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Mastery Problem: Financial Statement Analysis Question Content Area Liquidity and Solvency Measures Your friend, another accountant, has bet you that with your knowledge of accounting

Mastery Problem: Financial Statement Analysis

Question Content Area

Liquidity and Solvency Measures

Your friend, another accountant, has bet you that with your knowledge of accounting and just the computations for common analytical measures, you can figure out many aspects of a company's financial statements. You take the bet!

Match each computation to one of the liquidity and solvency measures in the table. (Hint: Begin by looking for simple computations and identifying the amounts in those computations. Look for other measures that use those amounts.)

Liquidity and Solvency Measures Computations
Working capital

$3,095,000 $900,000$3,095,000 $900,000$1,866,000 $900,000$8,260,000 [($714,000 + $740,000) 2][($714,000 + $740,000) 2] ($8,260,000 365)$4,100,000 [($1,072,000 + $1,100,000) 2][($1,072,000 + $1,100,000) 2] ($4,100,000 365)$2,690,000 $1,690,000$2,590,000 $4,019,000($976,800 + $127,000) $127,000$3,095,000 $900,000
Current ratio

$3,095,000 $900,000$3,095,000 $900,000$1,866,000 $900,000$8,260,000 [($714,000 + $740,000) 2][($714,000 + $740,000) 2] ($8,260,000 365)$4,100,000 [($1,072,000 + $1,100,000) 2][($1,072,000 + $1,100,000) 2] ($4,100,000 365)$2,690,000 $1,690,000$2,590,000 $4,019,000($976,800 + $127,000) $127,000
Quick ratio

$3,095,000 $900,000$3,095,000 $900,000$1,866,000 $900,000$8,260,000 [($714,000 + $740,000) 2][($714,000 + $740,000) 2] ($8,260,000 365)$4,100,000 [($1,072,000 + $1,100,000) 2][($1,072,000 + $1,100,000) 2] ($4,100,000 365)$2,690,000 $1,690,000$2,590,000 $4,019,000($976,800 + $127,000) $127,000
Accounts receivable turnover

$3,095,000 $900,000$3,095,000 $900,000$1,866,000 $900,000$8,260,000 [($714,000 + $740,000) 2][($714,000 + $740,000) 2] ($8,260,000 365)$4,100,000 [($1,072,000 + $1,100,000) 2][($1,072,000 + $1,100,000) 2] ($4,100,000 365)$2,690,000 $1,690,000$2,590,000 $4,019,000($976,800 + $127,000) $127,000
Number of days' sales in receivables

$3,095,000 $900,000$3,095,000 $900,000$1,866,000 $900,000$8,260,000 [($714,000 + $740,000) 2][($714,000 + $740,000) 2] ($8,260,000 365)$4,100,000 [($1,072,000 + $1,100,000) 2][($1,072,000 + $1,100,000) 2] ($4,100,000 365)$2,690,000 $1,690,000$2,590,000 $4,019,000($976,800 + $127,000) $127,000
Inventory turnover

$3,095,000 $900,000$3,095,000 $900,000$1,866,000 $900,000$8,260,000 [($714,000 + $740,000) 2][($714,000 + $740,000) 2] ($8,260,000 365)$4,100,000 [($1,072,000 + $1,100,000) 2][($1,072,000 + $1,100,000) 2] ($4,100,000 365)$2,690,000 $1,690,000$2,590,000 $4,019,000($976,800 + $127,000) $127,000
Number of days' sales in inventory

$3,095,000 $900,000$3,095,000 $900,000$1,866,000 $900,000$8,260,000 [($714,000 + $740,000) 2][($714,000 + $740,000) 2] ($8,260,000 365)$4,100,000 [($1,072,000 + $1,100,000) 2][($1,072,000 + $1,100,000) 2] ($4,100,000 365)$2,690,000 $1,690,000$2,590,000 $4,019,000($976,800 + $127,000) $127,000
Ratio of fixed assets to long-term liabilities

$3,095,000 $900,000$3,095,000 $900,000$1,866,000 $900,000$8,260,000 [($714,000 + $740,000) 2][($714,000 + $740,000) 2] ($8,260,000 365)$4,100,000 [($1,072,000 + $1,100,000) 2][($1,072,000 + $1,100,000) 2] ($4,100,000 365)$2,690,000 $1,690,000$2,590,000 $4,019,000($976,800 + $127,000) $127,000
Ratio of liabilities to stockholders' equity

$3,095,000 $900,000$3,095,000 $900,000$1,866,000 $900,000$8,260,000 [($714,000 + $740,000) 2][($714,000 + $740,000) 2] ($8,260,000 365)$4,100,000 [($1,072,000 + $1,100,000) 2][($1,072,000 + $1,100,000) 2] ($4,100,000 365)$2,690,000 $1,690,000$2,590,000 $4,019,000($976,800 + $127,000) $127,000
Times interest earned

$3,095,000 $900,000$3,095,000 $900,000$1,866,000 $900,000$8,260,000 [($714,000 + $740,000) 2][($714,000 + $740,000) 2] ($8,260,000 365)$4,100,000 [($1,072,000 + $1,100,000) 2][($1,072,000 + $1,100,000) 2] ($4,100,000 365)$2,690,000 $1,690,000$2,590,000 $4,019,000($976,800 + $127,000) $127,000

Question Content Area

Balance Sheet

Use the following balance sheet form to enter amounts you identify from the computations on the Liquidity and Solvency Measures part. You will identify other amounts for the balance sheet on the Profitability Measures part. If you have a choice of two amounts, assume the first amount in the ratio is for the end of the year. Compute any missing amounts.

Balance Sheet December 31, 20Y6
Assets
Current assets:
Cash $823,000
Marketable securities fill in the blank 812eca039fa9077_1
Accounts receivable (net) fill in the blank 812eca039fa9077_2
Inventory fill in the blank 812eca039fa9077_3
Prepaid expenses fill in the blank 812eca039fa9077_4
Total current assets $fill in the blank 812eca039fa9077_5
Long-term investments fill in the blank 812eca039fa9077_6
Property, plant, and equipment (net) fill in the blank 812eca039fa9077_7
Total assets $fill in the blank 812eca039fa9077_8
Liabilities
Current liabilities $fill in the blank 812eca039fa9077_9
Long-term liabilities fill in the blank 812eca039fa9077_10
Total liabilities $fill in the blank 812eca039fa9077_11
Stockholders' Equity
Preferred stock, $10 par $fill in the blank 812eca039fa9077_12
Common stock, $5 par fill in the blank 812eca039fa9077_13
Retained earnings fill in the blank 812eca039fa9077_14
Total stockholders' equity $fill in the blank 812eca039fa9077_15
Total liabilities and stockholders' equity $fill in the blank 812eca039fa9077_16

Question Content Area

Profitability Measures

Match each computation to one of the profitability measures in the table.

Profitability Measures Computations
Asset turnover

$8,260,000 [($5,785,000 + $5,595,000) 2]($791,340 + $127,000) [($6,609,000 + $6,419,000) 2]$791,340 [($4,019,000 + $3,818,050) 2]($791,340 $65,000) [($3,531,500 + $3,390,240) 2]($791,340 $65,000) 250,000 shares$35 $3.05$175,000 250,000 shares$0.70 $35
Return on total assets

$8,260,000 [($5,785,000 + $5,595,000) 2]($791,340 + $127,000) [($6,609,000 + $6,419,000) 2]$791,340 [($4,019,000 + $3,818,050) 2]($791,340 $65,000) [($3,531,500 + $3,390,240) 2]($791,340 $65,000) 250,000 shares$35 $3.05$175,000 250,000 shares$0.70 $35
Return on stockholders' equity

$8,260,000 [($5,785,000 + $5,595,000) 2]($791,340 + $127,000) [($6,609,000 + $6,419,000) 2]$791,340 [($4,019,000 + $3,818,050) 2]($791,340 $65,000) [($3,531,500 + $3,390,240) 2]($791,340 $65,000) 250,000 shares$35 $3.05$175,000 250,000 shares$0.70 $35
Return on common stockholders' equity

$8,260,000 [($5,785,000 + $5,595,000) 2]($791,340 + $127,000) [($6,609,000 + $6,419,000) 2]$791,340 [($4,019,000 + $3,818,050) 2]($791,340 $65,000) [($3,531,500 + $3,390,240) 2]($791,340 $65,000) 250,000 shares$35 $3.05$175,000 250,000 shares$0.70 $35
Earnings per share on common stock

$8,260,000 [($5,785,000 + $5,595,000) 2]($791,340 + $127,000) [($6,609,000 + $6,419,000) 2]$791,340 [($4,019,000 + $3,818,050) 2]($791,340 $65,000) [($3,531,500 + $3,390,240) 2]($791,340 $65,000) 250,000 shares$35 $3.05$175,000 250,000 shares$0.70 $35
Price-earnings ratio

$8,260,000 [($5,785,000 + $5,595,000) 2]($791,340 + $127,000) [($6,609,000 + $6,419,000) 2]$791,340 [($4,019,000 + $3,818,050) 2]($791,340 $65,000) [($3,531,500 + $3,390,240) 2]($791,340 $65,000) 250,000 shares$35 $3.05$175,000 250,000 shares$0.70 $35
Dividends per share

$8,260,000 [($5,785,000 + $5,595,000) 2]($791,340 + $127,000) [($6,609,000 + $6,419,000) 2]$791,340 [($4,019,000 + $3,818,050) 2]($791,340 $65,000) [($3,531,500 + $3,390,240) 2]($791,340 $65,000) 250,000 shares$35 $3.05$175,000 250,000 shares$0.70 $35
Dividend yield

$8,260,000 [($5,785,000 + $5,595,000) 2]($791,340 + $127,000) [($6,609,000 + $6,419,000) 2]$791,340 [($4,019,000 + $3,818,050) 2]($791,340 $65,000) [($3,531,500 + $3,390,240) 2]($791,340 $65,000) 250,000 shares$35 $3.05$175,000 250,000 shares$0.70 $35

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