Chapter 17

Davis Co. reported the following items for the year ending December 31:

$1.60 (Net Income - Preferred Dividends) ÷ Shares of Common Stock Outstanding = EPS on common stock

Using the following information, determine the amount of cost of merchandise sold. Sales are $267,000, and the gross profit rate is 8%.

$245,640 Sales - Cost of Merchandise Sold = Gross Profit. $267,000 × 8% = $21,360. $267,000 - x = $21,360; x = $245,640

Earnings per share should be reported separately for

Discontinued operations

The ratio of fixed assets to long-term liabilities is computed as

Fixed Assets (net) ÷ Long-Term Liabilities.

Investors such as stockholders are interested in a company's

Profitablility

In a common-sized income statement, which of the following is given a percentage of 100%?

Sales

In a vertical analysis of an income statement, the base for computing the cost of merchandise sold percentage is

Sales

Question Content Area The following information is available for Meyer Company:

The dividend yield is 6.0%, which is of special interest to investors seeking to earn revenue on their investments. Dividend Yield = Dividends per Share of Common Stock ÷ Market Price per Share of Common Stock $1.80 ÷ $30.00 = 6.0% Dividend yield is of special interest to investors whose objective is to earn revenue (dividends) from their investment.

An analysis in which all the components of a balance sheet are expressed as a percentage of total assets is called __________ analysis.

Vertical

In horizontal analysis, each item is expressed as a percentage of the

base year figure.

Return on total assets measures the profitability of total assets without considering how the assets are

financed

Which of the following would appear as an unusual item on the income statement?

gain resulting from the disposal of a segment of the business

The asset turnover ratio measures

how effectively a company uses its assets.

The measure on common stock that indicates a company's future earnings prospects is

price-earnings ratio

The purpose of an audit is to

render an opinion on the fairness of the statements

Duke Company has short-term liabilities of $41,400, long-term liabilities of $21,000, common stockholders' equity of $92,000, and total stockholders' equity of $120,000 (including the common). Duke's ratio of liabilities to stockholders' equity is

52% Ratio of Liabilities to Stockholders' Equity = Total Liabilities ÷ Total Stockholders' Equity = ($41,400 + $21,000) ÷ $120,000 = 52%

Assume the following sales data for a company: Year 2 $793,600 Year 1 640,000 What is the percentage increase in sales from Year 1 to Year 2 (rounded to the nearest percent)?

($793,600 - $640,000) ÷ $640,000 = 0.24, or 24%

Times interest earned is computed as

(Income Before Income Tax + Interest Expense) ÷ Interest Expense.

Question Content Area The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Use this information to answer the question that follow.

1.5 Dividends per Common Share = Dividends on Common Stock ÷ Shares of Common Stock Outstanding $9,000 ÷ 6,000 shares = $1.50

The balance sheets at the end of each of the first 2 years of operations indicate the following: If net income is $147,000 and interest expense is $32,000 for Year 2, what is the return on total assets for Year 2? (Round percentage to one decimal place.)

11.9% Return on Total Assets = (Net Income + Interest Expense) ÷ Average Total Assets

The balance sheets at the end of each of the first 2 years of operations indicate the following If net income is $146,000 and interest expense is $32,000 for Year 2, what is the return on total assets for Year 2? (Round percentage to one decimal place.):

11.9% Return on Total Assets = (Net Income + Interest Expense) ÷ Average Total Assets ($146,000 + $32,000) ÷ {[($603,000 + $82,000 + $936,000) + ($583,000 + $43,000 + $756,000)] ÷ 2} = $178,000 ÷ $1,501,500 = 11.9%

Based on the following data for the current year, what is the accounts receivable turnover?

12.6 Accounts Receivable Turnover = Sales ÷ Average Accounts Receivable

Richards Corporation had net income of $232,034 and paid dividends to common stockholders of $53,900. It had 58,300 shares of common stock outstanding during the entire year. Richards Corporation's common stock is selling for $53 per share. The price-earnings ratio (rounded to two decimal places) is

14.41 Price-Earnings (P/E) Ratio = Market Price per Share of Common Stock ÷ Earnings per Share on Common Stock $53 ÷ ($232,034 ÷ 58,300 shares) = $53 ÷ $3.98 = 13.32 times

The relationship of $300,500 to $121,912, expressed as a ratio, is

2.5 $300,500 ÷ $121,912 = 2.5

Assume the following sales data for a company: Year 2 - $811,800 Year - 1660,000 What is the percentage increase in sales from Year 1 to Year 2 (rounded to the nearest percent)?

23% ($811,800 - $660,000) ÷ $660,000 = 0.23, or 23%

The following information pertains to Newman Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit.

9.3 Return on Total Assets = (Net Income + Interest Expense) ÷ Average Total Assets ($25,000 + $3,800) ÷ $310,000 = 9.3%

Techniques for analyzing financial statements include

Both analytical methods and ratio analysis

The formula used to compute inventory turnover is

Cost of Merchandise Sold ÷ Average Merchandise Inventory.

The numerator in the current ratio formula is

Current Assets

Profitability ratios include all of the following EXCEPT

Current Ratio

What type of analysis is indicated by the following?

Horizontal analysis shows the percentage analysis of INCREASES and DECREASES in related items in comparative financial statements.

Generally accepted accounting principles require that unusual items be reported separately on the

Income Statement

Which two reports on internal control are sometimes combined into a single report on internal control?

One report by management and one report by a public accounting firm regarding the adequacy of internal controls

Corporate annual reports typically do NOT contain which of the following?

Next year's budget