Smartbook 13 pt2

At the end of the year, assets for Jordan company are $120,000 and liabilities are $40,000. The debt-to-equity ratio is:

0.5 Reason: Equity=120,000-40,000=$80,000. 40,000/80,000=.5

A company's market price is $40.00 per common share, book value is $10.00 per share, and the earnings is $3.00 per share. Compute price-earnings ratio.

13.3 Reason: $40 / 3 = $13.3

__ refers to a company's financing sources, including equity and debt.

Capital structure

A financial statement _report consists of an executive summary, analysis overview, evidential matter, assumptions, key factors, and inferences.

analysis

The complete income statement is separated into the following sections:

earnings per share discontinued segments continuing operations

The debt-to-equity ratio takes total liabilities divided by total _.

equity

Six sections of analysis report

executive summary, analysis overview, evidential matter, assumptions, key factors, inferences

The debt-to-equity ratio is a measure of solvency that takes total ___ divided by total equity.

liabilities

The _ ratio is computed by taking market price per common share divided by earnings per share.

price earnings

_ separately in the discontinued segments section of the income statement

retrospective

Changes in accounting principle are reported

retrospectively

Profit margin is computed by taking net income divided by net _.

sales

A business (section/segment/class) is a part of a company's operations that serves a particular line of business or class of customers.

segment

A discontinued segment is reported:

separately in the discontinued segments section of the income statement

The amount of income before deductions for interest expense and income taxes is the amount available to pay interest. The ________ ratio takes this income divided by interest expense to determine the risk for creditors.

times interest earned

The debt-to-equity ratio is computed by taking:

total liabilities divided by total equity

Return on common stockholders' equity measures the amount of ______ earned for its owners. It is computed by taking net income less preferred dividends divided by average common stockholders' equity.

net income

Return on common stockholders' equity is computed by taking (______) divided by average common stockholders' equity.

net income - preferred dividends

Return on total assets is computed by taking:

net income divided by average total assets

Total asset turnover is computed by taking ___

net sales divided by average total assets.

A company has 20,000 shares of $5 par-value common stock issued and outstanding. Earnings per share were $4, annual cash dividends per share were $0.90, and market price per share is $90. Dividend yield is _%

1 Reason: 0.90/ $90=0.01 =1%

A company reported Net Income for 2018 of $12,000 and for 2017 of $14,000. It reported Total Assets at the end of 2018 of $120,000 and at the end of 2017 of $100,000. Compute return on total assets for 2018.

10.9% Reason: 12,000/[(120,000+100,000/2)]=.109=10.9%

A company reported Net Income for 2018 of $1,500 and for 2017 of $1,000. It reported Total Assets at the end of 2018 of $13,000 and at the end of 2017 of $11,000. Compute return on total assets for 2018.

12.5% Reason: Average total assets = ($13,000+$11,000)/2=$12,000. 1,500/12,000=.125 = 12.5%

A company has only common stock (no preferred stock) and reports Net Income for the period of $2,500. Stockholder's Equity at the beginning of the period was $12,000 and at the end of the period is $14,000. Compute return on common stockholders' equity.

19.2% Reason: $2,500 / [($12,000+$14,000)/2]

A company has only common stock (no preferred stock) and reports Net Income for the period of $1,500. Stockholder's Equity at the beginning of the period was $6,200 and at the end of the period is $5,200. Compute return on common stockholders' equity.

26.3% Reason: ($1,500 - 0) / ($6,200 + $5,200/2) = $26.3%

A company has Total Assets of $34,000 including $3,000 in Accounts Receivable, and Net Sales of $40,000. Days' sales uncollected is ____ days.

27.4 Reason: ($3,000/$40,000) x 365 = 27.4

Squire Co. had net sales of $3,000 and total assets of $1,000 on 12/31 of the previous year. On 12/31 of the current year, it had net sales of $3,600 and total assets of $1,400. Total asset turnover would be _ times on 12/31 of the current year.

3 Reason: 3,600/ (1,400+ 1,000/2)

A company reports net income before interest expense and income taxes of $18,000. Interest Expense for the period is $500 and Taxes are $4,000. Times interest earned is:

36 Reason: 18,000/500=36

Blossom Co. had Net Sales of $3,600 in 2017 and $4,200 in 2018. It had Total Assets of $1,400 in 2017 and $1,600 in 2018. Total asset turnover would be computed in 2018 by taking _.

4,200/1,500. Reason: $4,200 divided by $1,500 (average total assets = ($1,400+$1,600)/2 = $1,500).

Whisper Co. had Beginning Inventory of $20,000 and Ending Inventory of $26,000. Cost of goods sold for the period was $130,000. Days' sales in inventory is _ days.

73 Reason: (26,000/130,000) x 365

__ is a useful measure in evaluating inventory liquidity. It is computed by taking ending inventory divided by cost of goods sold multiplied by 365.

Days' sales in inventory

_ is used to compare the dividend-paying performance of different investment alternatives. It is computed by taking annual cash dividends per share divided by market price per share.

Dividend yield

True or false: Return on total assets reflects solvency. It is computed by taking net income divided by current assets for the period. True false question.

False Reason: It reflects profitability and is computed as net income divided by average total assets.

Gains and losses that are either unusual and/or infrequent are reported as part of continuing operations after normal revenues and expenses. Items considered unusual and/or infrequent include:

Hurricane Condemning of property

_ margin reflects a company's ability to earn net income from sales. It is measured by expressing net income as a percent of sales.

Profit

_ reflects a company's ability to earn net income from sales. It is measured by expressing net income as a percent of sales.

Profit margin

_ measures the amount of net income earned for its owners. It is computed by taking net income less preferred dividends divided by average common stockholders' equity.

Return on common stockholders' equity

_ refers to a company's ability to meet long-term obligations and generate future revenues.

Solvency

__ turnover reflects a company's ability to use its assets to generate sales and is an important indication of operating efficiency. It is computed by taking net sales divided by average total assets.

Total asset