# Your friend, another accountant, has bet you that with your knowledge of accounting and just the calculations for common analytical measures, you can figure out many aspects of a company's financial statements. You take the bet! Match each calculation to

Your friend, another accountant, has bet you that with your knowledge of accounting and just the calculations for common analytical measures, you can figure out many aspects of a company's financial statements. You take the bet!

Match each calculation to one of the liquidity and solvency measures in the table.

Liquidity and Solvency Measures | Calculations |

Working capital | $3,091,000 – $840,000 |

Number of times preferred dividends are earned | $801,420 ÷ $65,000 |

Quick ratio | $1,866,000 ÷ $840,000 |

Accounts receivable turnover | $8,280,000 ÷ [($714,000 + $740,000) ÷ 2] |

Current ratio | $3,091,000 ÷ $840,000 |

Inventory turnover | $4,100,000 ÷ [($1,072,000 + $1,100,000) ÷ 2] |

Number of days' sales in inventory | [($1,072,000 + $1,100,000) ÷ 2] ÷ ($4,100,000 ÷ 365) |

Ratio of fixed assets to long-term liabilities | $2,690,000 ÷ $1,690,000 |

Ratio of liabilities to stockholders' equity | $2,530,000 ÷ $4,075,000 |

Number of days' sales in receivables | [($714,000 + $740,000) ÷ 2] ÷ ($8,280,000 ÷ 365) |

Number of times interest charges are earned | ($989,400 + $127,000) ÷ $127,000 |

Use the comparative income statement from below to enter amounts you identify from the calculations on the Liquidity and Solvency Measures panel and on the Profitability Measures panel. Calculate any missing amounts and complete the horizontal analysis columns. Enter percentages as decimal amounts, rounded to one decimal place.

Comparative Income Statement |

As of December 31 |

1 | | Year 2 | Year 1 | Amount Increase (Decrease) | Percentage Increase (Decrease) |

2 | Sales | | $7,287,000.00 | | |

3 | Cost of goods sold | | 3,444,000.00 | | |

4 | Gross income | | $3,843,000.00 | | |

5 | Selling expenses | | $1,457,600.00 | | |

6 | Administrative expenses | 1,242,000.00 | 1,106,000.00 | | |

7 | Total operating expenses | | $2,563,600.00 | | |

8 | Income from operations | | $1,279,400.00 | | |

9 | Interest expense | | 120,600.00 | | |

10 | Income before income tax | | $1,158,800.00 | | |

11 | Income tax expense | | 181,980.00 | | |

12 | Net income | | $976,820.00 | | |

Use the balance sheet form below to enter amounts you identify from the calculations on the Liquidity and Solvency Measures panel. You will identify other amounts for the balance sheet on the Profitability Measures panel. If you have a choice of two amounts, assume the first amount in the ratio is for the end of the year. Calculate any missing amounts.

Balance Sheet amounts |

December 31 |

1 | Assets | |

2 | Current assets: | |

3 | Cash | $823,000.00 |

4 | Marketable securities | |

5 | Accounts receivable (net) | |

6 | Inventory | |

7 | Prepaid expenses | |

8 | Total current assets | |

9 | Long-term investments | |

10 | Property, plant, and equipment (net) | |

11 | Total assets | |

12 | Liabilities | |

13 | Current liabilities | |

14 | Long-term liabilities | |

15 | Total liabilities | |

16 | Stockholders’ Equity | |

17 | Preferred stock, $10 par | |

18 | Common stock, $5 par | |

19 | Retained earnings | |

20 | Total stockholders’ equity | |

21 | Total liabilities and stockholders’ equity | |

**Related Book For**

## Advanced Financial Accounting

ISBN: 978-0132928939

7th edition

Authors: Thomas H. Beechy, V. Umashanker Trivedi, Kenneth E. MacAulay

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