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Module 2:

FINANCIAL STATEMENT ANALYSIS


ANSWER KEY

Test 1. TRUE OR FALSE QUESTIONS.

1. F 6. T 11. T 16. F 21. T 26. T


2. F 7. F 12. F 17. T 22. F 27. T
3. F 8. F 13. F 18. T 23. F 28. T
4. F 9. T 14. T 19. T 24. F 29. F
5. T 10. F 15. F 20. T 25. T 30. F

Test 2. MULTIPLE CHOICE QUESTIONS.

1. C 6. C 11. B 16. D 21. A 26. B


2. C 7. A 12. B 17. D 22. C 27. C
3. D 8. D 13. A 18. C 23. C 28. A
4. D 9. C 14. B 19. B 24. D 29. C
5. A 10. B 15. A 20. B 25. D 30. B

Test 3. PRACTICE EXERCISES.

Problem 1 Problem 2 Problem 3

1. 10,000 unfavorable 1. 49,008 favorable 1. 56,000 favorable


2. 10,000 favorable 2. 42,940 unfavorable 2. 28,000 favorable
3. 5,000 favorable 3. 8,730 favorable 3. 2,750 favorable
4. 8% increase 4. 10% increase 4. 5,750 favorable
5. 10% increase 5. 5% increase
6. 25% increase

Problem 4

1. No Effect
2. Decrease
3. Increase
4. Increase
5. Decrease
6. No Effect
7. No Effect

Problem 5 (see computations below)

1. 3.6:1
2. 30.93%
3. 12.4 times
4. 1.15 times
5. 10.3 times
6. 6 times
7. 20.8%
8. 317 days
9. 67%
10. 16.6%
11. 0.31 times

235,000
1. Current ratio 3:6. = 3.6
65,000

75,000
2. Return on common stockholders' equity 30.93%. = .3093
(265,000 + 220,000) 2

75,000
3. Price-earnings ratio 12.4 times. EPS = = 1.21
62,000

15
= 12.4 times
1.21

4. Inventory turnover ratio 1.15 times. 184,000


= 1.15
(150,000 + 170,000) 2

360,000
5. Receivables turnover 10.3 times. = 10.3
(40,000 + 30,000) 2
75,000 + 30,000 + 21,000
6. Times interest earned 6 times. = 6
21,000

75,000
7. Profit margin ratio 20.8%. = .208
360,000
8. Average days in inventory 317.4 days. 365 days
= 317.4
1.15

50,000
9. Payout ratio 67%. = .67
75,000

75,000
10. Return on assets 16.6%. = .166
(405,000 + 500,000) 2

11. Cash debt coverage ratio .31 times. 65,000


= .31
(140,000 + 280,000) 2

Problem 6

1. 80,000
2. 60,000
3. 100,000
4. 68,000
5. 160,000

Problem 7

Problem 8

1. 375,000
2. 312,500
3. 497,000
4. 697,000

Problem 9

BONNE COMPANY
Comparative Balance Sheet
December 31, 2016
____________________________________________________________________________
Assets
2016 2015
Cash ................................................................................... P 25,000 P 35,000
Marketable securities .......................................................... 15,000 15,000
Accounts receivable (net) ................................................... 30,000 (6) 50,000
Inventory ............................................................................. 55,000 (8) 50,000
Property, plant, and equipment (net) ................................... 200,000 160,000
Total assets ................................................................. 325,000 (9) P310,000

Liabilities and stockholders' equity

Accounts payable ............................................................... 15,000 (7) P 25,000


Short-term notes payable .................................................... 35,000 30,000
Bonds payable .................................................................... 28,000 (10) 20,000
Common stock .................................................................... 200,000 200,000
Retained earnings ............................................................... 47,000 35,000
Total liabilities and stockholders' equity........................ 325,000 (11) P310,000

BONNE COMPANY
Income Statement
For the Year Ended December 31, 2016
____________________________________________________________________________
Net sales ............................................................................. P200,000
Cost of goods sold .............................................................. 100,000
Gross profit.......................................................................... 100,000
Expenses
Depreciation expense ................................................... 15,000 (5)
Interest expense ........................................................... 5,000
Selling expenses ........................................................... 10,000
Administrative expenses ............................................... 15,000
Total expenses ........................................................ 45,000 (4)
Income before income taxes ............................................... 55,000 (2)
Income tax expense ............................................................ 15,000 (3)
Net income ......................................................................... 40,000 (1)

(1) Net income = 40,000; (200,000 20%).

(2) Income before income taxes = 55,000.


Let X = Income before income taxes and interest expense.
X
= 12 times; X = 60,000; 60,000 - 5,000 = 55,000.
5,000

(3) Income tax expense = 15,000; (55,000 - 40,000).

(4) Total operating expenses = 45,000; (100,000 - 55,000).

(5) Depreciation expense = 15,000; [45,000 - (5,000 + 10,000 + 15,000)].


(6) Accounts receivable (net) = 30,000.
Let X = Average receivables.
200,000
= 5 times; 5X = 200,000; X = 40,000.
X
Let Y = Accounts receivable at 12/31/03.
50,000 + Y
= 40,000; 50,000 + Y = 80,000; Y = 30,000.
2

(7) Accounts payable = 15,000.


Let X = Current liabilities.
25,000 + 15,000 + 30,000
= 1.4; 1.4X = 70,000; X = 50,000;
X
50,000 - 35,000 = 15,000.

(8) Inventory = 55,000


Let X = Total current assets
X
= 2.5; X = 125,000; 125,000 - (25,000 + 15,000 + 30,000) = 55,000.
50,000

(9) Total assets = 325,000 (25,000 + 15,000 + 30,000 + 55,000 + 200,000)

(10) Bonds payable = 28,000


Let X = Total debt
X
= 24%; X = 78,000; 78,000 - (15,000 + 35,000) = 28,000.
325,000

(11) Total liabilities and stockholders' equity = 325,000; same as total assetssee (9) above.

Problem 10

1. P
2. P
3. L
4. P
5. P
6. L
7. L
8. S
9. S
10. L