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business
financial reporting and analysis

Questions and Answers of Financial Reporting and Analysis

Use the balance sheet equation to calculate the ending balances in each of the following accounts, given the beginning balances and various transactions during the year.Beginning Balances Cash $
Macintosh Browning Corporation has the following stockholders’ equity at December 31, 1999:Seven percent cumulative preferred stock: $120 par, 50,000 shares authorized, 20,000 shares issued and
LP&G Corporation has the following stockholders’equity at December 31, 1999:Common stock: $20 par, authorized 700,000 shares, issued 200,000 shares $ 4,000,000 Additional paid-in capital 3,200,000
The H. Houdini Company’s capital structure includes $10,000,000 of long-term debt at an average rate of 12%. The capital structure also includes $3,000,000 of (cumulative) preferred stock, with
The Open Sesame Company has assets of $300,000,000, long-term debts of$100,000,000, common stock of $100,000,000, and retained earnings of$100,000,000. Most of the long-term debt consists of
Smith Smyth, Inc., has the following capital structure:Current liabilities $ 20,000,000 Long-term debt 30,000,000 Preferred stock ($10 par value) 40,000,000 Common stock ($1 par value) 40,000,000
Bitsy Betsy, Inc. has the following capital structure:Current liabilities $ 35,000,000 Long-term debt 35,000,000 Preferred stock (no par) 45,000,000 Common stock (no par) 45,000,000 Retained earnings
Swan and Duboner Corporation has the following stockholders’ equity on December 31, 1999:Six percent preferred stock: $100 par value, 20,000 shares authorized, 5,000 shares issued and outstanding $
Calculate EPS, given the following information:• Net income, $65,100,000• Common stock outstanding, 3,100,000 shares• Preferred stock outstanding, 1,000,000 shares• Dividends paid on
a. Describe how earnings per share (EPS) is computed.b. Why is EPS such an important ratio?c. Describe what EPS represents. Describe what it does not represent. OL89
Describe why the market-to-book value ratio is analogous to comparing apples to oranges. Why have analysts found this ratio to be useful? OL89
Explain why price-to-earnings ratios may differ among firms. Describe why investors might prefer to buy a stock that has a relatively high price-to-earnings ratio? Why might some investors prefer low
Assume that a firm uses relatively conservative methods of accounting (LIFO inventory costing and/or accelerated depreciation methods). Describe how this would affect your interpretation of the
Davidson Corp. has the following transactions. Use the balance sheet equation to analyze the financial statement effects of these transactions. Set up the following columns: cash, patent, preferred
SKN Corporation began operations in 1999. Calculate the balances in each component of shareholders’equity at the end of 1999, after recognizing the following transactions:1. Issue two million
RMN Corp. had a variety of shareholders’equity transactions in 2000. It had the following balances in Shareholders’ Equity accounts and Cash and other assets accounts at the beginning of
Calculate earnings per share (EPS), given the following information:• Net income, $255,000,000• Authorized common stock, 50,000,000 shares• Common stock, 25,000,000 shares outstanding all
Calculate EPS, given the following information:• Net loss, $20,000,000• Common stock, 2,000,000 shares outstanding all year• Preferred stock, 2,000,000 shares authorized, but none issued
Calculate EPS, given the following information:• Net income, $345,000,000• Authorized common stock, 20,000,000 shares, $1.00 par value• Weighted average number of shares outstanding,
A list of business transactions and events follows:1. Sale of common stock to investors 2. Sale of preferred stock to investors 3. Declaration of a cash dividend to common shareholders 4. Purchase of
Conduct a research study on stock-based compensation. Write a memo describing how stock-based compensation should be reflected or disclosed on a company’s financial statements. OL89
Locate the latest available 10-K filing (www.sec.gov/edaux/searches) of Diebold, Inc., an Ohio-based manufacturer of automated teller machines or use the company’s home page (www.diebold.com).
Access the EDGAR archives (www.sec.gov/edaux/searches.htm) to locate the latest available 10-K filings for Kmart and Wal-Mart. Scroll down to the Summary of Key Financial Information and calculate
Obtain the audited financial statements of a local service firm. Apply the financial analysis framework, as appropriate, to this firm. Write a short report describing your conclusions regarding this
Review the financial statement ratios in this chapter and consider which might apply to a service organization, such as a law firm or an accounting firm. Write a short report indicating why each of
Use a business library or the Internet to identify several recent articles discussing cash flow-based ratios that can be used in financial statement analysis.Requireda. Compare and contrast the cash
Use a business library or the Internet to identify two recent articles that discuss financial statement analysis.Requireda. Compare and contrast the ratios presented in this text with those in the
Refer to the following excerpts from Fiddler Capital Management Incorporated’s 1999 financial statements. You have been provided with the independent auditor’s report, financial statements, and
Obtain the financial statements from two companies in the same industry and conduct a comprehensive financial statement analysis of each company. Then consider a scenario under which the largest of
Obtain the audited financial statements of a local nonprofit organization. Apply our financial statement analysis framework, as appropriate, to this organization. Write a short report describing your
Review the financial statement ratios in this chapter and consider which might apply to a nonprofit organization. Write a short report indicating why each of these ratios would (or would not) apply
Obtain financial statements from a local company. Conduct a comprehensive financial statement analysis of this company using the financial statement analysis framework. After completing your
Obtain financial statements from two companies in the same industry. From the Internet or a local business library, obtain appropriate operating statistics and ratios for this industry. Conduct a
Interview a local stockbroker or financial analyst and discuss the differences between the debt-to-equity ratio and financial leverage (debt/assets). At the same time, discuss the percentage
Interview a local stockbroker or financial analyst and discuss the differences between liquidity and profitability ratios. Identify the three most important ratios used by this professional in each
Select three large firms in the food service industry. Use your library or Internet sources to obtain balance sheet and profitability ratios for each of those three firms. Review these ratios with
Financial statements for two companies, The Gap and Intimate Brands, are presented below. Although the notes were omitted, a statement from each company’s auditor is included. Both companies are in
This assignment is based on the computations and exhibits shown earlier that are based on Wendy’s financial statements. In each case, refer to the relevant exhibits and review the
Review Wendy’s financial statements in Appendix D to determine whether any unusual or noteworthy events may limit the scope or comparability of financial statement analysis. Review the audit report
Conduct a comprehensive financial analysis of Reebok International’s financial statements (see Appendix E).Required:a. Review Reebok International’s financial statements (see Appendix E) to
Electronic Fab Technology (EFT) is a leader in information technology. EFT reported the following results for 2000, as summarized below (dollars in thousands):Year Ended December 31 2000 1999 Net
General Cinema Companies, Inc., reported the following results for 1994 as summarized below (dollars in thousands except for per-share amount):Years Ended October 31 1994 1993 Revenues $452,563
Dairy King, LTD., reported the following results for 1999 (dollars in millions):1999 1998 Revenues:Net sales $268.8 $241.6 Service fees 54.2 51.6 Franchise sales (fees) 8.6 7.6 Property management
Describe how managers may make biased estimates that will cause net income to be overstated or understated. What can the analyst do to combat these earnings manipulation possibilities?P=968
Describe how managers can affect the timing of earnings recognition. What can the analyst do to combat these earnings manipulation possibilities?P=968
Describe several possible choices of accounting methods that managers may make in an effort to manipulate or influence reported earnings. What can the analyst do to combat these earnings manipulation
Describe several limitations of financial statement analysis. What can be done to minimize these limitations?P=968
Discuss why the “What’s missing?”question is so crucial during all phases of financial statement analysis.P=968
Under what conditions might the financial leverage ratio be confusing and less useful than the percentage composition ratios?P=968
Why would a lender and an investor be equally concerned with earnings per share (EPS)?P=968
Why would a lender not be too concerned about market-to-book value and price-to-earnings (P/E) ratios? Why would a creditor or banker be more concerned?P=968
Describe the relationships between cash interest coverage and times interest earned.P=968
Describe why the percentage composition ratios might have three or four components. Why might they have less than three components? Why might they have more than four such components?P=968
Under what circumstances might the percentage composition ratios not sum to 100 percent?P=968
Discuss the relationship between financial leverage and percentage composition.P=968
Discuss why a tax adjustment is necessary as part of return on assets (ROA).P=968
Compare and contrast the quality of the income ratio with dimensions of income quality.P=968
Discuss the differences between cash flow from operating activities (CFOA)and cash collections from customers.P=968
Describe the relationship between quality of sales and accounts receivable as a percent of sales.P=968
Describe the relationship between return on assets (ROA) and cash return on assets.P=968
Describe the relationship between return on equity (ROE) and cash return to shareholders.P=968
Describe the similarities between the collection period and the number of days’ sales in ending inventory.P=968
Why must both cash flows and net income be analyzed as part of a profitability analysis?P=968
Why must both cash and accounts receivable be analyzed as part of a liquidity analysis?P=968
Describe the benefits of conducting horizontal and vertical analyses.P=968
Describe several situations that may require restatement of the financial statements prior to conducting ratio calculations.P=968
Identify the major elements of financial statements that form the basis for an investor’s analysis.P=968
Identify several bases of comparability that might be established before attempting to compare ratio results.P=968
Discuss several aspects of non-comparability that the analyst cannot overcome.P=968
Discuss several ways that comparability between firms can be enhanced.P=968
Discuss why it is so important that financial information be comparable before conducting analysis and computing ratios.P=968
Identify and describe several sources of financial information for publicly traded U.S. companies.P=968
Identify several users of financial statement analysis. Discuss the differences between users who have regular interaction with the firm versus those who may have less frequent interactions.P=968
Discuss the basic goals of financial statement analysis. Indicate those goals with which you agree or disagree. Identify any additional goals that may be added.P=968
Identify limitations of financial statement analyses.P=968
Identify, calculate, use, and interpret appropriate ratios.P=968
Determine when financial information is comparable and alternatively, learn how to enhance the comparability of financial information that may appear to be noncomparable.P=968
Know where to obtain financial information.P=968
Understand why financial statements are analyzed.P=968
How does the Committee define the core activities of a firm?b. List the core activities for the following corporations: p-968
This assignment is based on a report by the Jenkins Committee. The Jenkins Committee was formed to analyze users’needs in financial reporting and to suggest improvements in financial reporting,
A major asset for most companies is facilities. Use the SEC’s EDGAR corporate database (www.sec.gov/edaux/searches.htm.) to locate the 10-K for Rockwell International dated September 30, 1995, and
Select two of the following companies (your instructor might specify which two) and locate the most recent set of financial statements. You may use either the 10-K available at EDGAR
In 1999, Woolies, Inc. reported some accounting irregularities. Although its yearly results were accurate, Woolies initially reported interim results that were incorrect. An investigation into this
As the staff accountant for Gil’s Plumbing, you notice that a $1,000 check is drawn (payable to “Cash”) on the third Monday of each month and is charged to miscellaneous expenses. You also
Often, when a highly-regarded athlete joins a new team, his/her contract is recorded at a value well beyond the payments due in the first year.a. Since a person cannot be owned, how can an
Consider a situation in which you learn that your employer’s accounting staff has consistently overestimated the firm’s expenses (such as depreciation or bad debts). As a manager in the firm,
Write a one- to two-paragraph essay defending the following statement:Assets need not be objectively measured and valued because they can be sold at any time. If the firm feels that asset values are
Write a one- to two-paragraph essay assessing the following statement:Liabilities must be precisely measured because the firm needs to know how much is owed to its creditors. If such amounts are not
Financial statements, and the underlying accounting processes, rely on many subjective estimates. Review the sample transactions described in this chapter and indicate which of them are objective.
Suppose that Tina’s Frame Shop is anticipating applying for a bank loan in the near future. Although Tina’s has been using accrual accounting, the bookkeeper suggests that the firm switch to a
Refer to the T-shirt business first described in Chapter 1, “Financial Accounting and Its Environment.”The firm now has a small store near the football stadium to display and sell various
Answer each of the following independent questions:a. Dennis Company has assets of $125,000 and owners’equity of $40,000. What are its liabilities? If these liabilities include an outstanding
Assume that you are auditing a small bank that uses the cash basis of accounting to record interest on its customers’ accounts and uses the accrual basis of accounting for interest earned on its
Following are several transactions recorded by Bruce’s tea shop, The Better Leaf(TBL):Required For each transaction, describe the event or activity that occurred. For example:Answer:The firm
Sharon’s Affairs and Parties (SAAP), a sole proprietorship, engaged in the following transactions in 1999: 1. SAAP borrowed $150,000 at 10% per year to begin operations. 2. SAAP accrued the first
John’s Anti-Mediation League (JAML), a sole proprietorship, engaged in the following transactions in 1999: 1. On January 1, JAML borrowed $100,000 at 6% per year with interest due quarterly. 2.
Heidi’s Golf and Swim Club borrowed $500,000 at 12% per annum.Requireda. Calculate Heidi’s expected monthly and annual interest expense.b. Show the effect of the $500,000 loan on Heidi’s
Identify the effects of the following events on the income statement and the balance sheet for each year:a. Sunshine House borrowed $20,000 at 5% interest per annum.b. Interest for the first year was
Use the accounting equation to analyze the effects of the following events. Assume that the beginning balances are zero. Prepare an income statement and balance sheet after recording each

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