Mastery Problem: Financial Statement Analysis

Question Content Area

Liquidity and Solvency Measures

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

Match each computation to one of the liquidity and solvency measures in the table. $($ Hint : Begin by looking for simple computations and identifying the amounts in those computations. Look for other measures that use those amounts.$)$

Liquidity and Solvency Measures Computations

Working capital

Current ratio

Quick ratio

Accounts receivable turnover

Number of days' sales in receivables

Inventory turnover

Number of days' sales in inventory

Ratio of fixed assets to long$-$term liabilities

Ratio of liabilities to stockholders' equity

Times interest earned

Question Content Area

Balance Sheet

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

Balance Sheet

December $31,20$Y$6$

Assets

Current assets:

Cash $$823,000$

Marketable securities fill in the blank $5119$ca$08406$c$015\_1$

Accounts receivable $($net$)$ fill in the blank $5119$ca$08406$c$015\_2$

Inventory fill in the blank $5119$ca$08406$c$015\_3$

Prepaid expenses fill in the blank $5119$ca$08406$c$015\_4$

Total current assets $fill in the blank $5119$ca$08406$c$015\_5$

Long$-$term investments fill in the blank $5119$ca$08406$c$015\_6$

Property, plant, and equipment $($net$)$ fill in the blank $5119$ca$08406$c$015\_7$

Total assets $fill in the blank $5119$ca$08406$c$015\_8$

Liabilities

Current liabilities $fill in the blank $5119$ca$08406$c$015\_9$

Long$-$term liabilities fill in the blank $5119$ca$08406$c$015\_10$

Total liabilities $fill in the blank $5119$ca$08406$c$015\_11$

Stockholders' Equity

Preferred stock, $$10$ par $fill in the blank $5119$ca$08406$c$015\_12$

Common stock, $$5$ par fill in the blank $5119$ca$08406$c$015\_13$

Retained earnings fill in the blank $5119$ca$08406$c$015\_14$

Total stockholders' equity $fill in the blank $5119$ca$08406$c$015\_15$

Total liabilities and stockholders' equity $fill in the blank $5119$ca$08406$c$015\_16$

Question Content Area

Profitability Measures

Match each computation to one of the profitability measures in the table.

Profitability Measures Computations

Asset turnover

Return on total assets

Return on stockholders' equity

Return on common stockholders' equity

Earnings per share on common stock

Price$-$earnings ratio

Dividends per share

Dividend yield

Question Content Area

Comparative Income Statement

Use the following comparative income statement form to enter amounts you identify from the computations on the Liquidity and Solvency Measures part and on the Profitability Measures part. Compute any missing amounts and complete the horizontal analysis columns. Enter percentages as decimal amounts, rounded to one decimal place. When rounding, look only at the figure to the right of one decimal place. If $<5,$ round down and if $>=5,$ round up$.$ For example, for $32\mathrm{.}048\%$ enter $32\mathrm{.}0\%.$ For $32\mathrm{.}058\%$ enter $32\mathrm{.}1\%.$

Comparative Income Statement

For the Years Ended December $31,20$Y$6$ and $20$Y$5$

Increase$/($Decrease$)$

$20$Y$620$Y$5$ Amount Percentage

Sales $fill in the blank fb$9$bbef$93007030\_1$

$$7,287,000$ $fill in the blank fb$9$bbef$93007030\_2$

fill in the blank fb$9$bbef$93007030\_3$

$\%$

Cost of goods sold fill in the blank fb$9$bbef$93007030\_4$

$(3,444,000)$ fill in the blank fb$9$bbef$93007030\_5$

fill in the blank fb$9$bbef$93007030\_6$

$\%$

Gross profit $fill in the blank fb$9$bbef$93007030\_7$

$$3,843,000$ $fill in the blank fb$9$bbef$93007030\_8$

fill in the blank fb$9$bbef$93007030\_9$

$\%$

Selling expenses $fill in the blank fb$9$bbef$93007030\_10$

$$(1,457,600)$ $fill in the blank fb$9$bbef$93007030\_11$

fill in the blank fb$9$bbef$93007030\_12$

$\%$

Administrative expenses $(1,242,000)(1,106,000)$ fill in the blank fb$9$bbef$93007030\_13$

fill in the blank fb$9$bbef$93007030\_14$

$\%$

Total operating expenses $fill in the blank fb$9$bbef$93007030\_15$

$$(2,563,600)$ $fill in the blank fb$9$bbef$93007030\_16$

fill in the blank fb$9$bbef$93007030\_17$

$\%$

Operating income $fill in the blank fb$9$bbef$93007030\_18$

$$1,279,400$ $fill in the blank fb$9$bbef$93007030\_19$

fill in the blank fb$9$bbef$93007030\_20$

$\%$

Other expense $($interest$)$ fill in the blank fb$9$bbef$93007030\_21$

$(120,600)$ fill in the blank fb$9$bbef$93007030\_22$

fill in the blank fb$9$bbef$93007030\_23$

$\%$

Income before income tax expense $fill in the blank fb$9$bbef$93007030\_24$

$$1,158,800$ $fill in the blank fb$9$bbef$93007030\_25$

fill in the blank fb$9$bbef$93007030\_26$