Documente Academic
Documente Profesional
Documente Cultură
16-1
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Conceptual
19 M/C M x 8/e:AltTB18-19 David Keyes
CMA, 12/93,
Conceptual Part 2, Question
20 M/C M x CMA CMA, 12/93, Part 2, Question 18 CMA 18
Conceptual
21 M/C M x 9eLD:CH18Q3 Larry Deppe
Conceptual
22 M/C M x 9eLD:CH18Q5 Larry Deppe
Conceptual
23 M/C M x CMA 4/e:17-1081 CMA CMA, ???
Conceptual
24 M/C M x 4/e:17-1054 Authors
CMA, 12/94,
Conceptual Part 1, Question
25 M/C H x CMA CMA, 12/94, Part 1, Question 15 CMA 15
Conceptual
26 M/C M x CMA 3/e:17-29 CMA CMA, ???
Conceptual
27 M/C H x 5/e:17-19 Authors
Conceptual
28 M/C M x 2/e:16-12 Authors
Conceptual
29 M/C H x 4/e:17-1077 Authors
Conceptual
30 M/C M x 1/e:18-5 Authors
Conceptual
31 M/C E x 4/e:17-1074 Authors
Conceptual
32 M/C M x 1/e:18-7 Authors
Conceptual
33 M/C M x 8/e:AltTB18-12 David Keyes
34 M/C E x 10/31/2004 Single MC A3 E.N.
35 M/C E x 12/26/95,C2 E.N.
36 M/C H x 4/e:17-1045 Authors
37 M/C M x 12/26/95,A2 E.N.
38 M/C E x 1/e:18-10 Authors
39 M/C M x 5/e:17-55 Authors
16-2
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-3
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-4
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16- 174-
17 175 Multipart M/C M x 1/4/96,N3 E.N.
16- 176-
18 177 Multipart M/C M x 10/30/2004 Multi MC I3 E.N.
16- 178-
19 179 Multipart M/C E x 10/30/2004 Multi MC J3 E.N.
180 Problem M x x x x 10/30/2004 Problem A3 E.N.
181 Problem M x x 10/30/2004 Problem B3 E.N.
182 Problem E x 10/31/2004 Problem I3 E.N.
183 Problem M x x x 1/6/96,P9 E.N.
184 Problem M x x x 2/e:16-1 Authors
CMA, 6/94, Part
185 Problem H x x x CMA CMA, 6/94, Part 2, Question 5 CMA 2, Question 5
186 Problem M x 1/6/96,Q4 E.N.
187 Problem M x 10/30/2004 Problem C3 E.N.
188 Problem E x 10/30/2004 Problem D3 E.N.
189 Problem E x 10/31/2004 Problem J3 E.N.
190 Problem E x 10/31/2004 Problem K3 E.N.
191 Problem E x 10/31/2004 Problem L3 E.N.
192 Problem E x 10/31/2004 Problem M3 E.N.
193 Problem E x 10/31/2004 Problem N3 E.N.
194 Problem E x 10/31/2004 Problem O3 E.N.
195 Problem E x 10/31/2004 Problem P3 E.N.
196 Problem M x x 1/ 6/96,R4 E.N.
197 Problem M x 10/30/2004 Problem E3 E.N.
198 Problem E x 10/30/2004 Problem F3 E.N.
199 Problem E x 11/1/2004 Problem Q3 E.N.
200 Problem E x 11/.1/2004 Problem R3 E.N.
201 Problem E x 11/1/2004 Problem S3 E.N.
202 Problem E x 11/1/2004 Problem T3 E.N.
203 Problem E x 11/1/2004 Problem U3 E.N.
204 Problem E x 11/1/2004 Problem V3 E.N.
205 Problem E x 11/1/2004 Problem W3 E.N.
206 Problem M x 10/30/2004 Problem G3 E.N.
207 Problem E x 10/30/2004 Problem H3 E.N.
16-5
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-6
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
2. Trend percentages state several years' financial data in terms of a base year. For example,
sales for every year would be stated as a percentage of the sales in the base year.
True False
3. The gross margin percentage is computed taking the difference between sales and cost of
goods and then dividing the result by sales.
True False
4. The gross margin percentage is computed by dividing net income before interest and taxes
by sales.
True False
5. The price-earnings ratio is determined by dividing the price of a product by its profit
margin.
True False
6. The price-earnings ratio is computed by dividing the market price per share by the current
earnings per share.
True False
16-7
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
7. When computing the return on total assets, the after-tax effect of interest expense must be
subtracted from net income.
True False
8. If the assets in which funds are invested have a rate of return lower than the fixed rate of
return paid to the supplier of the funds, then financial leverage is positive.
True False
9. If the market value of a share of stock is greater than its book value, the stock is probably
overpriced.
True False
10. Assuming that a company has a current ratio greater than 1.0, repaying a short-term note
payable will increase the current ratio.
True False
11. The acid-test ratio is a test of the quality of accounts receivable--in other words, whether
they are likely to be collected.
True False
12. When computing the acid-test ratio, prepaid expenses are ignored.
True False
13. Only credit sales (i.e., sales on account) are included in the computation of the accounts
receivable turnover.
True False
16-8
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
14. Net operating income will always increase when a company increases its accounts
receivable turnover.
True False
15. The inventory turnover ratio is equal to the average inventory balance divided by the cost
of goods sold.
True False
16. Working capital equals current assets, plus noncurrent liabilities and stockholders' equity,
less total assets.
True False
18. Earnings per share of common stock will immediately increase as a result of:
A. the sale of additional shares of common stock by the company.
B. an increase in the dividends paid to common stockholders by the company.
C. an increase in the company's net income.
D. the issuance of bonds by the company to finance construction of new buildings.
16-9
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
19. What effect will a year-end increase in the market price of a corporation's common stock
have on the following ratios?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
20. An increase in the market price of a company's common stock will immediately affect its:
A. dividend yield ratio.
B. debt-to-equity ratio.
C. earnings per share of common stock.
D. dividend payout ratio.
21. Which of the following is true regarding the calculation of return on total assets?
A. The numerator of the ratio consists only of net income.
B. The denominator of the ratio consists of the balance of total assets at the end of the period
under consideration.
C. The numerator of the ratio consists of net income plus interest expense times the tax rate.
D. The numerator of the ratio consists of net income plus interest expense times one minus the
tax rate.
22. If a company's bonds bear an interest rate of 8%, the tax rate is 30%, and the company's
assets are generating an after-tax return of 7%, then the leverage would be:
A. positive.
B. negative.
C. neither positive or negative.
D. impossible to determine without knowing the return on common stockholders' equity.
16-10
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
23. A company's current ratio and acid-test ratios are both greater than 1. If obsolete inventory
is written off, this would:
A. decrease the acid-test ratio.
B. increase the acid-test ratio.
C. increase net working capital.
D. decrease the current ratio.
24. If a company converts a short-term note payable into a long-term note payable, this
transaction would:
A. decrease working capital and increase the current ratio.
B. decrease working capital and decrease the current ratio.
C. decrease the current ratio and decrease the acid-test ratio.
D. increase working capital and increase the current ratio.
25. Which one of the following would increase the working capital of a company?
A. Cash payment of payroll taxes payable.
B. Refinancing a short-term note payable with a two year note payable.
C. Cash collection of accounts receivable.
D. Payment of a 20-year mortgage payable with cash.
26. If a company has a high current ratio but a low acid-test ratio, one can conclude that:
A. the company has a large outstanding accounts receivable balance.
B. the company has a large investment in inventory.
C. the company has a large amount of current liabilities.
D. the company's financial leverage is very high.
27. Desktop Co. presently has a current ratio of 1.2 and an acid-test ratio of 0.8. Prepaying
next year's office rent of $50,000 will:
A. have no effect on either the company's current ratio or its acid-test ratio.
B. have no effect on the company's current ratio but will decrease its acid-test ratio.
C. decrease the company's current ratio and decrease its acid-test ratio.
D. increase the company's current ratio and increase its acid-test ratio.
16-11
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
28. The Miller Company paid off some of its accounts payable using cash. The company's
current ratio is greater than 1. The company's current ratio would:
A. increase.
B. decrease.
C. remain unchanged.
D. impossible to determine from the information given.
29. Rahner Company has a current ratio of 1.75. This ratio will decrease if Rahner Company:
A. borrows cash using a six-month note.
B. pays the taxes payable which have been a current liability.
C. pays the following month's rent on the last day of the year.
D. sells inventory for more than their cost.
30. VIM Company purchased $100,000 in inventory from its suppliers on credit terms. The
company's acid-test ratio would most likely:
A. increase.
B. decrease.
C. be unchanged.
D. impossible to determine without more information.
31. Which of the following accounts would be included in the calculation of the acid-test
ratio?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
16-12
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
32. Allen Company's average collection period for accounts receivable was 40 days last year,
but increased to 60 days this year. Which of the following would most likely account for this
change?
A. a decrease in accounts receivable relative to sales.
B. a decrease in sales.
C. a relaxation of credit policies.
D. an increase in sales.
33. Which of the following would cause a corporation's inventory turnover ratio to increase?
A. an increase in the accounts receivable turnover.
B. an increase in sales price per unit without a reduction in the number of units sold.
C. a switch from the immediate cash payment of inventory purchases to the credit purchase of
inventory with payment due in 60 days (sales are unaffected).
D. none of these.
16-13
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
35. Craston Company's net income last year was $70,000. The company paid preferred
dividends of $10,000 and its average common stockholders' equity was $480,000. The
company's return on common stockholders' equity for the year was closest to:
A. 12.5%
B. 14.6%
C. 16.7%
D. 2.1%
36. Fulton Company's price-earnings ratio is 8.0 and the market price of a share of common
stock is $32. The company has 3,000 shares of preferred stock outstanding with each share
receiving a dividend of $3 per share. The earnings per share of common stock is:
A. $10
B. $7
C. $4
D. $3
37. Arston Company's net income last year was $300,000. The company has 150,000 shares
of common stock and 60,000 shares of preferred stock outstanding. There was no change in
the number of common or preferred shares outstanding during the year. The company
declared and paid dividends last year of $1.50 per share on the common stock and $0.60 per
share on the preferred stock. The earnings per share of common stock is closest to:
A. $2.00
B. $1.76
C. $0.50
D. $2.24
16-14
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
38. The following data have been taken from your company's financial records for the current
year:
39. The Herald Company has 50,000 shares of common stock outstanding. Earnings per share
of common stock for the year is $15.00. The dividend paid to the preferred stockholders
during the year was $2.00 per share. Common stockholders received dividends totaling
$150,000. The dividend payout ratio for the year was closest to:
A. 38.4%
B. 33.3%
C. 23.1%
D. 20.0%
40. Information concerning the common stock of Morris Company as of the end of the
company's fiscal year is presented below.
16-15
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
41. Bracken Company's net income last year was $85,000 and its interest expense was
$10,000. Total assets at the beginning of the year were $660,000 and total assets at the end of
the year were $600,000. The company's income tax rate was 30%. The company's return on
total assets for the year was closest to:
A. 14.6%
B. 14.0%
C. 13.5%
D. 15.1%
42. The total assets of the Philbin Company on January 1 were $2.3 million and on December
31 were $2.5 million. Net income was $188,000. Dividends totaled $75,000, interest expense
totaled $70,000, and the tax rate was 30%. The return on total assets was closest to:
A. 9.5%
B. 6.8%
C. 9.9%
D. 10.8%
43. The following account balances have been provided for the end of the most recent year:
16-16
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
44. Wernett Corporation's net income for the most recent year was $1,509,000. A total of
200,000 shares of common stock and 100,000 shares of preferred stock were outstanding
throughout the year. Dividends on common stock were $4.95 per share and dividends on
preferred stock were $1.35 per share. The earnings per share of common stock is closest to:
A. $1.92
B. $7.55
C. $6.87
D. $2.60
45. Leonhardt Corporation's net income last year was $3,800,000. The dividend on common
stock was $2.00 per share and the dividend on preferred stock was $1.80 per share. The
market price of common stock at the end of the year was $53.40 per share. Throughout the
year, 500,000 shares of common stock and 100,000 shares of preferred stock were
outstanding. The price-earnings ratio is closest to:
A. 9.54
B. 7.03
C. 7.38
D. 10.19
46. Iffert Corporation's net income last year was $4,040,000. The dividend on common stock
was $6.40 per share and the dividend on preferred stock was $2.30 per share. The market
price of common stock at the end of the year was $43.30 per share. Throughout the year,
300,000 shares of common stock and 100,000 shares of preferred stock were outstanding. The
dividend payout ratio is closest to:
A. 0.50
B. 0.91
C. 1.02
D. 0.48
47. Last year, Bartberger Corporation's dividend on common stock was $10.20 per share and
the dividend on preferred stock was $3.60 per share. The market price of common stock at the
end of the year was $51.70 per share. The dividend yield ratio is closest to:
A. 0.74
B. 0.07
C. 0.20
D. 0.27
16-17
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
The beginning balance of total assets was $720,000 and the ending balance was $730,000.
The return on total assets is closest to:
A. 17.4%
B. 21.2%
C. 24.8%
D. 30.3%
49. Excerpts from Melby Corporation's most recent balance sheet appear below:
Net income for Year 2 was $94,000. Dividends on common stock were $33,000 in total and
dividends on preferred stock were $11,000 in total. The return on common stockholders'
equity for Year 2 is closest to:
A. 7.8%
B. 7.4%
C. 4.8%
D. 8.8%
16-18
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
50. Data from Murrish Corporation's most recent balance sheet appear below:
A total of 200,000 shares of common stock and 40,000 shares of preferred stock were
outstanding at the end of the year. The book value per share is closest to:
A. $5.00
B. $5.70
C. $2.65
D. $4.70
51. Centerville Company's debt-to-equity ratio is 0.60 Total assets are $320,000, current
assets are $170,000 and working capital is $80,000. Centerville's long-term liabilities must
be:
A. $30,000
B. $80,000
C. $90,000
D. $120,000
52. Selected data from Sheridan Corporation's year-end financial statements are presented
below. The difference between average and ending inventory is immaterial.
16-19
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
53. Draper Company's working capital is $12,000 and its current liabilities are $71,000. The
company's current ratio is closest to:
A. 0.83
B. 1.17
C. 6.92
D. 0.17
54. Starrs Company has current assets of $300,000 and current liabilities of $200,000. Which
of the following transactions would increase its working capital?
A. Prepayment of $50,000 of next year's rent
B. Refinancing $50,000 of short-term debt with long-term debt
C. Acquisition of land valued at $50,000 by issuing new common stock
D. Purchase of $50,000 of marketable securities for cash
55. Harwichport Company has a current ratio of 3.5 and an acid-test ratio of 2.8. Current
assets equal $175,000 of which $5,000 consists of prepaid expenses. The remainder of current
assets consists of cash, accounts receivable, marketable securities, and inventory. Harwichport
Company's inventory must be:
A. $30,000
B. $40,000
C. $50,000
D. $35,000
56. Marcy Corporation's current ratio is currently 1.75. The firm's current ratio cannot fall
below 1.5 without violating agreements with its bondholders. If current liabilities are
presently $250 million, the maximum new short-term debt that can be issued to finance an
equivalent amount of inventory expansion is:
A. $41.67 million
B. $375.00 million
C. $125.00 million
D. $62.50 million
16-20
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
57. Eradicate Company has $16,000 in cash, $8,000 in marketable securities, $29,000 in
account receivable, $30,000 in inventories, and $34,000 in current liabilities. The company's
current assets consist of cash, marketable securities, accounts receivable, and inventory. The
company's acid-test ratio is closest to:
A. 0.85
B. 2.44
C. 1.56
D. 1.32
58. Frawner Company had $140,000 in sales on account last year. The beginning accounts
receivable balance was $12,000 and the ending accounts receivable balance was $10,000. The
company's accounts receivable turnover was closest to:
A. 11.67
B. 6.36
C. 14.00
D. 12.73
59. Grast Company had $170,000 in sales on account last year. The beginning accounts
receivable balance was $14,000 and the ending accounts receivable balance was $16,000. The
company's average collection period was closest to:
A. 32.21 days
B. 30.06 days
C. 64.41 days
D. 34.35 days
60. Harrison Company, a retailer, had cost of goods sold of $180,000 last year. The beginning
inventory balance was $26,000 and the ending inventory balance was $24,000. The
company's inventory turnover was closest to:
A. 7.20
B. 6.92
C. 3.60
D. 7.50
16-21
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
61. Irawan Company, a retailer, had cost of goods sold of $200,000 last year. The beginning
inventory balance was $24,000 and the ending inventory balance was $22,000. The
company's average sale period was closest to:
A. 41.98 days
B. 83.95 days
C. 43.80 days
D. 40.15 days
62. Naser Corporation's total current assets are $390,000, its noncurrent assets are $500,000,
its total current liabilities are $330,000, its long-term liabilities are $370,000, and its
stockholders' equity is $190,000. Working capital is:
A. $130,000
B. $60,000
C. $190,000
D. $390,000
63. Cintron Corporation's total current assets are $370,000, its noncurrent assets are $740,000,
its total current liabilities are $300,000, its long-term liabilities are $430,000, and its
stockholders' equity is $380,000. The current ratio is closest to:
A. 0.81
B. 0.70
C. 0.50
D. 1.23
16-22
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
64. Data from Sawin Corporation's most recent balance sheet appear below:
16-23
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
66. Data from Alf Corporation's most recent balance sheet and income statement appear
below:
16-24
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
68. Data from Waisner Corporation's most recent balance sheet and income statement appear
below:
69. Last year Jack Company had a net income of $270,000, income tax expense of $50,000,
and interest expense of $20,000. The company's times interest earned was closest to:
A. 17.00
B. 10.00
C. 13.50
D. 14.50
70. The times interest earned ratio of McHugh Company is 4.5. The interest expense for the
year was $20,000, and the company's tax rate is 40%. The company's net income is:
A. $22,000
B. $42,000
C. $54,000
D. $66,000
71. Kramer Company has total assets of $180,000 and total liabilities of $60,000. The
company's debt-to-equity ratio is closest to:
A. 0.25
B. 0.33
C. 0.50
D. 0.67
16-25
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
72. Pauk Corporation has provided the following data from its most recent income statement:
73. Biancuzzo Corporation has provided the following data from its most recent balance
sheet:
16-26
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Lesmerises Corporation's most recent balance sheet and income statement appear below:
16-27
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Dividends on common stock during Year 2 totaled $40 thousand. Dividends on preferred
stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $2.85
per share.
75. The earnings per share of common stock for Year 2 is closest to:
A. $0.69
B. $0.35
C. $0.30
D. $0.50
16-28
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
80. The return on common stockholders' equity for Year 2 is closest to:
A. 5.94%
B. 7.69%
C. 6.59%
D. 6.93%
81. The book value per share at the end of Year 2 is closest to:
A. $0.30
B. $4.60
C. $5.10
D. $8.20
16-29
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-30
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-31
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Guynn Corporation's most recent balance sheet and income statement appear below:
16-32
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Dividends on common stock during Year 2 totaled $10 thousand. Dividends on preferred
stock totaled $5 thousand. The market price of common stock at the end of Year 2 was $7.05
per share.
92. The earnings per share of common stock for Year 2 is closest to:
A. $0.79
B. $0.50
C. $1.14
D. $0.55
16-33
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
97. The return on common stockholders' equity for Year 2 is closest to:
A. 7.33%
B. 6.67%
C. 5.88%
D. 6.47%
98. The book value per share at the end of Year 2 is closest to:
A. $8.70
B. $0.50
C. $7.70
D. $14.30
16-34
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Selected financial data (in thousands of dollars) for Barnstable Company appear below:
100. For Year 2, the net income before taxes as a percentage of sales was:
A. 10%
B. 3%
C. 8%
D. 5%
101. For Year 2, the net operating income as a percentage of sales was:
A. 70%
B. 8%
C. 10%
D. 40%
102. Between Year 1 and Year 2, the times interest earned ratio:
A. increased
B. decreased
C. remained the same
D. cannot be determined from the data provided
16-35
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-36
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Dividends during Year 2 totaled $161 thousand, of which $10 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was $610.
103. Oram Company's earnings per share of common stock for Year 2 was closest to:
A. $36.38
B. $4.28
C. $37.63
D. $53.75
104. Oram Company's dividend yield ratio on December 31, Year 2 was closest to:
A. 2.9%
B. 3.3%
C. 0.4%
D. 3.1%
105. Oram Company's return on total assets for Year 2 was closest to:
A. 12.1%
B. 13.3%
C. 14.6%
D. 13.9%
16-37
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
106. Oram Company's current ratio at the end of Year 2 was closest to:
A. 1.24
B. 0.37
C. 1.20
D. 0.47
107. Oram Company's accounts receivable turnover for Year 2 was closest to:
A. 22.6
B. 15.8
C. 14.9
D. 10.4
108. Oram Company's average sale period for Year 2 was closest to:
A. 23.1 days
B. 16.1 days
C. 35.1 days
D. 24.6 days
109. Oram Company's times interest earned for Year 2 was closest to:
A. 10.8
B. 11.8
C. 19.5
D. 7.5
16-38
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
The company's sales for the year were $300 thousand, its cost of goods sold was $220
thousand, and its net income was $35 thousand. All sales were on credit. Preferred dividends
for the year were $5 thousand.
16-39
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
110. Lisa Inc.'s acid-test ratio at December 31, Year 2, was closest to:
A. 0.6
B. 1.1
C. 1.8
D. 2.0
111. Lisa Inc.'s accounts receivable turnover for Year 2 was closest to:
A. 4.9
B. 5.9
C. 6.7
D. 8.0
112. Lisa Inc.'s inventory turnover for Year 2 was closest to:
A. 3.7
B. 4.0
C. 4.4
D. 5.0
113. Lisa Inc.'s book value per share of common stock at December 31, Year 2, was closest
to:
A. $10.00
B. $11.25
C. $19.33
D. $18.33
114. Lisa Inc.'s return on common stockholders' equity for Year 2 was closest to:
A. 7.8%
B. 10.6%
C. 10.9%
D. 12.4%
16-40
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-41
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was $150.
115. Larkins Company's earnings per share of common stock for Year 2 was closest to:
A. $25.00
B. $17.50
C. $7.21
D. $16.83
116. Larkins Company's price-earnings ratio on December 31, Year 2 was closest to:
A. 8.91
B. 8.57
C. 20.79
D. 6.00
117. Larkins Company's dividend payout ratio for Year 2 was closest to:
A. 42.9%
B. 24.6%
C. 40.6%
D. 14.8%
16-42
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
118. Larkins Company's dividend yield ratio on December 31, Year 2 was closest to:
A. 4.6%
B. 5.0%
C. 2.1%
D. 4.1%
119. Larkins Company's return on total assets for Year 2 was closest to:
A. 13.6%
B. 16.0%
C. 15.3%
D. 17.0%
120. Larkins Company's return on common stockholders' equity for Year 2 was closest to:
A. 23.5%
B. 25.9%
C. 26.9%
D. 24.4%
121. Larkins Company's book value per share at the end of Year 2 was closest to:
A. $10.00
B. $23.33
C. $70.00
D. $76.67
16-43
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
The Dawson Corporation projects the following for the upcoming year:
123. If Dawson Corporation's common stock has a price-earnings ratio of eight, the market
price per share (to the nearest dollar) would be:
A. $125
B. $56
C. $72
D. $68
16-44
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-45
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Dadisman Corporation's most recent balance sheet and income statement appear below:
16-46
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Dividends on common stock during Year 2 totaled $30 thousand. Dividends on preferred
stock totaled $20 thousand. The market price of common stock at the end of Year 2 was $6.75
per share.
126. The earnings per share of common stock for Year 2 is closest to:
A. $1.25
B. $0.70
C. $0.50
D. $1.00
16-47
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
131. The return on common stockholders' equity for Year 2 is closest to:
A. 7.95%
B. 4.63%
C. 6.48%
D. 5.68%
132. The book value per share at the end of Year 2 is closest to:
A. $8.90
B. $0.50
C. $15.20
D. $10.90
16-48
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Excerpts from Stys Corporation's most recent balance sheet and income statement appear
below:
Dividends on common stock during Year 2 totaled $50 thousand. Dividends on preferred
stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $8.20
per share.
133. The earnings per share of common stock for Year 2 is closest to:
A. $1.10
B. $1.57
C. $1.85
D. $1.00
16-49
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
138. The return on common stockholders' equity for Year 2 is closest to:
A. 13.02%
B. 11.83%
C. 13.42%
D. 14.77%
16-50
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
139. The book value per share at the end of Year 2 is closest to:
A. $8.70
B. $13.50
C. $1.00
D. $7.70
16-51
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-52
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
140. Marcalo Company's working capital (in thousands of dollars) at the end of Year 2 was
closest to:
A. $220
B. $580
C. $360
D. $1,580
141. Marcalo Company's current ratio at the end of Year 2 was closest to:
A. 0.42
B. 0.40
C. 1.24
D. 1.61
142. Marcalo Company's acid-test ratio at the end of Year 2 was closest to:
A. 1.08
B. 2.05
C. 0.49
D. 0.32
16-53
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
143. Marcalo Company's accounts receivable turnover for Year 2 was closest to:
A. 12.4
B. 12.2
C. 8.5
D. 17.8
144. Marcalo Company's average collection period for Year 2 was closest to:
A. 20.6 days
B. 29.4 days
C. 30.0 days
D. 42.9 days
145. Marcalo Company's inventory turnover for Year 2 was closest to:
A. 12.4
B. 12.2
C. 17.8
D. 8.5
146. Marcalo Company's average sale period for Year 2 was closest to:
A. 20.6 days
B. 29.4 days
C. 30.0 days
D. 42.9 days
16-54
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
The following financial data have been taken from the records of CPZ Enterprises.
149. What will happen to the ratios below if CPZ Enterprises uses cash to pay 50 percent of
its accounts payable?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
16-55
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Mccaughey Corporation's most recent balance sheet and income statement appear below:
16-56
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-57
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Excerpts from Shelton Corporation's most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,320 and the cost of goods sold was $890.
16-58
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-59
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Excerpts from Deandrade Corporation's most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,360 and the cost of goods sold was $830.
16-60
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Data from Gofman Corporation's most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,300 and the cost of goods sold was $900.
16-61
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-62
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-63
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
174. Nardella Company's times interest earned for Year 2 was closest to:
A. 7.8
B. 4.8
C. 12.8
D. 6.8
175. Nardella Company's debt-to-equity ratio at the end of Year 2 was closest to:
A. 0.31
B. 0.23
C. 0.70
D. 0.54
16-64
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Juncker Corporation's most recent balance sheet and income statement appear below:
16-65
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-66
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Data from Karmely Corporation's most recent balance sheet and the company's income
statement appear below:
16-67
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Essay Questions
180. Shull Corporation's most recent balance sheet and income statement appear below:
16-68
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Dividends on common stock during Year 2 totaled $40 thousand. Dividends on preferred
stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $9.80
per share.
Required:
16-69
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
181. Walp Corporation's most recent balance sheet and income statement appear below:
16-70
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Dividends on common stock during Year 2 totaled $20 thousand. Dividends on preferred
stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $7.75
per share.
Required:
16-71
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Required:
16-72
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-73
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Dividends during Year 2 totaled $89 thousand, of which $18 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was $130.
Required:
16-74
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
184. Condensed financial statements of Miller Company at the beginning and at the end of the
current year are given below:
The company paid total dividends of $15,000 during the year, of which $5,000 were to
preferred stockholders. The market price of a share of common stock at the end of the year
was $30.
Required:
On the basis of the information given above, fill in the blanks with the appropriate figures.
16-75
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Example: The current ratio at the end of the current year would be computed by dividing
$270,000 by $100,000
a. The acid-test ratio at the end of the current year would be computed by dividing
_______________ by _________________.
b. The inventory turnover for the year would be computed by dividing _______________ by
_________________.
c. The debt-to-equity ratio at the end of the current year would be computed by dividing
_______________ by _________________.
e. The accounts receivable turnover for the year would be computed by dividing
_______________ by _________________.
f. The times interest earned for the year would be computed by dividing _______________ by
_________________.
g. The return on common stockholders' equity for the year would be computed by dividing
_______________ by _________________.
16-76
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
185. Shelzo Inc., a manufacturer of construction equipment is considering the purchase of one
of its suppliers, Raritron Industries. The purchase has been given preliminary approval by
Shelzo's Board of Directors, and several discussions have taken place between the
management of both companies. Raritron has submitted financial data for the past several
years. Shelzo's controller has analyzed Raritron's financial statements and prepared the
following ratio analysis comparing Raritron's performance with the industry averages.
Required:
b. 1. Identify the three ratios from the above list that would be of most interest to
stockholders.
Explain what these three ratios measure.
What do these three ratios indicate about Shelzo Inc.?
c. 1. Identify the two ratios from the above list that would be of most interest to long-term
creditors.
Explain what these two ratios measure.
What do these two ratios indicate about Shelzo Inc.?
16-77
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-78
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Dividends during Year 2 totaled $61 thousand, of which $12 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was $50.
Required:
16-79
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
187. Dowlen Corporation's most recent balance sheet and income statement appear below:
16-80
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Dividends on common stock during Year 2 totaled $60 thousand. Dividends on preferred
stock totaled $10 thousand. The market price of common stock at the end of Year 2 was
$10.74 per share.
Required:
16-81
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
188. Tedder Corporation has provided the following financial data (in thousands of dollars):
Net income for Year 2 was $80 thousand. Interest expense was $16 thousand. The tax rate
was 30%. Dividends on common stock during Year 2 totaled $40 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of Year 2
was $6.79 per share.
Required:
16-82
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
189. Leckbee Corporation's net income for the most recent year was $3,270,000. A total of
500,000 shares of common stock and 200,000 shares of preferred stock were outstanding
throughout the year. Dividends on common stock were $2.70 per share and dividends on
preferred stock were $1.10 per share.
Required:
Compute the earnings per share of common stock. Show your work!
190. Odegaard Corporation's net income last year was $1,811,000. The dividend on common
stock was $3.20 per share and the dividend on preferred stock was $1.00 per share. The
market price of common stock at the end of the year was $50.20 per share. Throughout the
year, 300,000 shares of common stock and 200,000 shares of preferred stock were
outstanding.
Required:
16-83
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
191. Spina Corporation's net income last year was $5,472,000. The dividend on common
stock was $10.70 per share and the dividend on preferred stock was $3.00 per share. The
market price of common stock at the end of the year was $49.20 per share. Throughout the
year, 400,000 shares of common stock and 100,000 shares of preferred stock were
outstanding.
Required:
192. Last year, Iurato Corporation's dividend on common stock was $8.20 per share and the
dividend on preferred stock was $3.40 per share. The market price of common stock at the
end of the year was $50.70 per share.
Required:
16-84
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
The beginning balance of total assets was $760,000 and the ending balance was $710,000.
Required:
16-85
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
194. Excerpts from Thi Corporation's most recent balance sheet appear below:
Net income for Year 2 was $143,000. Dividends on common stock were $60,000 in total and
dividends on preferred stock were $23,000 in total.
Required:
16-86
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
195. Data from Colinger Corporation's most recent balance sheet appear below:
A total of 200,000 shares of common stock and 20,000 shares of preferred stock were
outstanding at the end of the year.
Required:
16-87
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
16-88
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Required:
16-89
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
197. Vasconcelos Corporation's most recent balance sheet and income statement appear
below:
16-90
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Required:
16-91
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
198. Excerpts from Dinis Corporation's most recent balance sheet (in thousands of dollars)
appear below:
Sales on account during the year totaled $1,240 thousand. Cost of goods sold was $770
thousand.
Required:
16-92
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
199. Ducey Corporation's total current assets are $250,000, its noncurrent assets are $580,000,
its total current liabilities are $160,000, its long-term liabilities are $470,000, and its
stockholders' equity is $200,000.
Required:
200. Gattuso Corporation's total current assets are $270,000, its noncurrent assets are
$760,000, its total current liabilities are $130,000, its long-term liabilities are $400,000, and
its stockholders' equity is $500,000.
Required:
16-93
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
201. Data from Panganiban Corporation's most recent balance sheet appear below:
Required:
Required:
Compute the accounts receivable turnover for this year. Show your work!
16-94
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
203. Data from Shamp Corporation's most recent balance sheet and income statement appear
below:
Required:
Required:
16-95
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
205. Data from Sligh Corporation's most recent balance sheet and income statement appear
below:
Required:
16-96
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
206. Kerson Corporation's most recent balance sheet and income statement appear below:
16-97
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
Required:
207. Trusillo Corporation's net operating income last year was $103,000; its interest expense
was $17,000; its total stockholders' equity was $1,260,000; and its total liabilities were
$380,000.
Required:
16-98
Chapter 016, "How Well Am I Doing?" Financial Statement Analysis
208. Authement Corporation has provided the following data from its most recent income
statement:
Required:
209. Hacking Corporation has provided the following data from its most recent balance sheet:
Required:
16-99
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
2. Trend percentages state several years' financial data in terms of a base year. For example,
sales for every year would be stated as a percentage of the sales in the base year.
TRUE
3. The gross margin percentage is computed taking the difference between sales and cost of
goods and then dividing the result by sales.
TRUE
16-100
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
4. The gross margin percentage is computed by dividing net income before interest and taxes
by sales.
FALSE
5. The price-earnings ratio is determined by dividing the price of a product by its profit
margin.
FALSE
6. The price-earnings ratio is computed by dividing the market price per share by the current
earnings per share.
TRUE
7. When computing the return on total assets, the after-tax effect of interest expense must be
subtracted from net income.
FALSE
16-101
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
8. If the assets in which funds are invested have a rate of return lower than the fixed rate of
return paid to the supplier of the funds, then financial leverage is positive.
FALSE
9. If the market value of a share of stock is greater than its book value, the stock is probably
overpriced.
FALSE
10. Assuming that a company has a current ratio greater than 1.0, repaying a short-term note
payable will increase the current ratio.
TRUE
11. The acid-test ratio is a test of the quality of accounts receivable--in other words, whether
they are likely to be collected.
FALSE
16-102
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
12. When computing the acid-test ratio, prepaid expenses are ignored.
TRUE
13. Only credit sales (i.e., sales on account) are included in the computation of the accounts
receivable turnover.
TRUE
14. Net operating income will always increase when a company increases its accounts
receivable turnover.
FALSE
15. The inventory turnover ratio is equal to the average inventory balance divided by the cost
of goods sold.
FALSE
16-103
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
16. Working capital equals current assets, plus noncurrent liabilities and stockholders' equity,
less total assets.
TRUE
18. Earnings per share of common stock will immediately increase as a result of:
A. the sale of additional shares of common stock by the company.
B. an increase in the dividends paid to common stockholders by the company.
C. an increase in the company's net income.
D. the issuance of bonds by the company to finance construction of new buildings.
16-104
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
19. What effect will a year-end increase in the market price of a corporation's common stock
have on the following ratios?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
20. An increase in the market price of a company's common stock will immediately affect its:
A. dividend yield ratio.
B. debt-to-equity ratio.
C. earnings per share of common stock.
D. dividend payout ratio.
16-105
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
21. Which of the following is true regarding the calculation of return on total assets?
A. The numerator of the ratio consists only of net income.
B. The denominator of the ratio consists of the balance of total assets at the end of the period
under consideration.
C. The numerator of the ratio consists of net income plus interest expense times the tax rate.
D. The numerator of the ratio consists of net income plus interest expense times one minus the
tax rate.
22. If a company's bonds bear an interest rate of 8%, the tax rate is 30%, and the company's
assets are generating an after-tax return of 7%, then the leverage would be:
A. positive.
B. negative.
C. neither positive or negative.
D. impossible to determine without knowing the return on common stockholders' equity.
23. A company's current ratio and acid-test ratios are both greater than 1. If obsolete inventory
is written off, this would:
A. decrease the acid-test ratio.
B. increase the acid-test ratio.
C. increase net working capital.
D. decrease the current ratio.
16-106
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
24. If a company converts a short-term note payable into a long-term note payable, this
transaction would:
A. decrease working capital and increase the current ratio.
B. decrease working capital and decrease the current ratio.
C. decrease the current ratio and decrease the acid-test ratio.
D. increase working capital and increase the current ratio.
25. Which one of the following would increase the working capital of a company?
A. Cash payment of payroll taxes payable.
B. Refinancing a short-term note payable with a two year note payable.
C. Cash collection of accounts receivable.
D. Payment of a 20-year mortgage payable with cash.
26. If a company has a high current ratio but a low acid-test ratio, one can conclude that:
A. the company has a large outstanding accounts receivable balance.
B. the company has a large investment in inventory.
C. the company has a large amount of current liabilities.
D. the company's financial leverage is very high.
16-107
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
27. Desktop Co. presently has a current ratio of 1.2 and an acid-test ratio of 0.8. Prepaying
next year's office rent of $50,000 will:
A. have no effect on either the company's current ratio or its acid-test ratio.
B. have no effect on the company's current ratio but will decrease its acid-test ratio.
C. decrease the company's current ratio and decrease its acid-test ratio.
D. increase the company's current ratio and increase its acid-test ratio.
28. The Miller Company paid off some of its accounts payable using cash. The company's
current ratio is greater than 1. The company's current ratio would:
A. increase.
B. decrease.
C. remain unchanged.
D. impossible to determine from the information given.
29. Rahner Company has a current ratio of 1.75. This ratio will decrease if Rahner Company:
A. borrows cash using a six-month note.
B. pays the taxes payable which have been a current liability.
C. pays the following month's rent on the last day of the year.
D. sells inventory for more than their cost.
16-108
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
30. VIM Company purchased $100,000 in inventory from its suppliers on credit terms. The
company's acid-test ratio would most likely:
A. increase.
B. decrease.
C. be unchanged.
D. impossible to determine without more information.
31. Which of the following accounts would be included in the calculation of the acid-test
ratio?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
16-109
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
32. Allen Company's average collection period for accounts receivable was 40 days last year,
but increased to 60 days this year. Which of the following would most likely account for this
change?
A. a decrease in accounts receivable relative to sales.
B. a decrease in sales.
C. a relaxation of credit policies.
D. an increase in sales.
33. Which of the following would cause a corporation's inventory turnover ratio to increase?
A. an increase in the accounts receivable turnover.
B. an increase in sales price per unit without a reduction in the number of units sold.
C. a switch from the immediate cash payment of inventory purchases to the credit purchase of
inventory with payment due in 60 days (sales are unaffected).
D. none of these.
16-110
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy
35. Craston Company's net income last year was $70,000. The company paid preferred
dividends of $10,000 and its average common stockholders' equity was $480,000. The
company's return on common stockholders' equity for the year was closest to:
A. 12.5%
B. 14.6%
C. 16.7%
D. 2.1%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-111
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
36. Fulton Company's price-earnings ratio is 8.0 and the market price of a share of common
stock is $32. The company has 3,000 shares of preferred stock outstanding with each share
receiving a dividend of $3 per share. The earnings per share of common stock is:
A. $10
B. $7
C. $4
D. $3
Price-earnings ratio = Market price per share Earnings per share = $32 Earnings per share
=8
Earnings per share = $4
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Hard
37. Arston Company's net income last year was $300,000. The company has 150,000 shares
of common stock and 60,000 shares of preferred stock outstanding. There was no change in
the number of common or preferred shares outstanding during the year. The company
declared and paid dividends last year of $1.50 per share on the common stock and $0.60 per
share on the preferred stock. The earnings per share of common stock is closest to:
A. $2.00
B. $1.76
C. $0.50
D. $2.24
Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding = ($300,000 - $36,000*) 150,000 = $264,000 150,000 = $1.76
*60,000 x $0.60 = $36,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-112
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
38. The following data have been taken from your company's financial records for the current
year:
Price-earnings ratio = Market price per share Earnings per share = $90 $10 = 9
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
39. The Herald Company has 50,000 shares of common stock outstanding. Earnings per share
of common stock for the year is $15.00. The dividend paid to the preferred stockholders
during the year was $2.00 per share. Common stockholders received dividends totaling
$150,000. The dividend payout ratio for the year was closest to:
A. 38.4%
B. 33.3%
C. 23.1%
D. 20.0%
Dividend payout ratio = Dividends per share Earnings per share = $3.00* $15.00 = 20%
*$150,000 50,000 = $3.00
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-113
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
40. Information concerning the common stock of Morris Company as of the end of the
company's fiscal year is presented below.
Dividend yield ratio = Dividends per share Market price per share = $6.00 $54.00 =
11.1%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
41. Bracken Company's net income last year was $85,000 and its interest expense was
$10,000. Total assets at the beginning of the year were $660,000 and total assets at the end of
the year were $600,000. The company's income tax rate was 30%. The company's return on
total assets for the year was closest to:
A. 14.6%
B. 14.0%
C. 13.5%
D. 15.1%
Return on total assets = {Net income + [Interest expense x (1 - Tax rate)]} Average total
assets = ($85,000 + $7,000*) $630,000** = $92,000 $630,000** = 14.6%
*$10,000 x (1 - 0.30) = $7,000
**$1,260,000 ($660,000 + $600,000) 2 = $630,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-114
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
42. The total assets of the Philbin Company on January 1 were $2.3 million and on December
31 were $2.5 million. Net income was $188,000. Dividends totaled $75,000, interest expense
totaled $70,000, and the tax rate was 30%. The return on total assets was closest to:
A. 9.5%
B. 6.8%
C. 9.9%
D. 10.8%
Return on total assets = {Net income + [Interest expense x (1 - Tax rate)]} Average total
assets = ($188,000 + $49,000*) $2,400,000** = $237,000 $2,400,000** = 9.9%
*$70,000 x (1 - 0.30) = $49,000
**($2,300,000 + $2,500,000) 2 = $4,800,000 2 = $2,400,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
43. The following account balances have been provided for the end of the most recent year:
Book value per share = (Total stockholders' equity - Preferred stock) Number of common
shares outstanding = ($150,000 - $10,000) 5,000 = $140,000 5,000 = $28
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-115
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
44. Wernett Corporation's net income for the most recent year was $1,509,000. A total of
200,000 shares of common stock and 100,000 shares of preferred stock were outstanding
throughout the year. Dividends on common stock were $4.95 per share and dividends on
preferred stock were $1.35 per share. The earnings per share of common stock is closest to:
A. $1.92
B. $7.55
C. $6.87
D. $2.60
Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding = ($1,509,000 - $135,000*) 200,000 = $1,374,000 200,000 = $6.87
*100,000 x $1.35 = $135,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
45. Leonhardt Corporation's net income last year was $3,800,000. The dividend on common
stock was $2.00 per share and the dividend on preferred stock was $1.80 per share. The
market price of common stock at the end of the year was $53.40 per share. Throughout the
year, 500,000 shares of common stock and 100,000 shares of preferred stock were
outstanding. The price-earnings ratio is closest to:
A. 9.54
B. 7.03
C. 7.38
D. 10.19
Price-earnings ratio = Market price per share Earnings per share = $53.40 $7.24* = 7.38
*Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding = ($3,800,000 - $180,000**) 500,000 = $3,620,000 500,000 = $7.24
**100,000 x $1.80 = $180,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-116
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
46. Iffert Corporation's net income last year was $4,040,000. The dividend on common stock
was $6.40 per share and the dividend on preferred stock was $2.30 per share. The market
price of common stock at the end of the year was $43.30 per share. Throughout the year,
300,000 shares of common stock and 100,000 shares of preferred stock were outstanding. The
dividend payout ratio is closest to:
A. 0.50
B. 0.91
C. 1.02
D. 0.48
Dividend payout ratio = Dividends per share Earnings per share = $6.40 $12.70* = 0.50
*Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding = ($4,040,000 - $230,000**) 300,000 = $3,810,000 300,000 = $12.70
**100,000 x $2.30 = $230,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
47. Last year, Bartberger Corporation's dividend on common stock was $10.20 per share and
the dividend on preferred stock was $3.60 per share. The market price of common stock at the
end of the year was $51.70 per share. The dividend yield ratio is closest to:
A. 0.74
B. 0.07
C. 0.20
D. 0.27
Dividend yield = Dividends per share Market price per share = $10.20 $51.70 = 0.20
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-117
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
The beginning balance of total assets was $720,000 and the ending balance was $730,000.
The return on total assets is closest to:
A. 17.4%
B. 21.2%
C. 24.8%
D. 30.3%
Return on total assets = {Net income + [Interest expense (1 - Tax rate)]} Average total
assets = ($126,000 + $28,000*) $725,000** = $154,000 $725,000** = 21.2%
*$40,000 x (1 - 0.30) = $28,000
**($720,000 + $730,000) 2 = $1,450,000 2 = $725,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-118
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
49. Excerpts from Melby Corporation's most recent balance sheet appear below:
Net income for Year 2 was $94,000. Dividends on common stock were $33,000 in total and
dividends on preferred stock were $11,000 in total. The return on common stockholders'
equity for Year 2 is closest to:
A. 7.8%
B. 7.4%
C. 4.8%
D. 8.8%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-119
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
50. Data from Murrish Corporation's most recent balance sheet appear below:
A total of 200,000 shares of common stock and 40,000 shares of preferred stock were
outstanding at the end of the year. The book value per share is closest to:
A. $5.00
B. $5.70
C. $2.65
D. $4.70
Book value per share = (Total stockholders' equity - Preferred stock) Number of common
shares outstanding = ($1,140,000 - $200,000) 200,000 = $940,000 200,000 = $4.70
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-120
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
51. Centerville Company's debt-to-equity ratio is 0.60 Total assets are $320,000, current
assets are $170,000 and working capital is $80,000. Centerville's long-term liabilities must
be:
A. $30,000
B. $80,000
C. $90,000
D. $120,000
Given that total assets are $320,000, liabilities and stockholders' equity must also total
$320,000. Working capital is current assets minus current liabilities, knowing that current
assets are $170,000 and working capital is $80,000, current liabilities must be $90,000
($170,000 - $80,000). Long-term liabilities plus stockholders' equity must equal $230,000
($320,000 - $90,000) given that liabilities and stockholders' equity totals $320,000 and we
know that current liabilities are $90,000.
Long-term liabilities = X
Debt-to-equity ratio = Total liabilities Stockholders' equity = ($90,000 + X) ($230,000 -
X) = 0.60
X= $30,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Learning Objective: 4
Level: Hard
16-121
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
52. Selected data from Sheridan Corporation's year-end financial statements are presented
below. The difference between average and ending inventory is immaterial.
The acid-test ratio is 0.50 lower than the current ratio; the difference in the numerators of the
two ratios is inventory, the current ratio numerator includes inventory whereas the acid-test
ratio numerator doesn't include inventory. The inventory is therefore $60,000 (Inventory
$120,000 = 0.50). The inventory turnover is 8 and is calculated by dividing cost of goods
sold by average inventory; cost of goods sold must be $480,000 (Cost of goods sold
$60,000 = 8). The gross profit percentage is 40% of sales, so cost of goods sold must be
60% of sales, sales are therefore $800,000 (Sales x 0.60 = $480,000).
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard
Source: CMA, adapted
16-122
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
53. Draper Company's working capital is $12,000 and its current liabilities are $71,000. The
company's current ratio is closest to:
A. 0.83
B. 1.17
C. 6.92
D. 0.17
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
54. Starrs Company has current assets of $300,000 and current liabilities of $200,000. Which
of the following transactions would increase its working capital?
A. Prepayment of $50,000 of next year's rent
B. Refinancing $50,000 of short-term debt with long-term debt
C. Acquisition of land valued at $50,000 by issuing new common stock
D. Purchase of $50,000 of marketable securities for cash
Transaction B is the only transaction that either increases total current assets or decreases total
current liabilities.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard
Source: CMA, adapted
16-123
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
55. Harwichport Company has a current ratio of 3.5 and an acid-test ratio of 2.8. Current
assets equal $175,000 of which $5,000 consists of prepaid expenses. The remainder of current
assets consists of cash, accounts receivable, marketable securities, and inventory. Harwichport
Company's inventory must be:
A. $30,000
B. $40,000
C. $50,000
D. $35,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard
16-124
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
56. Marcy Corporation's current ratio is currently 1.75. The firm's current ratio cannot fall
below 1.5 without violating agreements with its bondholders. If current liabilities are
presently $250 million, the maximum new short-term debt that can be issued to finance an
equivalent amount of inventory expansion is:
A. $41.67 million
B. $375.00 million
C. $125.00 million
D. $62.50 million
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard
Source: CMA, adapted
57. Eradicate Company has $16,000 in cash, $8,000 in marketable securities, $29,000 in
account receivable, $30,000 in inventories, and $34,000 in current liabilities. The company's
current assets consist of cash, marketable securities, accounts receivable, and inventory. The
company's acid-test ratio is closest to:
A. 0.85
B. 2.44
C. 1.56
D. 1.32
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-125
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
58. Frawner Company had $140,000 in sales on account last year. The beginning accounts
receivable balance was $12,000 and the ending accounts receivable balance was $10,000. The
company's accounts receivable turnover was closest to:
A. 11.67
B. 6.36
C. 14.00
D. 12.73
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
59. Grast Company had $170,000 in sales on account last year. The beginning accounts
receivable balance was $14,000 and the ending accounts receivable balance was $16,000. The
company's average collection period was closest to:
A. 32.21 days
B. 30.06 days
C. 64.41 days
D. 34.35 days
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-126
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
60. Harrison Company, a retailer, had cost of goods sold of $180,000 last year. The beginning
inventory balance was $26,000 and the ending inventory balance was $24,000. The
company's inventory turnover was closest to:
A. 7.20
B. 6.92
C. 3.60
D. 7.50
Inventory turnover = Cost of goods sold Average inventory balance = $180,000 $25,000*
= 7.2
*($26,000 + $24,000) 2 = $50,000 2 = $25,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
61. Irawan Company, a retailer, had cost of goods sold of $200,000 last year. The beginning
inventory balance was $24,000 and the ending inventory balance was $22,000. The
company's average sale period was closest to:
A. 41.98 days
B. 83.95 days
C. 43.80 days
D. 40.15 days
Inventory turnover = Cost of goods sold Average inventory balance = $200,000 $23,000*
= 8.7
*($24,000 + $22,000) 2 = $46,000 2 = $23,000
Average sale period = 365 days Inventory turnover = 365 days 8.7 = 41.96 days
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-127
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
62. Naser Corporation's total current assets are $390,000, its noncurrent assets are $500,000,
its total current liabilities are $330,000, its long-term liabilities are $370,000, and its
stockholders' equity is $190,000. Working capital is:
A. $130,000
B. $60,000
C. $190,000
D. $390,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
63. Cintron Corporation's total current assets are $370,000, its noncurrent assets are $740,000,
its total current liabilities are $300,000, its long-term liabilities are $430,000, and its
stockholders' equity is $380,000. The current ratio is closest to:
A. 0.81
B. 0.70
C. 0.50
D. 1.23
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-128
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
64. Data from Sawin Corporation's most recent balance sheet appear below:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-129
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-130
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
66. Data from Alf Corporation's most recent balance sheet and income statement appear
below:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-131
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Inventory turnover = Cost of goods sold Average inventory = $407,000 $162,500* = 2.50
*($156,000 + $169,000) 2 = $325,000 2 = $162,500
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-132
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
68. Data from Waisner Corporation's most recent balance sheet and income statement appear
below:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
69. Last year Jack Company had a net income of $270,000, income tax expense of $50,000,
and interest expense of $20,000. The company's times interest earned was closest to:
A. 17.00
B. 10.00
C. 13.50
D. 14.50
Times interest earned = (Earnings before interest expense and income taxes) Interest
expense = $340,000* $20,000 = 17
*$270,000 + $20,000 + $50,000 = $340,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy
16-133
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
70. The times interest earned ratio of McHugh Company is 4.5. The interest expense for the
year was $20,000, and the company's tax rate is 40%. The company's net income is:
A. $22,000
B. $42,000
C. $54,000
D. $66,000
Times interest earned = (Earnings before interest expense and income taxes) Interest
expense = (Earnings before interest expense and income taxes) $20,000 = 4.5
Earnings before interest expense and income taxes = $90,000
Given that interest expense is $20,000, earnings and income taxes (income before taxes) must
total $70,000 (= $90,000 - $20,000). Therefore net income is $42,000 {= $70,000 x 0.60 (1 -
0.40)}
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Hard
71. Kramer Company has total assets of $180,000 and total liabilities of $60,000. The
company's debt-to-equity ratio is closest to:
A. 0.25
B. 0.33
C. 0.50
D. 0.67
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy
16-134
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
72. Pauk Corporation has provided the following data from its most recent income statement:
Times interest earned = Earnings before interest expense and income taxes Interest expense
= ($36,000 + $35,000 + $16,000) $35,000 = $87,000 $35,000 = 2.49
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy
73. Biancuzzo Corporation has provided the following data from its most recent balance
sheet:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy
16-135
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Lesmerises Corporation's most recent balance sheet and income statement appear below:
16-136
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividends on common stock during Year 2 totaled $40 thousand. Dividends on preferred
stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $2.85
per share.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium
75. The earnings per share of common stock for Year 2 is closest to:
A. $0.69
B. $0.35
C. $0.30
D. $0.50
Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding = ($70 - $10) 200* = $60 200* = $0.30
* Number of common shares outstanding = Common stock Par value per share = $200 $1
= 200 shares outstanding (this is the average number of shares outstanding throughout the
year given that the common stock account balance is the same on both dates)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-137
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Price-earnings ratio = Market price per share Earnings per share = $2.85 $0.30* = 9.5
* Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding = ($70 - $10) 200** = $60 200** = $0.30
** Number of common shares outstanding = Common stock Par value per share = $200
$1 = 200 shares outstanding (this is the average number of shares outstanding throughout
the year given that the common stock account balance is the same on both dates)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Dividend payout ratio = Dividends per share Earnings per share = $0.20* $0.30** =
66.7%
*$40 (common stock dividends) 200 shares of common stock = $0.20
**Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding = ($70 - $10) 200*** = $60 200 = $0.30
***Number of common shares outstanding = Common stock Par value per share = $200
$1 = 200 shares outstanding (this is the average number of shares outstanding throughout
the year given that the common stock account balance is the same on both dates)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-138
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividend yield = Dividends per share Market price per share = $0.20* $2.85 = 7.02%
*$40 (common stock dividends) 200 shares of common stock = $0.20
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Return on total assets = {Net income + [Interest expense (1 - Tax rate)]} Average total
assets = ($70 + $25.90*) $1,645** = $95.90 $1,645 = 5.83%
*$37 x (1 - 0.30) = $37 x 0.70 = $25.90
**($1,650 + $1,640) 2 = $1,645
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-139
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
80. The return on common stockholders' equity for Year 2 is closest to:
A. 5.94%
B. 7.69%
C. 6.59%
D. 6.93%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
81. The book value per share at the end of Year 2 is closest to:
A. $0.30
B. $4.60
C. $5.10
D. $8.20
Book value per share = (Total stockholders' equity - Preferred stock) Number of common
shares outstanding = ($1,020 - $100) 200* = $920 200 = $4.60
*$200 (common stock) $1 par value per share = 200
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-140
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-141
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
Average collection period = 365 days Accounts receivable turnover = 365 days 5.74* =
63.6 days
*Accounts receivable turnover = Sales on account Average accounts receivable balance =
$1,350 $235** = 5.74
**($250 + $220) 2 = $470 2 = $235
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-142
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Inventory turnover = Cost of goods sold Average inventory = $880 $140* = 6.29
*($150 + $130) 2 = $280 2 = $140
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
Average sale period = 365 days Inventory turnover = 365 days 6.29* = 58.0 days
*Inventory turnover = Cost of goods sold Average inventory = $880 $140** = 6.29
**($150 + $130) 2 = $280 2 = $140
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-143
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Times interest earned = (Earnings before interest expense and income taxes) Interest
expense = ($70 + $37 + $30) $37 = $137 $37 = 3.70
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium
16-144
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Guynn Corporation's most recent balance sheet and income statement appear below:
16-145
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividends on common stock during Year 2 totaled $10 thousand. Dividends on preferred
stock totaled $5 thousand. The market price of common stock at the end of Year 2 was $7.05
per share.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium
16-146
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
92. The earnings per share of common stock for Year 2 is closest to:
A. $0.79
B. $0.50
C. $1.14
D. $0.55
Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($55 - $5) 100* = $50 100* = $0.50
* Number of common shares outstanding = Common stock Par value per share = $100 $1
= 100 shares outstanding (this is the average number of shares outstanding throughout the
year given that the common stock account balance is the same on both dates)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Price-earnings ratio = Market price per share Earnings per share = $7.05 $0.50* = 14.1
*Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($55 - $5) 100** = $50 100** = $0.50
** Number of common shares outstanding = Common stock Par value per share = $100
$1 = 100 shares outstanding (this is the average number of shares outstanding throughout
the year given that the common stock account balance is the same in both balance sheets)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-147
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividend payout ratio = Dividends per share Earnings per share = $0.10** $0.50* =
20.0%
*Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($55 - $5) 100** = $50 100 = $0.50
** Number of common shares outstanding = Common stock Par value per share = $100
$1 = 100 shares outstanding (this is the average number of shares outstanding throughout
the year given that the common stock account balance is the same on both dates)
Common stock dividends ($10) divided by the number of common shares (100) is equal to
dividends per share ($0.10)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Dividend yield ratio = Dividends per share Market price per share = $0.10* $7.05 =
1.42%
*Number of common shares outstanding = Common stock Par value per share = $100 $1
= 100 shares outstanding (this is the average number of shares outstanding throughout the
year given that the common stock account balance is the same on both dates)
Common stock dividends ($10) divided by the number of common shares (100) is equal to
dividends per share ($0.10)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-148
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Return on total assets = {Net income + [Interest expense (1 - Tax rate)]} Average total
assets = ($55 + $24.50*) $1,395** = $79.50 $1,395 = 5.70%
*$35 x (1 - 0.30) = $35 x 0.70 = $24.50
**($1,360 + $1,430) 2 = $2,790 2 = $1,395
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
97. The return on common stockholders' equity for Year 2 is closest to:
A. 7.33%
B. 6.67%
C. 5.88%
D. 6.47%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-149
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
98. The book value per share at the end of Year 2 is closest to:
A. $8.70
B. $0.50
C. $7.70
D. $14.30
Book value per share = (Total stockholders' equity - Preferred stock) Number of common
shares outstanding = ($870 - $100) 100* = $770 100 = $7.70
*Number of common shares outstanding = Common stock Par value per share = $100 $1
= 100
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Selected financial data (in thousands of dollars) for Barnstable Company appear below:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy
16-150
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
100. For Year 2, the net income before taxes as a percentage of sales was:
A. 10%
B. 3%
C. 8%
D. 5%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy
101. For Year 2, the net operating income as a percentage of sales was:
A. 70%
B. 8%
C. 10%
D. 40%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy
102. Between Year 1 and Year 2, the times interest earned ratio:
A. increased
B. decreased
C. remained the same
D. cannot be determined from the data provided
Times interest earned = Earnings before interest expense and income taxes Interest expense
= Year 1: ($1,200 - $400 - $720) $30 = $80 $30 = 2.7
Year 2: ($1,500 - $450 - $900) $75 = $150 $75 = 2.0
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium
16-151
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
16-152
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividends during Year 2 totaled $161 thousand, of which $10 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was $610.
103. Oram Company's earnings per share of common stock for Year 2 was closest to:
A. $36.38
B. $4.28
C. $37.63
D. $53.75
Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($301 - $10) 8* = $291 8 = $36.38
* Number of common shares outstanding = Common stock Par value per share = $160
$20 = 8 shares outstanding (this is the average number of shares outstanding throughout the
year given that the common stock account balance is the same on both dates)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-153
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
104. Oram Company's dividend yield ratio on December 31, Year 2 was closest to:
A. 2.9%
B. 3.3%
C. 0.4%
D. 3.1%
Dividend yield = Dividends per share Market price per share = $18.88* $610 = 3.1%
*$151 8** = $18.88
**Number of common shares outstanding = Common stock Par value per share = $160
$20 = 8
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
105. Oram Company's return on total assets for Year 2 was closest to:
A. 12.1%
B. 13.3%
C. 14.6%
D. 13.9%
Return on total assets = {Net income + [Interest expense (1 - Tax rate)]} Average total
assets = ($301 + $28*) $2,255** = $329 $2,255 = 14.6%
*$40 x (1 - 0.30) = $40 x 0.70 = $28
**($2,200 + $2,310) 2 = $4,510 2 = $2,255
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-154
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
106. Oram Company's current ratio at the end of Year 2 was closest to:
A. 1.24
B. 0.37
C. 1.20
D. 0.47
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
107. Oram Company's accounts receivable turnover for Year 2 was closest to:
A. 22.6
B. 15.8
C. 14.9
D. 10.4
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-155
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
108. Oram Company's average sale period for Year 2 was closest to:
A. 23.1 days
B. 16.1 days
C. 35.1 days
D. 24.6 days
Average sale period = 365 days Inventory turnover = 365 days 15.8* = 23.1 days
*Inventory turnover = Cost of goods sold Average inventory = $1,820 $115** = 15.8
**($110 + $120) 2 = $230 2 = $115
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
109. Oram Company's times interest earned for Year 2 was closest to:
A. 10.8
B. 11.8
C. 19.5
D. 7.5
Times interest earned = Earnings before interest expense and income taxes Interest expense
= ($301 + $40 + $129) $40 = $470 $40 = 11.8
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium
16-156
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
The company's sales for the year were $300 thousand, its cost of goods sold was $220
thousand, and its net income was $35 thousand. All sales were on credit. Preferred dividends
for the year were $5 thousand.
16-157
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
110. Lisa Inc.'s acid-test ratio at December 31, Year 2, was closest to:
A. 0.6
B. 1.1
C. 1.8
D. 2.0
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
Source: CMA, adapted
111. Lisa Inc.'s accounts receivable turnover for Year 2 was closest to:
A. 4.9
B. 5.9
C. 6.7
D. 8.0
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
Source: CMA, adapted
16-158
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
112. Lisa Inc.'s inventory turnover for Year 2 was closest to:
A. 3.7
B. 4.0
C. 4.4
D. 5.0
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
Source: CMA, adapted
113. Lisa Inc.'s book value per share of common stock at December 31, Year 2, was closest
to:
A. $10.00
B. $11.25
C. $19.33
D. $18.33
Book value per share = (Total stockholders' equity - Preferred stock) Number of common
shares outstanding = ($390 - $100) 15* = $290 15 = $19.33
* Number of common shares outstanding = Common stock Par value per share = $150
$10 = 15
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Source: CMA, adapted
16-159
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
114. Lisa Inc.'s return on common stockholders' equity for Year 2 was closest to:
A. 7.8%
B. 10.6%
C. 10.9%
D. 12.4%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Source: CMA, adapted
16-160
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
16-161
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was $150.
115. Larkins Company's earnings per share of common stock for Year 2 was closest to:
A. $25.00
B. $17.50
C. $7.21
D. $16.83
Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($315 - $12) 18* = $303 18 = $16.83
* Number of common shares outstanding = Common stock Par value per share = $180
$10 = 18 shares outstanding (this is the average number of shares outstanding throughout
the year given that the common stock account balance is the same on both dates)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-162
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
116. Larkins Company's price-earnings ratio on December 31, Year 2 was closest to:
A. 8.91
B. 8.57
C. 20.79
D. 6.00
Price-earnings ratio = Market price per share Earnings per share = $150 $16.83* = 8.91
*Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($315 - $12) 18** = $303 18** = $16.83
** Number of common shares outstanding = Common stock Par value per share = $180
$10 = 18 shares outstanding (this is the average number of shares outstanding throughout
the year given that the common stock account balance is the same on both dates)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
117. Larkins Company's dividend payout ratio for Year 2 was closest to:
A. 42.9%
B. 24.6%
C. 40.6%
D. 14.8%
Dividend payout ratio = Dividends per share Earnings per share = $6.83** $16.83* =
40.6%
*Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($315 - $12) 18** = $303 18 = $16.83
** Number of common shares outstanding = Common stock Par value per share = $180
$10 = 18 shares outstanding
Common stock dividends ($123) divided by the number of common shares (18) equals
dividends per share ($6.83)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-163
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
118. Larkins Company's dividend yield ratio on December 31, Year 2 was closest to:
A. 4.6%
B. 5.0%
C. 2.1%
D. 4.1%
Dividend yield = Dividends per share Market price per share = $6.83* $150 = 4.6%
*Number of common shares outstanding = Common stock Par value per share = $180 $10
= 18 shares outstanding
Common stock dividends ($123) divided by the number of common shares (18) equals
dividends per share ($6.83)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
119. Larkins Company's return on total assets for Year 2 was closest to:
A. 13.6%
B. 16.0%
C. 15.3%
D. 17.0%
Return on total assets = {Net income + [Interest expense (1 - Tax rate)]} Average total
assets = ($315 + $35*) $2,060** = $350 $2,060 = 17%
*$50 x (1 - 0.30) = $50 x 0.70 = $35
**($2,010 + $2,110) 2 = $4,120 2 = $2,060
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-164
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
120. Larkins Company's return on common stockholders' equity for Year 2 was closest to:
A. 23.5%
B. 25.9%
C. 26.9%
D. 24.4%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
121. Larkins Company's book value per share at the end of Year 2 was closest to:
A. $10.00
B. $23.33
C. $70.00
D. $76.67
Book value per share = (Total stockholders' equity - Preferred stock) Number of common
shares outstanding = ($1,380 - $120) 18* = $1,260 18 = $70.00
*Number of common shares outstanding = Common stock Par value per share = $180 $10
= 18
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-165
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
The Dawson Corporation projects the following for the upcoming year:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Hard
Source: CMA, adapted
16-166
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
123. If Dawson Corporation's common stock has a price-earnings ratio of eight, the market
price per share (to the nearest dollar) would be:
A. $125
B. $56
C. $72
D. $68
Price-earnings ratio = Market price per share Earnings per share = Market price per share
$7* = 8
Market price per share = $56
*Net income = ($35 - $5) x (1 - 40%) = $30 x 60% = $18
Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($18 - $4) 2 = $7
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Hard
Source: CMA, adapted
Price-earnings ratio = Market price per share Earnings per share = $75.00 $6.00 = 12.5
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-167
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividend yield ratio = Dividends per share Market price per share = $1.20 $75.00 = 1.6%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-168
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dadisman Corporation's most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $30 thousand. Dividends on preferred
16-169
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
stock totaled $20 thousand. The market price of common stock at the end of Year 2 was $6.75
per share.
126. The earnings per share of common stock for Year 2 is closest to:
A. $1.25
B. $0.70
C. $0.50
D. $1.00
Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($70 - $20) 100* = $50 100 = $0.50
*Number of common shares outstanding = Common stock Par value per share = $200 $2
= 100 shares outstanding (this is the average number of shares outstanding throughout the
year given that the common stock account balance is the same on both dates)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Price-earnings ratio = Market price per share Earnings per share = $6.75 $0.50* = 13.5
*Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($70 - $20) 100** = $50 100 = $0.50
**Number of common shares outstanding = Common stock Par value per share = $200 $2
= 100 shares outstanding (this is the average number of shares outstanding throughout the
year given that the common stock account balance is the same on both dates)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-170
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividend payout ratio = Dividends per share Earnings per share = $0.30** $0.50* =
60.0%
*Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($70 - $20) 100** = $50 100 = $0.50
**Number of common shares outstanding = Common stock Par value per share = $200 $2
= 100 shares outstanding
Common stock dividends ($30) divided by the number of common shares (100) equals
dividends per share ($0.30)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Dividend yield ratio = Dividends per share Market price per share = $0.30* $6.75 =
4.44%
*Number of common shares outstanding = Common stock Par value per share = $200 $2
= 100 shares outstanding
Common stock dividends ($30) divided by the number of common shares outstanding (100)
equals dividends per share ($0.30)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-171
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Return on total assets = {Net income + [Interest expense (1 - Tax rate)]} Average total
assets = ($70 + $17.50*) $1,510** = $87.50 $1,510 = 5.79%
*$25 x (1 - 0.30) = $25 x 0.70 = $17.50
**($1,500 + $1,520) 2 = $3,020 2 = $1,510
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
131. The return on common stockholders' equity for Year 2 is closest to:
A. 7.95%
B. 4.63%
C. 6.48%
D. 5.68%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-172
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
132. The book value per share at the end of Year 2 is closest to:
A. $8.90
B. $0.50
C. $15.20
D. $10.90
Book value per share = (Total stockholders' equity - Preferred stock) Number of common
shares outstanding = ($1,090 - $200) 100* = $890 100* = $8.90
*Number of common shares outstanding = Common stock Par value per share = $200 $2
= 100
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-173
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Excerpts from Stys Corporation's most recent balance sheet and income statement appear
below:
Dividends on common stock during Year 2 totaled $50 thousand. Dividends on preferred
stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $8.20
per share.
16-174
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
133. The earnings per share of common stock for Year 2 is closest to:
A. $1.10
B. $1.57
C. $1.85
D. $1.00
Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($110 - $10) 100* = $100 100 = $1.00
*Number of common shares outstanding = Common stock Par value per share = $200 $2
= 100 shares outstanding (this is the average number of shares outstanding throughout the
year given that the common stock account balance is the same on both dates)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Price-earnings ratio = Market price per share Earnings per share = $8.20 $1.00* = 8.20
*Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($110 - $10) 100** = $100 100 = $1.00
**Number of common shares outstanding = Common stock Par value per share = $200 $2
= 100 shares outstanding (this is the average number of shares outstanding throughout the
year given that the common stock account balance is the same on both dates)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-175
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividend payout ratio = Dividends per share Earnings per share = $0.50** $1.00* =
50.0%
*Earnings per share = (Net income - Preferred dividends) Average number of common
shares outstanding) = ($110 - $10) 100** = $100 100 = $1.00
**Number of common shares outstanding = Common stock Par value per share = $200 $2
= 100 shares outstanding
Common stock dividends ($50) divided by the number of common shares (100) equals
dividends per share ($0.50)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Dividend yield ratio = Dividends per share Market price per share = $0.50* $8.20 =
6.10%
* Number of common shares outstanding = Common stock Par value per share = $200 $2
= 100 shares outstanding
Common stock dividends ($50) divided by the number of common shares outstanding (100)
equals dividends per share ($0.50)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-176
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Return on total assets = {Net income + [Interest expense (1 - Tax rate)]} Average total
assets = ($110 + $19.60*) $1,340** = $129.60 $1,340 = 9.67%
*$28 x (1 - 0.30) = $28 x 0.70 = $19.60
**($1,330 + $1,350) 2 = $2,680 2 = $1,340
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
138. The return on common stockholders' equity for Year 2 is closest to:
A. 13.02%
B. 11.83%
C. 13.42%
D. 14.77%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-177
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
139. The book value per share at the end of Year 2 is closest to:
A. $8.70
B. $13.50
C. $1.00
D. $7.70
Book value per share = Total stockholders' equity - Preferred stock) Number of common
shares outstanding = ($870 - $100) 100* = $770 100 = $7.70
*Number of common shares outstanding = Common stock Par value per share = $200 $2
= 100
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-178
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
16-179
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
140. Marcalo Company's working capital (in thousands of dollars) at the end of Year 2 was
closest to:
A. $220
B. $580
C. $360
D. $1,580
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
141. Marcalo Company's current ratio at the end of Year 2 was closest to:
A. 0.42
B. 0.40
C. 1.24
D. 1.61
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-180
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
142. Marcalo Company's acid-test ratio at the end of Year 2 was closest to:
A. 1.08
B. 2.05
C. 0.49
D. 0.32
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
143. Marcalo Company's accounts receivable turnover for Year 2 was closest to:
A. 12.4
B. 12.2
C. 8.5
D. 17.8
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-181
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
144. Marcalo Company's average collection period for Year 2 was closest to:
A. 20.6 days
B. 29.4 days
C. 30.0 days
D. 42.9 days
Average collection period = 365 days Accounts receivable turnover = 365 days 12.17* =
30 days
*Accounts receivable turnover = Sales on account Average accounts receivable = $2,130
$175** = 12.2
**($160 + $190) 2 = $350 2 = $175
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
145. Marcalo Company's inventory turnover for Year 2 was closest to:
A. 12.4
B. 12.2
C. 17.8
D. 8.5
Inventory turnover = Cost of goods sold Average inventory = $1,490 $120* = 12.4
*($120 + $120) 2 = $240 2 = $120
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-182
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
146. Marcalo Company's average sale period for Year 2 was closest to:
A. 20.6 days
B. 29.4 days
C. 30.0 days
D. 42.9 days
Average sale period = 365 days Inventory turnover = 365 days 12.4* = 29.4
*Inventory turnover = Cost of goods sold Average inventory = $1,490 $120** = 12.4
**($120 + $120) 2 = $240 2 = $120
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-183
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
The following financial data have been taken from the records of CPZ Enterprises.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-184
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
Source: CMA, adapted
149. What will happen to the ratios below if CPZ Enterprises uses cash to pay 50 percent of
its accounts payable?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
Given that both ratios are greater than one, using cash to pay an account payable will result in
an increase in both ratios. The ratios increase because the percentage decrease in the
denominator is greater than the percentage decrease in the numerator.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard
Source: CMA, adapted
16-185
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Mccaughey Corporation's most recent balance sheet and income statement appear below:
16-186
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-187
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
Average collection period = 365 days Accounts receivable turnover = 365 days 8.93* =
40.9 days
*Accounts receivable turnover = Sales on account Average accounts receivable = $1,250
$140** = 8.93
**($150 + 130) 2 = $280 2 = $140
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-188
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Inventory turnover = Cost of goods sold Average inventory = $730 $110* = 6.64
*($120 + $100) 2 = $220 2 = $110
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
Average sale period = 365 days Inventory turnover = 365 days 6.64* = 55.0 days
*Inventory turnover = Cost of goods sold Average inventory = $730 $110** = 6.64
**($120 + $100) 2 = $220 2 = $110
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-189
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Excerpts from Shelton Corporation's most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,320 and the cost of goods sold was $890.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-190
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-191
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Average collection period = 365 days Accounts receivable turnover = 365 days 5.50* =
66.4 days
*Accounts receivable turnover = Sales on account Average accounts receivable = $1,320
$240** = 5.50
**($230 + $250) 2 = $480 2 = $240
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
Inventory turnover = Cost of goods sold Average inventory = $890 $135* = 6.59
*($150 + $120) 2 = $270 2 = $135
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-192
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Average sale period = 365 days Inventory turnover = 365 days 6.59* = 55.4 days
*Inventory turnover = Cost of goods sold Average inventory = $890 $135** = 6.59
**($150 + $120) 2 = $270 2 = $135
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
Excerpts from Deandrade Corporation's most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,360 and the cost of goods sold was $830.
16-193
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-194
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
Inventory turnover = Cost of goods sold Average inventory = $830 $135* = 6.15
*($140 + $130) 2 = $270 2 = $135
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-195
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Data from Gofman Corporation's most recent balance sheet appear below:
Sales on account in Year 2 amounted to $1,300 and the cost of goods sold was $900.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-196
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
Average collection period = 365 days Accounts receivable turnover = 365 days 10* =
36.5 days
*Accounts receivable turnover = Sales on account Average accounts receivable = $1,300
$130** = 10
**($120 + $140) 2 = $260 2 = $130
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-197
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Average sale period = 365 days Inventory turnover = 365 days 4.09* = 89.2 days
*Inventory turnover = Cost of goods sold Average inventory = $900 $220** = 4.09
**($200 + $240) 2 = $440 2 = $220
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-198
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
16-199
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
174. Nardella Company's times interest earned for Year 2 was closest to:
A. 7.8
B. 4.8
C. 12.8
D. 6.8
Times interest earned = (Earnings before interest expense and income taxes) Interest
expense = ($238 + $50 + $102) $50 = $390 $50 = 7.80
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium
175. Nardella Company's debt-to-equity ratio at the end of Year 2 was closest to:
A. 0.31
B. 0.23
C. 0.70
D. 0.54
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium
16-200
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Juncker Corporation's most recent balance sheet and income statement appear below:
16-201
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Times interest earned = (Earnings before interest expense and income taxes) Interest
expense = ($90 + $12 + $39) $12 = $141 $12 = 11.75
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium
16-202
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Data from Karmely Corporation's most recent balance sheet and the company's income
statement appear below:
Times interest earned = (Earnings before interest expense and income taxes) Interest
expense = ($150 + $35 + $64) $35 = $249 $35 = 7.11
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy
16-203
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy
16-204
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Essay Questions
180. Shull Corporation's most recent balance sheet and income statement appear below:
16-205
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividends on common stock during Year 2 totaled $40 thousand. Dividends on preferred
stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $9.80
per share.
Required:
16-206
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
c. Price-earnings ratio = Market price per share Earnings per share (see above)
= $9.80 $0.50 = 19.6
d. Dividend payout ratio = Dividends per share* Earnings per share (see above)
= $0.20 $0.50 = 40.0%
*Dividends per share = Common dividends Common shares (see above)
= $40 200 shares = $0.20 per share
e. Dividend yield ratio = Dividends per share (see above) Market price per share
= $0.20 $9.80 = 2.04%
h. Book value per share = Common stockholders' equity Number of common shares
outstanding* = $730 200 shares = $3.65 per share
*Number of common shares outstanding = Common stock Par value
= $400 $2 per share = 200 shares
16-207
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
$195 = 5.79
*Average accounts receivable = ($200 + $190) 2 = $195
m. Average collection period = 365 days Accounts receivable turnover (see above) = 365
days 5.79 = 63.0 days
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Level: Medium
16-208
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
181. Walp Corporation's most recent balance sheet and income statement appear below:
16-209
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividends on common stock during Year 2 totaled $20 thousand. Dividends on preferred
stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $7.75
per share.
Required:
16-210
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
c. Price-earnings ratio = Market price per share Earnings per share (see above)
= $7.75 $0.50 = 15.5
d. Dividend payout ratio = Dividends per share* Earnings per share (see above)
= $0.20 $0.50 = 40.0%
*Dividends per share = Common dividends Common shares (see above)
= $20 100 shares = $0.20 per share
e. Dividend yield ratio = Dividends per share (see above) Market price per share
= $0.20 $7.75 = 2.58%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium
16-211
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Required:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy
16-212
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
16-213
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividends during Year 2 totaled $89 thousand, of which $18 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was $130.
Required:
16-214
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
a. Earnings per share = (Net Income - Preferred Dividends) Average number of common
shares outstanding* = ($189 - $18) 24 = $7.13
*Number of common shares outstanding = Common stock Par value = $240 $10 = 24
b. Price-earnings ratio = Market price per share Earnings per share (see above)
= $130 $7.13 = 18.2
c. Dividend payout ratio = Dividends per share* Earnings per share (see above)
= $2.96 $7.13 = 41.5%
d. Dividend yield ratio = Dividends per share* Market price per share
= $2.96 $130.00 = 2.28%
*See above
g. Book value per share = Common stockholders' equity Number of common shares
outstanding* = $1,000 24 = $41.67
16-215
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
n. Average sale period = 365 days Inventory turnover* = 365 6.80 = 53.7 days
*See above
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Level: Medium
16-216
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
184. Condensed financial statements of Miller Company at the beginning and at the end of the
current year are given below:
The company paid total dividends of $15,000 during the year, of which $5,000 were to
preferred stockholders. The market price of a share of common stock at the end of the year
was $30.
Required:
On the basis of the information given above, fill in the blanks with the appropriate figures.
16-217
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Example: The current ratio at the end of the current year would be computed by dividing
$270,000 by $100,000
a. The acid-test ratio at the end of the current year would be computed by dividing
_______________ by _________________.
b. The inventory turnover for the year would be computed by dividing _______________ by
_________________.
c. The debt-to-equity ratio at the end of the current year would be computed by dividing
_______________ by _________________.
e. The accounts receivable turnover for the year would be computed by dividing
_______________ by _________________.
f. The times interest earned for the year would be computed by dividing _______________ by
_________________.
g. The return on common stockholders' equity for the year would be computed by dividing
_______________ by _________________.
a. $120,000; $100,000
b. $350,000; $125,000
c. $175,000; $375,000
d. $45,000; 10,000 shares
e. $650,000; $100,000
f. $100,000; $10,000
g. $45,000; $307,500
h. $1; $30
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Level: Medium
16-218
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
185. Shelzo Inc., a manufacturer of construction equipment is considering the purchase of one
of its suppliers, Raritron Industries. The purchase has been given preliminary approval by
Shelzo's Board of Directors, and several discussions have taken place between the
management of both companies. Raritron has submitted financial data for the past several
years. Shelzo's controller has analyzed Raritron's financial statements and prepared the
following ratio analysis comparing Raritron's performance with the industry averages.
Required:
b. 1. Identify the three ratios from the above list that would be of most interest to
stockholders.
Explain what these three ratios measure.
What do these three ratios indicate about Shelzo Inc.?
c. 1. Identify the two ratios from the above list that would be of most interest to long-term
creditors.
Explain what these two ratios measure.
What do these two ratios indicate about Shelzo Inc.?
16-219
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
a. 1. Two ratios that would be of most interest to short-term creditors would be the average
sale period and the current ratio.
2. The average sale period relates the average amount of inventory to the cost of goods sold.
This ratio measures the length of time it takes on average to sell inventory and is a gauge of
how well the company manages its inventory. The current ratio is calculated by dividing
current assets by current liabilities. This ratio measures short-run solvency, i.e., the ability to
meet current obligations.
3. For Shelzo Inc., the average sale period has been increasing and is well above the industry
average, while the current ratio has been below the industry average. Both of these ratios
indicate that there may be problems with the company's liquidity position. This could be
caused by poor inventory control.
b. 1. The three ratios that would be of most interest to common stockholders are the return on
common stockholders' equity, the price-earnings ratio, and the dividend yield ratio.
2. The return on common stockholders' equity is a measure of how effectively the company
has used the stockholders' investment in the company to generate profits. The price-earnings
ratio provides a measure of how the stock market perceives the company's future earnings
prospects. The higher the ratio, the more favorable the future looks for the company. The
dividend yield ratio tells us what proportion of the company's profits are paid out as cash
dividends to common stockholders.
3. These three ratios are close to the industry averages and there are no discernible significant
trends.
c. 1. The two ratios that would be of most interest to long-term creditors are times interest
earned and the debt-to-equity ratio.
2. Times interest earned is earnings before interest expense and taxes divided by interest
expense. This ratio measures debt paying ability. If stable, the company will be able to
refinance or obtain new funds at reasonable rates. The debt-to-equity ratio measures the
relative proportions of debt and equity in the company's capital structure. The lower the level
of the debt-to-equity ratio, the more security long-term debtors have.
3. For Shelzo Inc., times interest earned has been improving and is currently above the
industry average, indicating that the company should be able to borrow additional funds if
needed. The company's debt-to-equity ratio is below the industry average which also indicates
the company has the capacity to perhaps take on additional debt.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Level: Hard
Source: CMA, adapted
16-220
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
16-221
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Dividends during Year 2 totaled $61 thousand, of which $12 thousand were preferred
dividends. The market price of a share of common stock on December 31, Year 2 was $50.
Required:
16-222
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
b. Price-earnings ratio = Market price per share Earnings per share (see above)
= $50 $4.14 = 12.1
c. Dividend yield ratio = Dividends per share* Market price per share
= $1.36 $50.00 = 2.72%
f. Book value per share = Common stockholders' equity Number of common shares
outstanding* = $1,580 36 = $43.89
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-223
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
187. Dowlen Corporation's most recent balance sheet and income statement appear below:
Dividends on common stock during Year 2 totaled $60 thousand. Dividends on preferred
16-224
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
stock totaled $10 thousand. The market price of common stock at the end of Year 2 was
$10.74 per share.
Required:
b. Price-earnings ratio = Market price per share Earnings per share (see above)
= $10.74 $0.60 = 17.9
c. Dividend payout ratio = Dividends per share* Earnings per share (see above)
= $0.30 $0.60 = 50.0%
*Dividends per share = Common dividends Common shares (see above)
= $60 200 shares = $0.30 per share
d. Dividend yield ratio = Dividends per share (see above) Market price per share = $0.30
$10.74 = 2.79%
16-225
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
16-226
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
188. Tedder Corporation has provided the following financial data (in thousands of dollars):
Net income for Year 2 was $80 thousand. Interest expense was $16 thousand. The tax rate
was 30%. Dividends on common stock during Year 2 totaled $40 thousand. Dividends on
preferred stock totaled $10 thousand. The market price of common stock at the end of Year 2
was $6.79 per share.
Required:
16-227
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
b. Price-earnings ratio = Market price per share Earnings per share (see above)
= $6.79 $0.70 = 9.7
c. Dividend payout ratio = Dividends per share* Earnings per share (see above)
= $0.40 $0.70 = 57.1%
*Dividends per share = Common dividends Common shares (see above)
= $40 100 shares = $0.40 per share
d. Dividend yield ratio = Dividends per share (see above) Market price per share = $0.40
$6.79 = 5.89%
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-228
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
189. Leckbee Corporation's net income for the most recent year was $3,270,000. A total of
500,000 shares of common stock and 200,000 shares of preferred stock were outstanding
throughout the year. Dividends on common stock were $2.70 per share and dividends on
preferred stock were $1.10 per share.
Required:
Compute the earnings per share of common stock. Show your work!
Earnings per share = (Net Income - Preferred Dividends) Average number of common
shares outstanding = ($3,270,000 - $220,000) 500,000 shares = $6.10 per share
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
190. Odegaard Corporation's net income last year was $1,811,000. The dividend on common
stock was $3.20 per share and the dividend on preferred stock was $1.00 per share. The
market price of common stock at the end of the year was $50.20 per share. Throughout the
year, 300,000 shares of common stock and 200,000 shares of preferred stock were
outstanding.
Required:
Price-earnings ratio = Market price per share Earnings per share* = $50.20 $5.37 =
9.35
*Earnings per share = (Net Income - Preferred Dividends) Average number of common
shares outstanding = ($1,811,000 - $200,000) 300,000 shares = $5.37 per share
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-229
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
191. Spina Corporation's net income last year was $5,472,000. The dividend on common
stock was $10.70 per share and the dividend on preferred stock was $3.00 per share. The
market price of common stock at the end of the year was $49.20 per share. Throughout the
year, 400,000 shares of common stock and 100,000 shares of preferred stock were
outstanding.
Required:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
192. Last year, Iurato Corporation's dividend on common stock was $8.20 per share and the
dividend on preferred stock was $3.40 per share. The market price of common stock at the
end of the year was $50.70 per share.
Required:
Dividend yield ratio = Dividends per share Market price per share
= $8.20 $50.70 = 0.16
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-230
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
The beginning balance of total assets was $760,000 and the ending balance was $710,000.
Required:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-231
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
194. Excerpts from Thi Corporation's most recent balance sheet appear below:
Net income for Year 2 was $143,000. Dividends on common stock were $60,000 in total and
dividends on preferred stock were $23,000 in total.
Required:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-232
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
195. Data from Colinger Corporation's most recent balance sheet appear below:
A total of 200,000 shares of common stock and 20,000 shares of preferred stock were
outstanding at the end of the year.
Required:
Book value per share = Common stockholders' equity Number of common shares
outstanding = $1,280,000 200,000 shares = $6.40 per share
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy
16-233
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
16-234
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Required:
16-235
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Learning Objective: 4
Level: Medium
16-236
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
197. Vasconcelos Corporation's most recent balance sheet and income statement appear
below:
16-237
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Required:
e. Average collection period = 365 days Accounts receivable turnover (see above) = 365
days 4.59 = 79.5 days
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium
16-238
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
198. Excerpts from Dinis Corporation's most recent balance sheet (in thousands of dollars)
appear below:
Sales on account during the year totaled $1,240 thousand. Cost of goods sold was $770
thousand.
Required:
16-239
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
e. Average collection period = 365 days Accounts receivable turnover (see above) = 365
days 7.29 = 50.1 days
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-240
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
199. Ducey Corporation's total current assets are $250,000, its noncurrent assets are $580,000,
its total current liabilities are $160,000, its long-term liabilities are $470,000, and its
stockholders' equity is $200,000.
Required:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
200. Gattuso Corporation's total current assets are $270,000, its noncurrent assets are
$760,000, its total current liabilities are $130,000, its long-term liabilities are $400,000, and
its stockholders' equity is $500,000.
Required:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-241
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
201. Data from Panganiban Corporation's most recent balance sheet appear below:
Required:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-242
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Required:
Compute the accounts receivable turnover for this year. Show your work!
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-243
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
203. Data from Shamp Corporation's most recent balance sheet and income statement appear
below:
Required:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-244
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
Required:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-245
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
205. Data from Sligh Corporation's most recent balance sheet and income statement appear
below:
Required:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy
16-246
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
206. Kerson Corporation's most recent balance sheet and income statement appear below:
Required:
16-247
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium
207. Trusillo Corporation's net operating income last year was $103,000; its interest expense
was $17,000; its total stockholders' equity was $1,260,000; and its total liabilities were
$380,000.
Required:
a. Times interest earned = Net operating income Interest expense = $103,000 $17,000 =
6.06
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy
16-248
Chapter 016, "How Well Am I Doing?" Financial Statement AnalysisKey
208. Authement Corporation has provided the following data from its most recent income
statement:
Required:
Times interest earned = Net operating income Interest expense = $90,000 $49,000 =
1.84
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy
209. Hacking Corporation has provided the following data from its most recent balance sheet:
Required:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy
16-249