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Exam 12: Financial Statement Analysis and Decision Making

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Question 1

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Examples of estimates normally found in financial statements include all of the following except:

A) cash.
B) provision for warranties.
C) depreciation expense.
D) allowance for doubtful debts.

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

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Question 2

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Button Ltd reported profit of $4,000,000 in 2019. Using 2019 as the base year, profit decreased by 70% in 2020 and increased by 180% in 2021. Compute the profit reported by Button Ltd for 2020 and 2021.

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Question 3

Multiple Choice

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The current ratio is calculated by dividing:

Comparative information taken from the Rugby Ltd's financial statements is shown below: Required: Using horizontal analysis, show the percentage change from 2019 to 2020 with 2019 as the base year.

For each of the ratios listed , select the appropriate code letter, whether it is a liquidity ratio, a profitability ratio or a solvency ratio: -Current cash debt coverage

For each of the ratios listed , select the appropriate code letter, whether it is a liquidity ratio, a profitability ratio or a solvency ratio: -Cash return on sales ratio

Complete the following statements: -Hansen Company reported profit for the year of $300,000 and profit margin of 25%. If total average assets were $200,000, the asset turnover ratio was ____________ times.

The financial statements of Bloggs Ltd appear below: Additional information: a. Cash dividends of $57,000 were declared and paid in 2020. b. Weighted-average number of shares of ordinary shares outstanding during 2020 was 60,000 shares. c. Market value of ordinary shares on 31 December 2020 was $18 per share. d. Net cash provided by operating activities for 2020 was $63,000. Required:Using the financial statements and additional information, compute the following ratios for the Boggs Ltd for 2020. Show all computations.

Radiance Limited has cash of $35,000, marketable securities totaling $15,000, net receivables amounting to $20,000, and current liabilities of $55,000. The quick ratio for this company is:

Complete the following statements: -If the inventory turnover ratio is 5 times, and the average inventory was $600,000, the cost of goods sold during the year was $______________ and the average days to sell the inventory was ______________ days.

The following items were taken from the financial statements of James Limited, over a three-year period: Required: Using horizontal analysis and 2019 as the base year, compute the trend percentages for net sales, cost of sales and gross profit. Explain whether the trends are favourable or unfavourable for each item.

For each of the ratios listed , select the appropriate code letter, whether it is a liquidity ratio, a profitability ratio or a solvency ratio: -Receivables turnover

Willow Ltd has issued ordinary shares only. The company has been successful and has a gross profit rate of 20%. The information shown below was taken from the company's financial statements. Compute the following: (a) Receivables turnover and the average number of days required to collect the accounts receivable. (b) The inventory turnover and the average days in inventory. (c) Return on ordinary shareholders' equity.

Comparisons with other entities that provide insight into an entity's competitive position are:

Traditional financial statements are normally based on:

The following items were taken from the financial statements of Greenley Ltd over a three-year period: Required: Compute the following for each of the above time periods. a. The amount and percentage change from 2019 to 2020. b. The amount and percentage change from 2020 to 2021.

The income statement for the Yarrah Ltd for the year ended 31 December 2020 appears below. *Includes $30,000 of interest expense and $16,000 of income tax expense. Additional information: 1. Ordinary shares outstanding on 1 January 2020 was 50,000 shares. On 1 July 2020 10,000 more shares were issued. 2. The market price of Yarrah shares was $12 at the end of 2020. 3. Cash dividends of $30,000 were paid, $6,000 of which were paid to preferred shareholders. Compute the following ratios for 2020: (a) earnings per share (b) price-earnings ratio (c) times interest earned.

The following ratios have been computed for the Bently Bicycle Company for 2020 The 2020 financial statements for James Ltd with missing information follows: Required: Use the above ratios and information from The Bently Bicycle Company financial statements to fill in the missing information on the financial statements. Follow the sequence indicated. Show computations that support your answers.

Analyses that provide information about an entity's relative position within an industry are known as:

For each of the ratios listed , select the appropriate code letter, whether it is a liquidity ratio, a profitability ratio or a solvency ratio: -Return on assets