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

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

Liquidity and Solvency Measures

Calculations

Working capital

$3,091,000 $840,000

Number of times preferred dividends are earned

$801,420 $65,000

Quick ratio

$1,866,000 $840,000

Accounts receivable turnover

$8,280,000 [($714,000 + $740,000) 2]

Current ratio

$3,091,000 $840,000

Inventory turnover

$4,100,000 [($1,072,000 + $1,100,000) 2]

Number of days' sales in inventory

[($1,072,000 + $1,100,000) 2] ($4,100,000 365)

Ratio of fixed assets to long-term liabilities

$2,690,000 $1,690,000

Ratio of liabilities to stockholders' equity

$2,530,000 $4,075,000

Number of days' sales in receivables

[($714,000 + $740,000) 2] ($8,280,000 365)

Number of times interest charges are earned

Use the comparative income statement form below to enter amounts you identify from the calculations on the Liquidity and Solvency Measures panel and on the Profitability Measures panel. Calculate any missing amounts and complete the horizontal analysis columns. Enter percentages as decimal amounts, rounded to one decimal place.

Comparative Income Statement

As of December 31

1		Year 2	Year 1	Amount Increase (Decrease)	Percentage Increase (Decrease)
2	Sales		$7,287,000.00
3	Cost of goods sold		3,444,000.00
4	Gross income		$3,843,000.00
5	Selling expenses		$1,457,600.00
6	Administrative expenses	1,242,000.00	1,106,000.00
7	Total operating expenses		$2,563,600.00
8	Income from operations		$1,279,400.00
9	Interest expense		120,600.00
10	Income before income tax		$1,158,800.00
11	Income tax expense		181,980.00
12	Net income		$976,820.00

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

Balance Sheet amounts

December 31

1	Assets
2	Current assets:
3	Cash	$823,000.00
4	Marketable securities
5	Accounts receivable (net)
6	Inventory
7	Prepaid expenses
8	Total current assets
9	Long-term investments
10	Property, plant, and equipment (net)
11	Total assets
12	Liabilities
13	Current liabilities
14	Long-term liabilities
15	Total liabilities
16	Stockholders Equity
17	Preferred stock, $10 par
18	Common stock, $5 par
19	Retained earnings
20	Total stockholders equity
21	Total liabilities and stockholders equity

($989,400 + $127,000) $127,000