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Exam 13: Analysis of Financial Statements

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Question 121

True/False

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Liquidity refers to the availability of resources to meet short-term cash requirements.

A) True
B) False

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Question 122

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The comparison of a company's financial condition and performance across time is known as:

A) Horizontal analysis.
B) Vertical analysis.
C) Political analysis.
D) Financial reporting.
E) Investment analysis.

F) None of the above
G) C) and D)

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Question 123

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The dollar change for a comparative financial statement item is calculated by:

A good financial report does not link interpretations and conclusions of analysis with the underlying information.

Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in both dollar amounts and percentages, are referred to as:

A corporation reports the following year-end balance sheet data. The company's debt-to-equity ratio equals: $\begin{array} { | l | r |r| r | } \hline \text { Cash } & \$ 40,000 & \text { Current liabilities } & \$ 75,000 \\\hline \text { Accounts receivable } & 55,000 & \text { Long-term liabilities } & 35,000 \\\hline \text { nnventory } & 60,000 & \text { Common stock } & 100,000 \\\hline \text { Equipment } & \underline { 145,000 } & \text { Retained earnings } & \underline { 90,000 } \\\hline\text { Total assets } & \underline{\$ 300,000 }& \text { Total liabilities and equity } &\underline{ \$ 300,000 }\\\hline\end{array}$

Refer to the following selected financial information from McCormik, LLC. Compute the company's working capital for Year 2. $\begin{array} { | l | r | r | } \hline & \text { Year 2 } & { \text { Year 1 } } \\\hline \text { Cash } & \$ 37,500 & 36,850 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100 & 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,00 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$

For the following financial statement items, calculate trend percentages using 2016 as the base year: $\begin{array}{|l|r|r|r|r|r|r|} \hline &{2020} & {2019} & {2018} & {2017} & {2016} \\\hline \text { Sales.............. } & \$ 1,195,400 & \$ 1,118,000 & \$ 1,049,000 & \$ 963,200 & \$ 860,000 \\\hline \text { Cost of sales........... } & 752,400 & 704,000 & 671,000 & 616,700 & 559,000 \\\hline \text { Gross profit........... } & \$ 443,000 & \$ 414,000 & \$ 378,000 & \$ 346,500 & \$ 301,000\\\hline\end{array}$

A company with a high inventory turnover requires a smaller investment in inventory than one producing the same sales with a lower turnover.

When a negative amount is in the base period and a positive amount is in the analysis period (or vice versa), a meaningful percent change cannot be calculated.

Current assets minus current liabilities is:

What are the four standards for comparisons in financial analysis? Give an example of each.

All of the following statements regarding a business segment are true except: