.Period costs. B.Product costs. C.General costs. D.Balance sheet costs. E.Capitalized costs.

Q: If a company is comparing this year's financial performance to last year's financial performance, it is using horizontal analysis.

Q: General standards of comparisons, developed from experience, include the 2:1 level for the current ratio and 1:1 level for the acid-test ratio.

Q: The following summaries from the income statements and balance sheets of Kouris Company and Brittania, Inc. are presented below. (1) For both companies for 2016, compute the: (a) Current ratio (b) Acid-test ratio (c) Accounts receivable turnover (d) Inventory turnover (e) Days' sales in inventory (f) Days' sales uncollected Which company do you consider to be the better short-term credit risk? Explain. (2) For both companies for 2016, compute the: (a) Profit margin ratio (b) Return on total assets (c) Return on common stockholders' equity Which company do you consider to have better profitability ratios? Kouris Company Consolidated Balance Sheets (in millions) May 31 2016 2015 Assets Current assets: Cash and cash equivalents $ 634.0 $575.5 Accounts receivable, net of allowance 2,101.1 1,804.1 Inventories 1,514.9 1,373.8 Other current assets 429.9 401.3 Total current assets 4,679.9 4,154.7 Property, plant, and equipment, net 1,620.8 1,614.5 Other long term assets 413.2 670.8 Total assets $6,713.9 $6,440.0 Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 205.7 $ 55.3 Notes payable 75.4 425.2 Accounts payable 572.7 504.4 Accrued liabilities 1,054.2 765.3 Income taxes payable 107.2 83.0 Total current liabilities 2,015.2 1,833.2 Long term liabilities 708.0 767.8 Total liabilities 2,723.2 2,601.0 Stockholders' equity: Common stock 2.8 2.8 Contributed capital in excess of par value 589.0 538.7 Unearned stock compensation (0.6) (5.1) Accumulated other comprehensive loss (239.7) (192.4) Retained earnings 3,639.2 3,495.0 Total stockholders' equity 3,990.7 3,839.0 Total liabilities and stockholders' equity $6,713.9 $6,440.0 Kouris Company Consolidated Statement of Income May 31, 2016 (in millions) Revenues $10,697.0 Cost of sales 6,313.6 Gross profit 4,383.4 Operating expenses 3,137.6 Operating income 1,245.8 Interest expense 42.9 Other revenues and expenses 79.9 Income before tax 1,123.0 Income taxes 382.9 Income before effect of accounting change 740.1 Cumulative effect of accounting change, net of tax 266.1 Net income $ 474.0 Brittania, Inc. Consolidated Balance Sheets Jan. 3, Jan. 4, 2016 2015 Assets Current assets: Cash and cash equivalents $34.5 $22.2 Accounts receivable, net of allowance 15.5 14.7 Inventories 27.2 28.4 Other current assets 3.5 4.2 Total current assets 80.7 69.5 Property, plant, and equipment, net 5.7 7.0 Other long term assets 1.1 1.5 Total assets $87.5 $78.0 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 8.5 $ 6.6 Accrued liabilities 7.8 5.6 Total current liabilities 16.3 12.2 Long term liabilities 2.5 2.6 Total liabilities 18.8 14.8 Stockholders' equity: Common stock 2.3 2.3 Contributed capital in excess of par value 17.8 17.4 Unearned stock compensation (0.1) (0.5) Accumulated other comprehensive loss (0.9) (1.3) Treasury stock (6.3) (5.4) Retained earnings 55.9 50.7 Total stockholders' equity 68.7 63.2 Total liabilities and stockholders' equity $87.5 $78.0 Brittania, Inc. Consolidated Statement of Income January 3, 2016 (in millions) Revenues $133.5 Cost of sales 87.3 Gross profit 46.2 Operating expenses 37.3 Operating income 8.9 Interest expense (0.1) Other revenues and expenses 0.3 Income before tax 9.1 Income taxes 3.9 Net income $ 5.2

Q: Use the balance sheets of Glover shown below to calculate the following ratios for 2016 (round to the hundredths): (a) Current ratio. (b) Acid-test ratio. (c) Debt ratio. (d) Equity ratio. Glover Company Balance Sheets December 31, 2016 and 2015 2016 2015 Assets: Cash $ 43,000 $ 22,000 Accounts receivable 38,000 42,000 Merchandise inventory 61,000 52,000 Prepaid insurance 6,000 9,000 Long-term investments 49,000 20,000 Plant assets (net) 218,000 218,000 Total assets $415,000 $363,000 Liabilities and Equity: Current liabilities $ 62,000 $ 75,000 Long-term liabilities 45,000 36,000 Common stock 150,000 150,000 Retained earnings 158,000 102,000 Total liabilities and equity $415,000 $363,000

Q: For the following financial statement items, calculate trend percentages using 2014 as the base year: 2018 2017 2016 2015 2014 Sales"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6 $1,195,400 $1,118,000 $1,049,000 $963,200 $860,000 Cost of sales"u00a6"u00a6"u00a6"u00a6.. 752,400 704,000 671,000 616,700 559,000 Gross profit"u00a6"u00a6"u00a6"u00a6"u00a6. $443,000 $414,000 $378,000 $346,500 $301,000

Q: Comparative statements for Warmer Corporation are shown below: Warmer Corporation Comparative Income Statements For the years ended December 31 2016 2015 2014 Sales $14,800 $13,229 $13,994 Cost of goods sold 8,225 8,661 8,375 Gross profit 6,575 4,568 5,619 Operating expenses 3,664 3,576 3,487 Operating income $ 2,911 $ 992 $ 2,132 Calculate trend percentages for all income statement amounts shown and comment on the results. Use 2014 as the base year.Comment on the results.

Q: Match each of the following terms with the appropriate formulas. A. Days' sales in inventory B. Dividend yield C. Total asset turnover D. Inventory turnover E. Return on common stockholders' equity F. Gross margin ratio G. Days' sales uncollected H. Profit margin ratio I. Times interest earned J. Debt ratio __________ (1) Net income " Preferred dividends Average common stockholders' equity __________(2) Accounts receivable * 365 Net sales __________(3) Total liabilities Total assets __________ (4) Income before interest expense and income taxes Interest expense __________ (5) Annual cash dividends per share Market price per share __________ (6) Net sales " Cost of goods sold Net sales __________ (7) Cost of goods sold Average inventory __________ (8) Net sales Average total assets __________(9) Net income Net sales __________(10) Ending inventory * 365 Cost of goods sold

Q: F; 2. E; 3. H; 4. A; 5. I; 6. J; 7. D; 8. B; 9. G; 10. C

Q: Refer to the following selected financial information from Dodge Company. Compute the company's acid-test ratio. Cash $42,250 Short-term investments 60,000 Accounts receivable, net 79,500 Merchandise inventory 115,000 Prepaid expenses 9,700 Accounts payable 111,400 A.2.75. B.2.66. C.0.92. D.1.12. E.1.63.

Q: Refer to the following selected financial information from Frankle Corp. Compute the company's current ratio. Current assets 306,450 Plant assets 388,000 Current Liabilities 107,800 Net sales 676,000 Net Income 75,000 A.6.44. B.2.84. C.6.27. D.3.60. E.1.44.

Q: Use the following selected information from Wheeler, LLC to determine the 2015 and 2014 trend percentages for cost of goods sold using 2014 as the base. 2015 2014 Net sales $276,200 $231,400 Cost of goods sold 151,900 129,590 Operating expenses 55,240 53,240 Net earnings 27,820 19,820 A.36.4% for 2015 and 41.1% for 2014. B.55.0% for 2015 and 56.0% for 2014. C.119.4% for 2015 and 100.0% for 2014. D.117.2% for 2015 and 100.0% for 2014. E.65.1% for 2015 and 64.6% for 2014.

Q: Zhang Company reported Cost of goods sold of $835,000, beginning Inventory of $37,200 and ending Inventory of $46,300. The average Inventory amount is: A. $37,200 B. $46,300. C. $83,500. D. $41,750. E. $9,100.

Q: To compute trend percentages the analyst should: A.Select a base period, assign each item in the base period statement a weight of 100%, and then express financial numbers from other periods as a percent of their base period number. B.Subtract the analysis period number from the base period number. C.Subtract the base period amount from the analysis period amount, divide the result by the analysis period amount, then multiply that amount by 100. D.Compare amounts across industries using Dun and Bradstreet. E.Compare amounts to a competitor.

Q: Yeats Corporation's sales in Year 1 were $396,000 and in Year 2 were $380,000. Using Year 1 as the base year, the percentage change for Year 2 compared to the base year is: A.104%. B.100%. C.4%. D.96%. E.4.2%.

Q: Guidelines (rules-of-thumb) are general standards of comparison developed from: A.Industry statistics from the government. B.Past experience. C.Analysis of competitors. D.Relations between financial items. E.Dun and Bradstreet.

Q: ___________________ activities generally include those transactions and events that affect long-term assets.

Q: _____________ activities include the cash effects of transactions and events that determine net income.

Q: Keita Co. reported net income of $213.4 million, net cash provided by operating activities of $151.3 million, total cash flows of $187.7 million, and average total assets of 2,314.8 million at the end of the year. Calculate the cash flow on total assets ratio for Keita.

Q: Tate Company's 2015 income statement and changes in selected balance sheet accounts are given below. Calculate the company's net cash provided or used by operating activities using the direct method. Tate Company Income Statement For Year Ended December 31, 2015 Sales $248,000 Cost of goods sold 116,000 Gross profit $132,000 Operating expenses: Wages and salaries expense $44,000 Rent expense 16,000 Depreciation expense 30,000 Amortization expense 12,000 Other expenses 18,000 120,000 Income from operations $ 12,000 Gain on sale of equipment 26,000 Income before taxes $ 38,000 Income tax expense 13,300 Net Income $ 24,700 The company also experienced the following during 2015: Increase in accounts receivable $ 4,000 Increase in accounts payable (all accounts payable transactions are for inventory) 16,000 Increase in income taxes payable 300 Decrease in prepaid expenses 10,000 Decrease in merchandise inventory 14,000 Decrease in long-term notes payable 20,000

Q: Use the information provided to calculate the cash paid for insurance for the period Prepaid insurance, beginning-year"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6 $ 7,000 Insurance expense"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6.. 16,800 Prepaid insurance, year-end"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6... 3,400 Cash paid for insurance"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6"u00a6.. $

Q: O; 2. I; 3. F; 4. O; 5. O; 6. N; 7. O; 8. F; 9. I; 10. N Short Answer Questions

Q: Northington, Inc. is preparing the company's statement of cash flows for the fiscal year just ended. Using the following information, determine the amount of cash flows from financing activities: Net income $182,000 Gain on the sale of equipment 12,300 Proceeds from the sale of equipment 92,300 Depreciation expense " equipment 50,000 Payment of bonds at maturity 100,000 Purchase of land 200,000 Issuance of common stock 300,000 Increase in merchandise inventory 35,400 Decrease in accounts receivable 28,800 Increase in accounts payable 23,700 Payment of cash dividends 32,000 A.$(168,000). B.$200,000. C.$168,000. D.$(191,700). E.$191,700.

Q: Marshland Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: Cash dividends declared for the year $ 40,000 Cash dividends payable at the beginning of the year $ 17,000 Cash dividends payable at the end of the year $ 13,000 The amount of cash paid for dividends was: A.$44,000. B.$40,000. C.$57,000. D.$53,000. E.$36,000.

Q: Fernwood Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: Retained earnings balance at the beginning of the year $233,000 Cash dividends declared for the year $ 50,000 Proceeds from the sale of equipment $ 85,000 Gain on the sale of equipment $ 4,500 Cash dividends payable at the beginning of the year $ 22,000 Cash dividends payable at the end of the year $ 30,000 Net income for the year $110,000 The amount of cash paid for dividends was: A.$52,000. B.$60,000. C.$58,000. D.$50,000. E.$42,000.

Q: Scranton, Inc. reports net income of $230,000 for the year ended December 31. It also reports $87,700 depreciation expense and a $5,000 gain on the sale of equipment. Its comparative balance sheet reveals a $35,500 decrease in accounts receivable, a $15,750 increase in accounts payable, and a $12,500 decrease in wages payable. Calculate the cash provided (used) in operating activities using the indirect method. A.$376,450. B.$351,450. C.$356,450. D.$319,950. E.$263,750.

Q: Jamison Company reports depreciation expense of $35,000 for Year 2. Also, equipment costing $140,000 was sold for a $5,000 gain in Year 2. The following selected information is available for Jamison Company from its comparative balance sheet. Compute the cash received from the sale of the equipment. At December 31 Year 2 Year 1 Equipment $610,000 $750,000 Accumulated Depreciation-Equipment 428,000 500,000 A.$23,000. B.$35,000. C.$38,000. D.$40,000. E.$67,000.

Q: Bagrov Corporation had a net decrease in cash of $10,000 for the current year. Net cash used in investing activities was $52,000 and net cash used in financing activities was $38,000. What amount of cash was provided (used) in operating activities? A.$ 100,000 provided. B.$(100,000) used. C.$ 80,000 provided. D.$ (80,000) used. E.$ (10,000) used.

Q: Stormer Company reports the following amounts on its statement of cash flow: Net cash provided by operating activities was $28,000; net cash used in investing activities was $10,000 and net cash used in financing activities was $12,000. If the beginning cash balance is $5,000, what is the ending cash balance? A.$55,000. B.$45,000. C.$31,000. D.$ 6,000. E.$11,000.

Q: When preparing a statement of cash flows using the indirect method, which of the following is correct? A.Proceeds from the sale of equipment should be added to net income in the operating activities section. B.A loss on the sale of land should be added to net income in the operating activities section. C.The declaration of a cash dividend should be a use of cash in the financing activities section. D.The issuance of a stock dividend should be a use of cash in the financing activities section. E.The purchase of land and a building by issuing a long-term note payable should be a source of cash in the financing activities section.