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Exam 13: Financial Statement Analysis

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Question 81

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The Bernard Company provided the following information from its financial records: $\begin{array}{|l|rr|l|r|}\hline \text { Net income } & \$ 250,000 && \text { Total stockholders' equity } & \$ 1,000,000 \\\hline \text { Common dividends } & \$ 15,000 && \text { Common shares outstanding, } 12 / 31 & 150,000 \\\hline \text { Preferred rights } & \$ 175,000 & & \\\hline\end{array}$ What is the company's book value per share?

A) $0.50
B) $5.50
C) $6.67
D) $1.67

E) B) and D)
F) B) and C)

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Question 82

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Knoell Company paid its sales employees $15,000 in sales commissions.What impact will this transaction have on the firm's working capital?

A) No impact
B) Increase it
C) Decrease it
D) Not enough information is provided to answer the question.

E) A) and B)
F) A) and C)

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Question 83

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The following income statement was prepared by Case Company for Year 2: $\begin{array}{|l|r|}\hline \text { Sales } & \$ 100,000 \\\hline \text { Cost of goods sold } & \underline { 56,500} \\\hline \text { Gross margin } & 43,500 \\\hline \text { Selling and administrative expense } & 26,000 \\\hline \text { Interest expense } & \underline { 5,000} \\\hline \text { Total expenses } & \underline { 31,000} \\\hline \text { Income before taxes } & 12,500 \\\hline \text { Income tax expense } & \underline { 4, 000 }\\\hline \text { Net income } &\underline { \$ 8,500}\\\hline \end{array}$ Required: Perform vertical analysis for Case Company's Year 2 income statement.

The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

Long-term creditors are usually most interested in evaluating:

The Abel Company provided the following information from its financial records: $\begin{array}{|l|r|l|r|}\hline \text { Net income } & \$ 250,000 & \text { Common shares outstanding 1/1 } & 200,000 \\\hline \text { Common stock dividends } & \$ 20,000 & \text { Common shares outstanding 12/31 } & 300,000 \\\hline \text { Preferred stock dividends } & \$ 25,000 & \text { Preferred shares outstanding 1/1 } & 10,000 \\\hline \text { Sales } & \$ 1,000,000 & \text { Preferred shares outstanding 12/31 } & 6,000 \\\hline\end{array}$ What is the amount of the company's earnings per share?

Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is incorrect?

The study of an individual financial statement item over several accounting periods is called:

As of December 31,Year 1,Gant Corporation had a current ratio of 1.29,quick ratio of 1.05,and working capital of $18,000.The company uses a perpetual inventory system and sells merchandise for more than it cost.On January 1,Year 2,Gant purchased merchandise on account for $4,000.Which of the following statements is correct?

Indicate whether each of the following statements about financial statement analysis is

Indicate whether each of the following statements about financial statement analysis is

The only requirement involved in communicating useful information is that the information be accurate.