chapter 161.doc

8/9/2019 Chapter 161.Doc

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Chapter 16 “How Well Am I Doing?”--Financial Statement Analysis

r!e"False #!estions

1. Common-size statements are financial statements of companies of similar size.

Ans: False AACSB: Reflective Thinking AICA BB: Critical ThinkingAICA F!: Reporting "#: 1 "evel: $as%

&. #ne limitation of vertical anal%sis is that it cannot 'e (se) to compare t*o companiesthat are significantl% )ifferent in size.

Ans: False AACSB: Reflective Thinking AICA BB: Critical ThinkingAICA F!: Reporting "#: 1 "evel: $as%

+. The gross margin percentage is comp(te) '% )ivi)ing the gross margin '% total assets.

Ans: False AACSB: Reflective Thinking AICA BB: Critical ThinkingAICA F!: Reporting "#: 1 "evel: ,e)i(m

. The sale of (se) e(ipment at 'ook val(e for cash *ill increase earnings per share.

Ans: False AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: ,e)i(m

/. $arnings per share is comp(te) '% )ivi)ing net income 0after )e)(cting preferre)

)ivi)en)s '% the average n(m'er of common shares o(tstan)ing.

Ans: Tr(e AACSB: Reflective Thinking AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: $as%

2. The )ivi)en) pa%o(t ratio )ivi)e) '% the )ivi)en) %iel) ratio e(als the price-earningsratio.

Ans: Tr(e AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: 3ar)

4. An increase in the n(m'er of shares of common stock o(tstan)ing *ill )ecrease acompan%5s price-earnings ratio if the market price per share remains (nchange).

Ans: False AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: 3ar)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-5


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6. A compan%5s financial leverage is negative *hen its ret(rn on total assets is less thanits ret(rn on common stockhol)ers5 e(it%.

Ans: False AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: 3ar)

7. 8hen comp(ting ret(rn on common stockhol)ers5 e(it%9 retaine) earnings sho(l) 'eincl()e) as part of common stockhol)ers5 e(it%.

Ans: Tr(e AACSB: Reflective Thinking AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: 3ar)

1. 8hen a retailing compan% p(rchases inventor%9 the 'ook val(e per share of the

compan% increases.

Ans: False AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: ,e)i(m

11. If a compan%5s aci)-test ratio increases9 its c(rrent ratio *ill also increase.

Ans: Tr(e AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: ,e)i(m

1&. Ass(ming a c(rrent ratio greater than 19 ac(iring lan) '% iss(ing more of the

compan%5s common stock *ill increase the c(rrent ratio.

Ans: False AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: ,e)i(m

1+. If a compan% s(ccessf(ll% implements lean pro)(ction9 its inventor% t(rnover ratiosho(l) )ecrease.

Ans: False AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: ,e)i(m

1. Short-term 'orro*ing is not a so(rce of *orking capital.

Ans: Tr(e AACSB: Reflective Thinking AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: ,e)i(m

16-6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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1/. 8orking capital is comp(te) '% s('tracting long-term lia'ilities from long-termassets.

Ans: False AACSB: Reflective Thinking AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: ,e)i(m

$!ltiple Choice #!estions

12. Common size financial statements help an anal%st to:A $val(ate financial statements of companies *ithin a given in)(str% of the

appro;imate same size.B


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17. 8hat effect *ill the iss(ance of common stock for cash at %ear-en) have on thefollo*ing ratios=

Ret(rn on Total Assets


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&+. 8hich of the follo*ing transactions co(l) generate positive financial leverage for acorporation=

A ac(iring assets thro(gh the iss(ance of long-term )e't.B ac(iring assets thro(gh the (se of acco(nts pa%a'le.C ac(iring assets thro(gh the iss(ance of common stock.


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&2. A compan% has @(st converte) a long-term note receiva'le into a short-term notereceiva'le. The compan%5s aci)-test an) c(rrent ratios are 'oth greater than 1. This

transaction *ill:A increase the c(rrent ratio an) )ecrease the aci)-test ratio.B increase the c(rrent ratio an) increase the aci)-test ratio.C )ecrease the c(rrent ratio an) increase the aci)-test ratio.


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+. ottlo' Corporation5s most recent income statement appears 'elo*:

Sales 0all on acco(nt................................. >6&9Cost of goo)s sol)...................................... 449ross margin.............................................. +49Selling an) a)ministrative e;pense............ &69 !et operating income................................. 1+79Interest e;pense.......................................... +49 !et income 'efore ta;es............................. 1&9Income ta;es.............................................. +9 !et income................................................. > 4&9

The gross margin percentage is closest to:

A &.4?B 4&.4?C &.1?+49 >6&9 &.1?

+1. Cran)all Compan%5s net income last %ear *as >29. The compan% pai) preferre))ivi)en)s of >19 an) its average common stockhol)ers5 e(it% *as >69. Thecompan%5s ret(rn on common stockhol)ers5 e(it% for the %ear *as closest to:A 1&./?B 1.?C &.1?29 D >19 >69 1.?



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+&. Ar)or Compan%5s net income last %ear *as >/9. The compan% has 1/9shares of common stock an) +9 shares of preferre) stock o(tstan)ing. There *as

no change in the n(m'er of common or preferre) shares o(tstan)ing )(ring the %ear.The compan% )eclare) an) pai) )ivi)en)s last %ear of >1. per share on the commonstock an) >.4 per share on the preferre) stock. The earnings per share of commonstock is closest to:A >+.++B >+.17C >&.+++.4

Ans: B AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: ,e)i(m

Sol(tion:

$arnings per share 0!et Income D referre)


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Sol(tion:

+ &.? .2 per share ,arket price per share rice earnings ratio $arnings per share 1/ >/ >+ per share

+. Richmon) Compan% has 19 shares of >1 par val(e common stock iss(e) an)o(tstan)ing. Total stockhol)ers5 e(it% is >&969 an) net income for the %ear is>69. +. per share in )ivi)en)s on its commonstock. The market val(e of Richmon)5s common stock is >&. 8hat is the price-

earnings ratio=A +.B +./C .6& >6 +. $arnings per share 0!et income - referre) )ivi)en)s Average J of commonshares o(tstan)ing 0>69 - > E019 shares 19 shares &G >6 per share

+/. 3(rst Compan% has &9 shares of common stock o(tstan)ing. These shares *ereoriginall% iss(e) at a price of >1/ per share. The c(rrent 'ook val(e is >&/. pershare an) the c(rrent market val(e is >+. per share. The )ivi)en)s on commonstock for the %ear totale) >/9. The )ivi)en) %iel) ratio is:A 7?

B 4./?C 1/?


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Sol(tion:

+. 4./?

+2. Bram'le Compan%5s net income last %ear *as >2/9 an) its interest e;pense *as>1/9. Total assets at the 'eginning of the %ear *ere >2&9 an) total assets at theen) of the %ear *ere >2/9. The compan%5s income ta; rate *as ?. Thecompan%5s ret(rn on total assets for the %ear *as closest to:A 11.4?B 1.&?C 1&.2?49 >2+/9 11.4?A)@(ste) net income !et income EInterest e;pense K 01-Ta; rateG >2/9 1/9 K 01 D . >49Average total assets 0>2&9 >2/9 & >2+/9

+4. /99 then it*ill 'e 'etter off '% >&/9 per %ear.A The compan%5s reasoning is correct.B The compan%5s reasoning is not correct9 since the after-ta; cost of interest *o(l)

'e 2 percent9 rather than 7?.C The compan%5s reasoning is not correct9 since interest is not ta;-)e)(cti'le.+9

per %ear after ta;es.

Ans: < AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: 3ar)

16-1% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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+6. B(catini Corporation is contemplating the e;pansion of operations. This e;pansion*ill generate a 11? ret(rn on the f(n)s investe). To finance this operation9 B(catini

can either iss(e 1&? 'on)s9 iss(e 1&? preferre) stock9 or iss(e common stock.B(catini c(rrentl% has a ret(rn on common stockhol)ers5 e(it% of 12?. B(catini5s ta;rate is +?. In *hich of the financing options a'ove is positive financial leverage 'eing generate)=A none of the options generate positive financial leverageB the 'on)sC the common stock 679. A total of19 shares of common stock an) &9 shares of preferre) stock *ereo(tstan)ing thro(gho(t the %ear. &./ per sharean) )ivi)en)s on preferre) stock *ere >1.6 per share. The earnings per share ofcommon stock is closest to:A >&.B >6.7C >.72.

Ans: C AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: $as%

Sol(tion:

$arnings per share 0!et Income - referre)


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. Bar% Corporation5s net income last %ear *as >&929. The )ivi)en) on commonstock *as >&./ per share an) the )ivi)en) on preferre) stock *as >&. per share.

The market price of common stock at the en) of the %ear *as >4+./ per share.Thro(gho(t the %ear9 +9 shares of common stock an) 19 shares of preferre)stock *ere o(tstan)ing. The price-earnings ratio is closest to:A 7.++B 11.67C 1+.224+./ >4.66 7.++ $arnings per share 0!et income D referre) )ivi)en)s Average n(m'er ofcommon shares o(tstan)ing E>&929 D 019 K >&.G E0+9 shares +9 shares &G >4.66

1. Arntson Corporation5s net income last %ear *as >4974/9. The )ivi)en) on commonstock *as >6.& per share an) the )ivi)en) on preferre) stock *as >+./ per share.The market price of common stock at the en) of the %ear *as >/7.1 per share.

Thro(gho(t the %ear9 /9 shares of common stock an) &9 shares of preferre)stock *ere o(tstan)ing. The )ivi)en) pa%o(t ratio is closest to:A 1.2B ./1C ./2


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&. "ast %ear9 Sole% Corporation5s )ivi)en) on common stock *as >11.2 per share an)the )ivi)en) on preferre) stock *as >1.1 per share. The market price of common

stock at the en) of the %ear *as >/.6 per share. The )ivi)en) %iel) ratio is closest to:A .&B .&1C .&+219Cost of goo)s sol)...................................... +/9ross margin.............................................. &29Selling an) a)ministrative e;pense............ 119 !et operating income................................. 1/9Interest e;pense.......................................... +9

!et income 'efore ta;es............................. 1&9Income ta;es 0+?................................... +29 !et income................................................. > 69

The 'eginning 'alance of total assets *as >/29 an) the en)ing 'alance *as>/69. The ret(rn on total assets is closest to:A 16.?B 1.4?C &2.+?


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Sol(tion:

Ret(rn on total assets A)@(ste) net income Average total assets >1/9 >/49 16.?A)@(ste) net income !et income EInterest e;pense K 01 D Ta; rateG >69 E>+9 K 01 D .+G >1/9Average total assets 0>/29 >/69 & >/49

. $;cerpts from Bellis Corporation5s most recent 'alance sheet appear 'elo*:

Lear & Lear 1referre) stock................................................. > 19 > 19

Common stock................................................. +9 +9A))itional pai)-in capitalMcommon stock...... . +49 +49Retaine) earnings............................................. 69 +79Total stockhol)ersN e(it%................................ >19&/9 >19129

!et income for Lear & *as >129. 49 intotal an) )ivi)en)s on preferre) stock *ere >&+9 in total. The ret(rn on commonstockhol)ers5 e(it% for Lear & is closest to:A 7.?B 1+.+?C 1&.?

129 D >&+9 >191/9 1&.?Average common stockhol)ers5 e(it% 0>1929 >191/9 & >191/9



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/. 19Common stock................................................. 9A))itional pai)-in capitalMcommon stock....... +29Retaine) earnings............................................. /69Total stockhol)ersN e(it%................................ >199

A total of 9 shares of common stock an) &9 shares of preferre) stock *ereo(tstan)ing at the en) of the %ear. The 'ook val(e per share is closest to:A >+.+/B >/.C >1.7

+.2

Ans: A AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: $as%

Sol(tion:

Book val(e per share Common stockhol)ers5 e(it% !(m'er of common shareso(tstan)ing >19+9 9 shares >+.+/ per share

2. 19 an) its c(rrent lia'ilities are >69.

The compan%5s c(rrent ratio is closest to:A .66B .1&C 7.


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4. $rasci'le Compan% has >1+9 in cash9 >49 in marketa'le sec(rities9 >&49 inacco(nts receiva'le9 >&9 in inventories9 an) >+9 in c(rrent lia'ilities. The

compan%5s c(rrent assets consist of cash9 marketa'le sec(rities9 acco(nts receiva'le9an) inventor%. The compan%5s aci)-test ratio is closest to:A 1./4B .7C 1.++1+9 >49 >&49 >49

6. Frame Compan% ha) >129 in sales on acco(nt last %ear. The 'eginning acco(ntsreceiva'le 'alance *as >19 an) the en)ing acco(nts receiva'le 'alance *as>129. The compan%5s acco(nts receiva'le t(rnover *as closest to:A 1&.+1B 2.1/C 12.

129 >1+9 1&.+1Average acco(nts receiva'le 0>19 >129 & >1+9

16-#" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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7. ra'er Compan% ha) >1+9 in sales on acco(nt last %ear. The 'eginning acco(ntsreceiva'le 'alance *as >169 an) the en)ing acco(nts receiva'le 'alance *as

>1&9. The compan%5s average collection perio) *as closest to:A ++.27 )a%sB &.1& )a%sC 6.&+ )a%s1+9 E0>169 >1&9 &G 6.2224

/. 3arol) Compan%9 a retailer9 ha) cost of goo)s sol) of >&29 last %ear. The 'eginning inventor% 'alance *as >&9 an) the en)ing inventor% 'alance *as>&29. The compan%5s inventor% t(rnover *as closest to:A /.2/B 1.

C 1+.&29 >&+9 11.+Average inventor% 0>&9 >&29 & >&+9

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-#1


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/1. Ira Compan%9 a retailer9 ha) cost of goo)s sol) of >129 last %ear. The 'eginninginventor% 'alance *as >&29 an) the en)ing inventor% 'alance *as >&9. The

compan%5s average sale perio) *as closest to:A 11.2 )a%sB /.4/ )a%sC /7.+1 )a%s129 E0>&29 >&9 &G 2.

/&. Raatz Corporation5s total c(rrent assets are >+499 its nonc(rrent assets are>2299 its total c(rrent lia'ilities are >&&99 its long-term lia'ilities are>199 an) its stockhol)ers5 e(it% is >9. 8orking capital is:A >+49B >1/9C >&/9

9

Ans: B AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: $as%

Sol(tion:

8orking capital C(rrent assets D C(rrent lia'ilities >+49 D >&&9 >1/9

16-## Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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/+. St(''s Corporation5s total c(rrent assets are >+799 its nonc(rrent assets are>2+99 its total c(rrent lia'ilities are >&+99 its long-term lia'ilities are

>&799 an) its stockhol)ers5 e(it% is >/9. The c(rrent ratio is closest to:A.2&A ./7B 1.4C .47

Ans: C AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: $as%

Sol(tion:

C(rrent ratio C(rrent assets C(rrent lia'ilities >+79 >&+9 1.4

/. 1&9,arketa'le sec(rities......... >&79Acco(nts receiva'le........... >+49Inventor%............................ >/19repai) e;penses................ >&9C(rrent lia'ilities............... >11/9

The compan%5s aci)-test ratio is closest to:A .6/B .1C .26


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//. $ach(s Corporation has provi)e) the follo*ing )ata:

This Lear "ast Lear Acco(nts receiva'le........... >1+/9 >1179Inventor%............................ >1+29 >1//9Sales on acco(nt................. >2769Cost of goo)s sol).............. >&79

The acco(nts receiva'le t(rnover for this %ear is closest to:A .66B /./C /.142769 >1&49 /./

Average acco(nts receiva'le 0>1+/9 >1179 & >1&49

/2.


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Sol(tion:

Acco(nts receiva'le t(rnover Sales on acco(nt Average acco(nts receiva'le >4/69 >11+9 2.41

Average acco(nts receiva'le 0>119 >1&/9 & >11+9

Average collection perio) +2/ )a%s Acco(nts receiva'le t(rnover +2/ 2.41 /. )a%sSee a'ove

/4. "a*are Corporation has provi)e) the follo*ing )ata:

This Lear "ast Lear Acco(nts receiva'le........... >1169 >1+69Inventor%............................ >169 >149Sales on acco(nt................. >419Cost of goo)s sol).............. >49

The inventor% t(rnover for this %ear is closest to:A &.//B .7C &.649 >14/9 &.//

Average inventor% 0>149 >169 & >14/9



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/6. &799 income ta; e;pense of >2299an) interest e;pense of >&9. The compan%5s times interest earne) *as closest to:A 1.&B 1./C 1/./&79 >229 >&9 >&9 16.6

16-#6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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2. The times interest earne) ratio of 8hiting Compan% is .. The interest e;pense forthe %ear is >1/99 an) the compan%5s ta; rate is +?. 8hiting Compan%5s after-ta;

net income m(st 'e:A >29B >&9C >+19/129/

Ans: C AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: "evel: 3ar)

Sol(tion:

Times interest earne) $arnings 'efore interest e;pense an) income ta;es Intereste;pense. 0Before-ta; income >1/9 >1/9>29 $arnings 'efore income ta;es >1/9$arnings 'efore income ta;es >/9After-ta; net income $arnings 'efore income ta;es K 01 D Ta; rate >/9 K 01 D .+ >+19/

21. Harver Compan% has total assets of >169 an) total lia'ilities of >1+9. Thecompan%5s )e't-to-e(it% ratio is closest to:A .&6

B .4&C .&169 - >1+9 &.2



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2&. Bre*ster Compan%5s )e't-to-e(it% ratio is .6. C(rrent lia'ilities total >19 an)long term lia'ilities total >&9. Bre*ster Compan%5s total assets m(st 'e:

A >+4/9B >/9C >//924/9

Ans: < AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: "evel: 3ar)

Sol(tion:

19 >&9 Stockhol)ers5 e(it% .6Stockhol)ers5 e(it% >+9 .6 >+4/9Total assets "ia'ilities Stockhol)ers5 e(it% >+9 >+4/9 >24/9

2+. Bo%ington Corporation has provi)e) the follo*ing )ata from its most recent incomestatement:

!et operating income......... >649Interest e;pense.................. >79 !et income 'efore ta;es..... >+69

Income ta;es...................... >119 !et income......................... >&49

The times interest earne) ratio is closest to:A .//B .46C &./649 >79 1.46

16-# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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2. 8ohlfarth Corporation has provi)e) the follo*ing )ata from its most recent 'alancesheet:

Total assets..................................... >429Total lia'ilities................................ >/49Total stockhol)ersN e(it%.............. >179

The )e't-to-e(it% ratio is closest to:A .B +.C .4/179 +.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-#!


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Qse the follo*ing to ans*er (estions 2/-61:

sch*en) Corporation5s most recent 'alance sheet an) income statement appear 'elo*:

Statement of Financial osition19 >191

"ia'ilities an) Stockhol)ersN $(it%C(rrent lia'ilities:

Acco(nts pa%a'le................................................ > 1/ > 1/Accr(e) lia'ilities............................................... 2 2 !otes pa%a'le9 short term................................... 2 2

Total c(rrent lia'ilities........................................... &4 &4Bon)s pa%a'le........................................................ &+ &4

Total lia'ilities........................................................ / /Stockhol)ersN e(it%:

referre) stock9 >1 par val(e9 /?................... & &Common stock9 >1 par val(e.............................. 1 1A))itional pai)-in capitalMcommon stock.......... 1 1Retaine) earnings................................................ / 4

Total stockhol)ersN e(it%...................................... 7 64Total lia'ilities stockhol)ersN e(it%.................. >19 >191

16-$" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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Income StatementFor the Lear $n)e) 4

+ tho(san). 1 tho(san). The market price of common stock at the en) of Lear & *as >.62 per share.

2/. The gross margin percentage for Lear & is closest to:A 61.+?B 41.+?C 1.2?/4 >19+4 1.2?

22. The earnings per share of common stock for Lear & is closest to:A >.2B >.4C >1.1.+1

Ans: A AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: ,e)i(m

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-$1


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Sol(tion:

$arnings per share 0!et Income - referre) 1 >1 1

24. The price-earnings ratio for Lear & is closest to:A 6.1B +.41C 2.71 >1 1

rice-earnings ratio ,arket price per share $arnings per share >.62 >.2 6.1

26. The )ivi)en) pa%o(t ratio for Lear & is closest to:A 22.4?B /.?C 6++.+?


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Sol(tion:

$arnings per share 0!et Income - referre) 1 >1 1

.2 /.?+ 1 shares >.+ per share

27. The )ivi)en) %iel) ratio for Lear & is closest to:A 4/.?B 6.&+?C &.2?1 >1 1

.2 /.?+ 1 shares >.+ per share

.62 2.14?

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-$$


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4. The ret(rn on total assets for Lear & is closest to:A /.?

B 2.//?C 2./+?71.4 >19/ 2./+?

A)@(ste) net income !et income EInterest e;pense K 01 D Ta; rateG >4 E>+1 K 01 D .+G >71.4Average total assets 0>191 >19 & >19/

41. The ret(rn on common stockhol)ers5 e(it% for Lear & is closest to:A 2.46?B 4.71?C 6.42?4 D >1 >26/ 6.42?Average common stockhol)ers5 e(it% E0>64 - >& 0>7 D >&G & >26/

16-$% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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4&. The 'ook val(e per share at the en) of Lear & is closest to:A >.2

B >4.C >7.1.


Sol(tion:

Book val(e per share Common stockhol)ers5 e(it% !(m'er of common shares o(tstan)ing >4 1 shares >4. per share

!(m'er of common shares o(tstan)ing Common stock ar val(e >1 >1 per share 1 shares

4+. The *orking capital at the en) of Lear & is:A >6 tho(san)B >/2 tho(san)C >&7 tho(san)7 tho(san)

Ans: C AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: ,e)i(m

Sol(tion:

8orking capital C(rrent assets - C(rrent lia'ilities >/2 tho(san) D >&4 tho(san) >&7 tho(san)

4. The c(rrent ratio at the en) of Lear & is closest to:A .+2B .C .67


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4/. The aci)-test ratio at the en) of Lear & is closest to:A 1.11

B 1.1&C &.41 > >12 >+

42. The acco(nts receiva'le t(rnover for Lear & is closest to:A 1.1B 6./2C .6619+4 >1/ 7.1+Average acco(nts receiva'le 0>1 >12 & >1/

44. The average collection perio) for Lear & is closest to:A 1.1 )a%sB &.2 )a%sC .7 )a%s


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Sol(tion:

Acco(nts receiva'le t(rnover Sales on acco(nt Average acco(nts receiva'le >19+4 >1/ 7.1+Average acco(nts receiva'le 0>1 >12 & >1/

Average collection perio) +2/ )a%s Acco(nts receiva'le t(rnover +2/ )a%s 7.1+ . )a%s

46. The inventor% t(rnover for Lear & is closest to:A .41B .66C /.

6 >12 /.Average inventor% 0>1/ >14 & >12

47. The average sale perio) for Lear & is closest to:

A /.+ )a%sB 44./ )a%sC &1+.1 )a%s6 >12 /.

Average inventor% 0>1/ >14 & >12

Average sale perio) +2/ )a%s Inventor% t(rnover 0see a'ove +2/ )a%s /. 4+. )a%s

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-$7


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6. The times interest earne) for Lear & is closest to:A .&+

B 2.C &.&21+1 >+1 .&+

61. The )e't-to-e(it% ratio at the en) of Lear & is closest to:A .41B .&2C ./27 ./2

16-$ Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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Qse the follo*ing to ans*er (estions 6&-67:

#rgeron Corporation5s most recent 'alance sheet an) income statement appear 'elo*:

Statement of Financial osition19+ >19&7


Acco(nts pa%a'le.......................................... > 14 > 1/Accr(e) lia'ilities......................................... !otes pa%a'le9 short term............................. 6 7

Total c(rrent lia'ilities..................................... &7 &6Bon)s pa%a'le.................................................. &7 +

Total lia'ilities.................................................. /6 /6Stockhol)ersN e(it%:referre) stock9 >1 par val(e9 /?................ 1 1

Common stock9 >& par val(e........................ & &A))itional pai)-in capitalMcommon stock... . 1 1Retaine) earnings.......................................... +2 +1

Total stockhol)ersN e(it%................................ 42 41Total lia'ilities stockhol)ersN e(it%............ >19+ >19&7

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-$!


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Income StatementFor the Lear $n)e) 1/

/ tho(san). / tho(san). The market price of common stock at the en) of Lear & *as >11.+ per share.

6&. The gross margin percentage for Lear & is closest to:A /4./?B &&.6?C +6.1?2 >19&2 +2./?

6+. The earnings per share of common stock for Lear & is closest to:A >1./B >1.66C >1./1.

Ans: < AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: ,e)i(m

16-%" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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Sol(tion:

$arnings per share 0!et Income D referre) & >& per share 1 shares

6. The price-earnings ratio for Lear & is closest to:A 11.+B 1.42C 4./+& >& per share 1 shares

rice-earnings ratio ,arket price per share $arnings per share >11.+ >1. 11.+

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-%1


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6/. The )ivi)en) pa%o(t ratio for Lear & is closest to:A 4.2?

B //.?C /.?& >& per share 1 shares1. /.?/ 1 shares >./ per share

62. The )ivi)en) %iel) ratio for Lear & is closest to:A .&?B ./?

C 7.71?& >& per share 1 shares1. /.?/ 1 shares >./ per share11.+ .&?

16-%# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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64. The ret(rn on total assets for Lear & is closest to:A 1.1?

B 4.76?C 4.6?1+1.2 >19+1/ 1.1?

A)@(ste) net income !et income EInterest e;pense K 01 D Ta; rateG >1/ E>+6 K 01 D .+G >1+1.2Average total assets 0>19&7 >19+ & >19+1/

66. The ret(rn on common stockhol)ers5 e(it% for Lear & is closest to:A 1/.4/?B 12./?C 1+.21?1/ D >/ >2+/ 1/.4/?Average common stockhol)ers5 e(it% 0>21 >22 & >2+/

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-%$


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67. The 'ook val(e per share at the en) of Lear & is closest to:A >1.

B >4.2C >1+.2.2

Ans: < AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: ,e)i(m

Sol(tion:

Book val(e per share Common stockhol)ers5 e(it% !(m'er of common shares o(tstan)ing >22 1 shares >2.2 per share

!(m'er of common shares o(tstan)ing Common stock ar val(e >& >& per share 1 shares

Qse the follo*ing to ans*er (estions 7-7&:

a%ne Compan%5s sales an) c(rrent assets have 'een reporte) as follo*s over the last fo(r%ears:

Lear Lear + Lear & Lear 1Sales................................... >619 >4&9 >2+9 >29

Cash.................................... > +29 > +9 > &/9 > &9Acco(nts receiva'le........... 49 29 /79& /9Inventor%............................ 4496 4&9 79 69repai) e;penses................ 29& +69 196 +9Total c(rrent assets............. >&+9 >&9 >16/9 >169

16-%% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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7. S(ppose that a%ne Compan% emplo%s tren) percentages to anal%ze performance *ithLear 1 as the 'ase %ear. Sales for Lear e;presse) as a tren) percentage *o(l) 'e

closest to:A 1&6.2?B 4.1?C 11&./?619 >29 1+/.?

71. S(ppose that a%ne Compan% emplo%s tren) percentages to anal%ze performance *ithLear & as the 'ase %ear. Inventor% for Lear + e;presse) as a tren) percentage *o(l) 'eclosest to:A 1&/?B 6?C 7?4&9 >79 6?



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7&. S(ppose that a%ne Compan% emplo%s common size statements to anal%ze changes inthe c(rrent assets. The increase in the Acco(nts Receiva'le acco(nt *hen comparing

Lear + to Lear & *o(l) 'e closest to:A 1.+? increaseB .? increaseC /.+? increase


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Qse the follo*ing to ans*er (estions 7+-77:

Financial statements for #rahoo) Compan% appear 'elo*:

#rahoo) Compan%Statement of Financial osition & > 14Acco(nts receiva'le9 net.................................. 14 1

Inventor%.......................................................... 1& 1&repai) e;penses.............................................. & +

Total c(rrent assets.............................................. /1 2 !onc(rrent assets:

lant e(ipment9 net.................................... 19/+ 19/Total assets.......................................................... >&9 >&9

C(rrent lia'ilities:Acco(nts pa%a'le............................................. > 14 > 12Accr(e) l ia'ilities............................................ 2 / !otes pa%a'le9 short term................................ &4 &7

Total c(rrent lia'ilities........................................ / / !onc(rrent lia'ilities:

Bon)s pa%a'le.................................................. &7 +Total lia'ilities................................................. 47 6

Stockhol)ersN e(it%:referre) stock9 >1 par9 1?.......................... 1 1Common stock9 >/ par..................................... & &A))itional pai)-in capitalMcommon stock....... &6 &6Retaine) earnings............................................. 24 2&

Total stockhol)ersN e(it%................................... 19&/ 19&Total lia'ilities stockhol)ersN e(it%............... >&9 >&9



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#rahoo) Compan%Income Statement

For the Lear $n)e) &+

1/+ tho(san)9 of *hich >1 tho(san) *ere preferre))ivi)en)s. The market price of a share of common stock on &+ D >1 0 shares shares& >.6+ per share!(m'er of common shares o(tstan)ing Common stock ar val(e >& >/ per share shares

16-% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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7. #rahoo) Compan%5s )ivi)en) %iel) ratio on &+ D >1 0 shares shares& >.6+ per share!(m'er of common shares o(tstan)ing Common stock ar val(e >& >/ per share shares1+ shares >+./6 per share6 ./?

7/. #rahoo) Compan%5s ret(rn on total assets for Lear & *as closest to:A 11.1?B 1.?

C 7.?&& >&9& 11.1?A)@(ste) net income

!et income EInterest e;pense K 01 D Ta; rateG >&+ E>+ K 01 D .+G >&&Average total assets 0>&9 >&9 & >&9&

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-%!


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72. #rahoo) Compan%5s c(rrent ratio at the en) of Lear & *as closest to:A .2+B 1.&

C .//1// 11.&

Average acco(nts receiva'le 0>1 >14 & >1//

76. #rahoo) Compan%5s average sale perio) for Lear & *as closest to:A &/.& )a%sB 2.6 )a%sC +&./ )a%s19&1 0>1& >1&& 1.6

16-5" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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77. #rahoo) Compan%5s times interest earne) for Lear & *as closest to:A 7.4

B 14.4C 2.6+& >+ 1.4



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Qse the follo*ing to ans*er (estions 1-1+:

Financial statements for ,atti Compan% appear 'elo*:

,atti Compan%Balance Sheet

As of 119 >69Bon)s pa%a'le........................................................ 19 19referre) stock 0par val(e >19 6?.................... 4/9 4/9Common stock 0par val(e >/................................ 1&/9 1&/9A))itional pai)-in capitalMcommon stock............. &&9 &&9Retaine) earnings................................................... +9 Total lia'ilities an) e(ities................................... >49 >29

,atti Compan%Income Statement

For the Lear $n)e) 2+9

++9 for the %ear9 of *hich >29 *ere for preferre) stock.

16-5# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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1. The ret(rn on common stockhol)ers5 e(it% for ,atti Compan% for Lear & is closestto:

A 1/.6?B 14./?C 1.?2+9 - >29 >+29 1/.6?

Average common stockhol)ers5 e(it% 0>+4/9 >+/9 & >+29

11. The ret(rn on total assets for ,atti Compan% for Lear & is closest to:A 1.6?B 1.?C 7.?49 >2/9 1.6?A)@(ste) net income !et income EInterest e;pense K 01 D Ta; rateG >2+9 E>19 K 01 D .+G >49Average total assets 0>29 >49 & >2/9

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-5$


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1&. The times interest earne) for ,atti Compan% for Lear & is closest to:A 2.+

B 4.+C 7.19 >19 1.

1+. The 'ook val(e per share for ,atti Compan% as of +4/9 &/9 >1/.

!(m'er of common shares o(tstan)ing Common stock ar val(e >1&/9 >/ &/9



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Qse the follo*ing to ans*er (estions 1-11:

Financial statements for "ar)% Compan% appear 'elo*:

"ar)% Compan%Statement of Financial osition 16 > 16Acco(nts receiva'le9 net..................................... && 17

Inventor%............................................................. 14 16repai) e;penses................................................. + &

Total c(rrent assets................................................. 2 /4 !onc(rrent assets:

lant e(ipment9 net....................................... 196+ 196&Total assets............................................................. >&9+ >&9+7

C(rrent lia'ilities:Acco(nts pa%a'le................................................ > 1& > 1+Accr(e) lia'ilities............................................... 7 2 !otes pa%a'le9 short term................................... 1 12

Total c(rrent lia'ilities........................................... +/ +/ !onc(rrent lia'ilities:

Bon)s pa%a'le..................................................... +2 Total lia'ilities.................................................... 41 4/

Stockhol)ersN e(it%:..............................................referre) stock9 >& par9 1?............................. 1& 1&Common stock9 >1 par...................................... 1 1A))itional pai)-in capitalMcommon stock....... .. . 12 12Retaine) earnings................................................ 19+ 19&&

Total stockhol)ersN e(it%...................................... 194& 192Total lia'ilities stockhol)ersN e(it%.................. >&9+ >&9+7



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"ar)% Compan%Income Statement

For the Lear $n)e) &+6

1/6 tho(san)9 of *hich >1& tho(san) *ere preferre))ivi)en)s. The market price of a share of common stock on &+6 D >1& 1 >12.1

!(m'er of common shares o(tstan)ing Common stock ar val(e >1 >1 1



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1/. "ar)% Compan%5s price-earnings ratio on &+6 D >1& 1 >12.1


rice-earnings ratio ,arket price per share $arnings per share >&1 >12.1 1+.1

12. "ar)% Compan%5s )ivi)en) pa%o(t ratio for Lear & *as closest to:A +6.?B &+./?

C 22.?


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Sol(tion:

$arnings per share 0!et Income D referre) 1 >1 1

12.1 2.2?

12 1 >1.+

14. "ar)% Compan%5s )ivi)en) %iel) ratio on &+6 D >1& 1 >12.1


12.1 2.2?

12 1 >1.+

&1 /.?



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16. "ar)% Compan%5s ret(rn on total assets for Lear & *as closest to:A 11.?

B 6.4?C 7.7?&22 >&91 11.?

A)@(ste) net income !et income EInterest e;pense K 01 D Ta; rateG >&+6 ; 01 D .+ >&22

Average total assets 0>&9+7 >&9+ & >&91

17. "ar)% Compan%5s ret(rn on common stockhol)ers5 e(it% for Lear & *as closest to:A 1./?B 1/.+?C 1+./?&+6 D >1& >19/2 1./?

Average common stockhol)ers5 e(it% 0>19/& >192 & >19/2

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-5!


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11. "ar)% Compan%5s 'ook val(e per share at the en) of Lear & *as closest to:A >&1.+

B >11.&7C >1.1&&.62


Sol(tion:

Book val(e per share Common stockhol)ers5 e(it% !(m'er of common shares o(tstan)ing >192 1 >11.&7


Qse the follo*ing to ans*er (estions 111-11+:

Information concerning the common stock of 3opkins Compan% follo*s:

,arket price per share on &4.$arnings per share for the %ear.................. >./

ar val(e per share..................................... >1.1.6

111. 3opkins Compan%5s )ivi)en) pa%o(t ratio is:A 2?B ?C /?


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11&. 3opkins Compan%5s price-earnings ratio is:A 6.

B 2.24C 2.+2. >./ 6.

11+. 3opkins Compan%5s )ivi)en) %iel) ratio is:A 16?B 1&./?C 2?


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$richsen Corporation5s most recent 'alance sheet an) income statement appear 'elo*:

Statement of Financial osition19+6 >19+4


Acco(nts pa%a'le................................................ > 11 > 1Accr(e) lia'ilities............................................... + + !otes pa%a'le9 short term................................... / /

Total c(rrent lia'ilities........................................... 17 16

Bon)s pa%a'le........................................................ &/ +Total lia'ilities........................................................ 6Stockhol)ersN e(it%:

referre) stock9 >1 par val(e9 /?................... 1 1Common stock9 >1 par val(e.............................. & &A))itional pai)-in capitalMcommon stock....... .. . 12 12Retaine) earnings................................................ 6 +

Total stockhol)ersN e(it%...................................... 7 67Total lia'ilities stockhol)ersN e(it%.................. >19+6 >19+4



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Income StatementFor the Lear $n)e) 1+/

6 tho(san). / tho(san). The market price of common stock at the en) of Lear & *as >11./ per share.

11. The earnings per share of common stock for Lear & is closest to:A >.26B >.2/C >1.1+.74

Ans: B AACSB: Anal%tic AICA BB: Critical Thinking

AICA F!: Reporting "#: & "evel: ,e)i(m

Sol(tion:

$arnings per share 0!et Income D referre) & >1 &

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-6$


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11/. The price-earnings ratio for Lear & is closest to:A 11.+7B 12.&/

C 14.& >1 &

rice-earnings ratio ,arket price per share $arnings per share >11./ >.2/ 14.

112. The )ivi)en) pa%o(t ratio for Lear & is closest to:A 21./?B 427.&?C /7.+?

& >1 &

.2/ 21./?

6 & >.



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114. The )ivi)en) %iel) ratio for Lear & is closest to:A 7.1&?

B +.6/?C +.2&?& >1 &

.2/ 21./?

6 & >.

11./ +.2&?

116. The ret(rn on total assets for Lear & is closest to:A 11./?B 7.46?C 11.2?


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Sol(tion:

Ret(rn on total assets A)@(ste) net income Average total assets >1/6.1 >19+4/ 11./?

A)@(ste) net income !et income EInterest e;pense K 01 D Ta; rateG >1+/ ++ ; 01 D .+ >1/6.1

Average total assets 0>19+4 >19+6 & >19+4/

117. The ret(rn on common stockhol)ers5 e(it% for Lear & is closest to:A 1.4/?B 1.&1?

C 12./2?1+/ D >/ >61/ 1/.7/?

Average common stockhol)ers5 e(it% 0>47 >6 & >61/

1&. The 'ook val(e per share at the en) of Lear & is closest to:A >.4B >.&C >.2/2.7


Sol(tion:

Book val(e per share Common stockhol)ers5 e(it% !(m'er of common shares o(tstan)ing >6 & >.&

!(m'er of common shares o(tstan)ing Common stock ar val(e >& >1 &



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Qse the follo*ing to ans*er (estions 1&1-1&4:

$;cerpts from Pameel Corporation5s most recent 'alance sheet an) income statement appear 'elo*:

Lear & Lear 1Total assets............................................................. >19/ >19/+

Total lia'ilities........................................................ >4 >7

Stockhol)ersN e(it%:referre) stock9 >1 par val(e9 /?................... > 1 > 1Common stock9 >1 par val(e.............................. & &

A))itional pai)-in capitalMcommon stock.......... 1/ 1/Retaine) earnings................................................ 2& /7

Total stockhol)ersN e(it%...................................... >194 >19

Sales 0all on acco(nt >19&7Cost of goo)s sol) 47ross margin /Selling an) a)ministrative e;pense ++ !et operating income 122Interest e;pense + !et income 'efore ta;es 1+2

Income ta;es 0+? 1 !et income > 7/

2 tho(san). / tho(san). The market price of common stock at the en) of Lear & *as >+.64 per share.



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1&1. The earnings per share of common stock for Lear & is closest to:A >.6

B >.26C >./.6+

Ans: C AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: & "evel: ,e)i(m

Sol(tion:

$arnings per share 0!et Income D referre) & >1 &

1&&. The price-earnings ratio for Lear & is closest to:A /.27B 6.2C .22& >1 &

rice-earnings ratio ,arket price per share $arnings per share 0see a'ove >+.64 >./ 6.2



65/134


1&+. The )ivi)en) pa%o(t ratio for Lear & is closest to:A 1111.1?

B 2+.&?C 22.4?.+ >./ 22.4?

2 & >.+

1&. The )ivi)en) %iel) ratio for Lear & is closest to:A 7&.+1?B 4.4/?C .2/?


66/134


1&/. The ret(rn on total assets for Lear & is closest to:A 2.14?

B 4./+?C 2.17?112 >19/+/ 4./2?

A)@(ste) net income !et income EInterest e;pense K 01 D Ta; rateG >7/ E>+ K 01 D .+G >112

Average total assets 0>19/+ >19/ & >19/+/

1&2. The ret(rn on common stockhol)ers5 e(it% for Lear & is closest to:A 7.&?B 6./+?C 7.?7/ D >/ >7// 7.&?

Average common stockhol)ers5 e(it% 0>7 >74 & >7//



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1&4. The 'ook val(e per share at the en) of Lear & is closest to:A >/.+/

B >.6/C >./4.4


Sol(tion:

Book val(e per share Common stockhol)ers5 e(it% !(m'er of common shares o(tstan)ing >74 & >.6/

!(m'er of common shares o(tstan)ing Common stock ar val(e >& >1 &



68/134


Qse the follo*ing to ans*er (estions 1&6-1+&:

Financial statements for Spencer Compan% appear 'elo*:

Spencer Compan%Balance Sheet19&9

Acco(nts pa%a'le................................................... > +9Ta;es pa%a'le......................................................... 79Interest pa%a'le...................................................... 19"ong-term 'on)s pa%a'le...................................... &9Common stock >01 par....................................... &69Retaine) earnings................................................... +&9Total lia'ilities stockhol)ersN e(ities................ >19&9

Spencer Compan%




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1&6. At 19&9 D >9 0>+9 >79 >19 &.

1&7. At 9 >9 1.1

O(ick assets Cash ,arketa'le sec(rities Acco(nts receiva'le Short-termnotes receiva'le >&9 >&9 >9

1+. S(ppose that the Inventor% acco(nt ha) a 'alance of >+9 at the 'eginning of the%ear. Spencer Compan%5s inventor% t(rnover for the %ear *as closest to:A +./B 2.C /.2+


70/134


Sol(tion:

Inventor% t(rnover Cost of goo)s sol) Average inventor% >191&9 >+&9 +./

Average inventor% 0>+9 >+9 & >+&9

1+1. S(ppose that the 'alance of Acco(nts Receiva'le remaine) (nchange) 'et*een the 'eginning an) en) of the %ear. Spencer Compan%5s average collection perio) for the%ear *as closest to:A &4 )a%sB &6 )a%sC 7 )a%s

1969 >&9 4./

Average acco(nts receiva'le 0>&9 >&9 & >&9

Average collection perio) +2/ )a%s Acco(nts receiva'le t(rnover +2/ 4./ 7

1+&. Spencer Compan%5s )e't-to-e(it% ratio on


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Qse the follo*ing to ans*er (estions 1++-1+7:

Financial statements for ,ar'et Compan% appear 'elo*:

,ar'et Compan%Statement of Financial osition 12 > 12Acco(nts receiva'le9 net..................................... 16 12

Inventor%............................................................. 11 1+repai) e;penses.................................................

Total c(rrent assets................................................. 7 7 !onc(rrent assets:

lant e(ipment9 net....................................... 1971 1964Total assets............................................................. >&9 >&9+2

C(rrent lia'ilities:Acco(nts pa%a'le................................................ > 1& > 1/Accr(e) lia'ilities............................................... 6 / !otes pa%a'le9 short term................................... & &

Total c(rrent lia'ilities........................................... !onc(rrent lia'ilities:

Bon)s pa%a'le..................................................... / /Total lia'ilities.................................................... 7 7

Stockhol)ersN e(it%:referre) stock9 >1 par9 6?............................... 1& 1&Common stock9 >/ par........................................ & &A))itional pai)-in capitalMcommon stock.......... &6 &6Retaine) earnings................................................ 7 62

Total stockhol)ersN e(it%...................................... 19/ 192Total lia'ilities stockhol)ersN e(it%.................. >&9 >&9+2



72/134


,ar'et Compan%Income Statement

For the Lear $n)e) 126

1++. ,ar'et Compan%5s *orking capital 0in tho(san)s of )ollars at the en) of Lear & *asclosest to:A >7B >19/C >72

Ans: A AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: ,e)i(m

Sol(tion:

8orking capital C(rrent assets D C(rrent lia'ilities >7 D > >7

1+. ,ar'et Compan%5s c(rrent ratio at the en) of Lear & *as closest to:A .+4B 1.&C 1.&+


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1+/. ,ar'et Compan%5s aci)-test ratio at the en) of Lear & *as closest to:A .6/

B &.&4C .+112 >16 >+

1+2. ,ar'et Compan%5s acco(nts receiva'le t(rnover for Lear & *as closest to:A 7.+B 1+.+C 2.2192 >14 7.

Average acco(nts receiva'le 0>12 >16 & >14



74/134


1+4. ,ar'et Compan%5s average collection perio) for Lear & *as closest to:A &4. )a%s

B +7.1 )a%sC //. )a%s192 >14 7.

Average acco(nts receiva'le 0>12 >16 & >14

Average collection perio) +2/ )a%s Acco(nts receiva'le t(rnover +2/ 7. +6.6 )a%s

1+6. ,ar'et Compan%5s inventor% t(rnover for Lear & *as closest to:A 1+.+B 2.2C 7.191& >1& 7.+

Average inventor% 0>1+ >11 & >1&



75/134


1+7. ,ar'et Compan%5s average sale perio) for Lear & *as closest to:A +6.6 )a%s

B //. )a%sC +7.1 )a%s191& >1& 7.+

Average inventor% 0>1+ >11 & >1&

Average sale perio) +2/ )a%s Inventor% t(rnover +2/ 7.+ +7.1 )a%s


Selecte) financial )ata for 4/9 >+/9Acco(nts receiva'le 0net...................................... >&&/9 >&9Inventor%................................................................ >&49 >&19Short-term marketa'le sec(rities........................... >9 >&9"an) an) '(il)ing 0net.......................................... >/9 >/9,ortgage pa%a'le-c(rrent portion......................... >+9 >&/9Acco(nts pa%a'le an) accr(e) lia'ilities............... >1&9 >119Short-term notes pa%a'le....................................... >/9 >49

Lear $n)e)


76/134


1. +9 0>+9 >1&9 >/9 1.4

O(ick assets Cash ,arketa'le sec(rities Acco(nts receiva'le Short-termnotes receiva'le >4/9 >&&/9 >9 >+9

11. &9 +.4/Average inventor% 0>&19 >&49 & >&9

Average sale perio) +2/ )a%s Inventor% t(rnover +2/ )a%s +.4/ 74 )a%s

16-" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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1&. &1&9/ 4.2

Average acco(nts receiva'le 0>&9 >&&/9 & >&1&9/

Average collection perio) +2/ )a%s Acco(nts receiva'le t(rnover +2/ )a%s 4.2 /& )a%s



78/134


Qse the follo*ing to ans*er (estions 1+-17:

Rosenfiel) Corporation5s most recent 'alance sheet an) income statement appear 'elo*:

Statement of Financial osition19&1 >19&+


Acco(nts pa%a'le................................................ > 12 > 16Accr(e) lia'ilities............................................... 2 4 !otes pa%a'le9 short term................................... 2 4

Total c(rrent lia'ilities........................................... &6 +&Bon)s pa%a'le........................................................ 4 11

Total lia'ilities........................................................ +/ +Stockhol)ersN e(it%:

referre) stock9 >1 par val(e9 /?................... 1 1Common stock9 >1 par val(e.............................. & &A))itional pai)-in capitalMcommon stock.......... 16 16Retaine) earnings................................................ +6 +&

Total stockhol)ersN e(it%...................................... 62 6Total lia'ilities stockhol)ersN e(it%.................. >19&1 >19&+

16-# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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Income StatementFor the Lear $n)e) 1&/

1+. The *orking capital at the en) of Lear & is:A >+& tho(san)B >62 tho(san)C >67 tho(san) tho(san)

Ans: < AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: ,e)i(m

Sol(tion:

8orking capital C(rrent assets D C(rrent lia'ilities >+& tho(san) D >&6tho(san) > tho(san)

1. The c(rrent ratio at the en) of Lear & is closest to:A 1.7B 1.1C .&2


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1/. The aci)-test ratio at the en) of Lear & is closest to:A .71

B 1.1C ./41 > >1/ >12

12. The acco(nts receiva'le t(rnover for Lear & is closest to:A 1.1/B 6./+C .6419&6 >1 7.1Average acco(nts receiva'le 0>1+ >1/ & >1

14. The average collection perio) for Lear & is closest to:A 1.& )a%sB +7.7 )a%sC .7 )a%s


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Sol(tion:

Acco(nts receiva'le t(rnover Sales on acco(nt Average acco(nts receiva'le >19&6 >1 7.1Average acco(nts receiva'le 0>1+ >1/ & >1

Average collection perio) +2/ )a%s Acco(nts receiva'le t(rnover +2/ )a%s 7.1 +7.7 )a%s

16. The inventor% t(rnover for Lear & is closest to:A .62B 2.&1C 2.27

64 >1+ 2.27Average inventor% 0>1 >1& & >1+

17. The average sale perio) for Lear & is closest to:A &6.1 )a%sB /.2 )a%sC /6.6 )a%s64 >1+ 2.27Average inventor% 0>1 >1& & >1+

Average sale perio) +2/ )a%s Inventor% t(rnover +2/ )a%s 2.27 /.2 )a%s



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Qse the follo*ing to ans*er (estions 1/-1/2:

$;cerpts from /+ >/Total c(rrent lia'ilities................... >& >&1

Sales on acco(nt in Lear & amo(nte) to >1914 an) the cost of goo)s sol) *as >4.

1/. The *orking capital at the en) of Lear & is:A >++ tho(san)B >/+ tho(san)C >19+ tho(san)62 tho(san)

Ans: A AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: $as%

Sol(tion:

8orking capital C(rrent assets D C(rrent lia'ilities >/+ tho(san) D >&tho(san) >++ tho(san)

1/1. The c(rrent ratio at the en) of Lear & is closest to:A .+6B .&2C &.2/


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1/&. The aci)-test ratio at the en) of Lear & is closest to:A 1.

B 1.6/C 1.41/ > >1+ >&6

1/+. The acco(nts receiva'le t(rnover for Lear & is closest to:A 7.B .6/C 1.161914 >1& 7.4/Average acco(nts receiva'le 0>11 >1+ & >1&

1/. The average collection perio) for Lear & is closest to:A .6 )a%sB +4. )a%sC 1.& )a%s


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Sol(tion:

Acco(nts receiva'le t(rnover Sales on acco(nt Average acco(nts receiva'le >1914 >1& 7.4/Average acco(nts receiva'le 0>11 >1+ & >1&Average collection perio) +2/ )a%s Acco(nts receiva'le t(rnover +2/ )a%s 7.4/ +4. )a%s

1//. The inventor% t(rnover for Lear & is closest to:A 1.4B .7C .+64 >1// ./&Average inventor% 0>1/ >12 & >1//

1/2. The average sale perio) for Lear & is closest to:A 6.6 )a%s

B 7.7 )a%sC 6+.+ )a%s4 >1// ./&Average inventor% 0>1/ >12 & >1//

Average sale perio) +2/ )a%s Inventor% t(rnover +2/ )a%s ./& 6.6 )a%s

16- Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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Qse the follo*ing to ans*er (estions 1/4-121:

$;cerpts from Por)ison Corporation5s most recent 'alance sheet appear 'elo*:

Lear & Lear 1C(rrent assets:

Cash............................................ >& >12Acco(nts receiva'le.................... 12 1/Inventor%..................................... 14 1/repai) e;penses......................... 6 6

Total c(rrent assets......................... >21 >/Total c(rrent lia'ilities................... >&7 >&4

Sales on acco(nt in Lear & amo(nte) to >19& an) the cost of goo)s sol) *as >4+.

1/4. The *orking capital at the en) of Lear & is:A >+& tho(san)B >6 tho(san)C >19 tho(san)21 tho(san)

Ans: A AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: $as%

Sol(tion:

8orking capital C(rrent assets D C(rrent lia'ilities >21 tho(san) D >&7tho(san) >+& tho(san)

1/6. The c(rrent ratio at the en) of Lear & is closest to:A &.1B .&C .+1


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1/7. The aci)-test ratio at the en) of Lear & is closest to:A 1.+2

B &.1C 1.&& > >12 >+2

12. The acco(nts receiva'le t(rnover for Lear & is closest to:A 1.4B .7C 6.19& >1// 6.Average acco(nts receiva'le 0>1/ >12 & >1//

121. The inventor% t(rnover for Lear & is closest to:A 1.1+B ./2C .&74+ >12 ./2Average inventor% 0>1/ >14 & >12

16-!" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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Qse the follo*ing to ans*er (estions 12&-122:

1 >12Acco(nts receiva'le.................... &/ +Inventor%..................................... 1& 11repai) e;penses......................... 7 6

Total c(rrent assets......................... >/2 >2/Total c(rrent lia'ilities................... >&/ >&4

Sales on acco(nt in Lear & amo(nte) to >19 an) the cost of goo)s sol) *as >67.

12&. The *orking capital at the en) of Lear & is:A >7+ tho(san)B >+1 tho(san)C >7/ tho(san)/2 tho(san)

Ans: B AACSB: Anal%tic AICA BB: Critical ThinkingAICA F!: Reporting "#: + "evel: $as%

Sol(tion:

8orking capital C(rrent assets D C(rrent lia'ilities >/2 tho(san) D >&/tho(san) >+1 tho(san)

12+. The c(rrent ratio at the en) of Lear & is closest to:A .+6B .72C &.&


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12. The aci)-test ratio at the en) of Lear & is closest to:A 1.

B &.&C 1.421 > >&/ >+/

12/. The average collection perio) for Lear & is closest to:A 27.4 )a%sB .6 )a%sC 1.& )a%s


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122. The average sale perio) for Lear & is closest to:A +. )a%s

B 4.& )a%sC 7.& )a%s67 >11/ 4.4+Average inventor% 0>11 >1& & >11/

Average sale perio) +2/ )a%s Inventor% t(rnover +2/ )a%s 4.4+ 4.& )a%s

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-!$


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Financial statements for !arasaki Compan% appear 'elo*:

!arasaki Compan%Statement of Financial osition 1+ > 1&Acco(nts receiva'le9 net..................................... & 14Inventor%............................................................. 1+ 1+

repai) e;penses................................................. 7 6Total c(rrent assets................................................. // / !onc(rrent assets:

lant e(ipment9 net....................................... 19+6 19+2Total assets............................................................. >197+ >1962

C(rrent lia'ilities:Acco(nts pa%a'le................................................ > 12 > 12Accr(e) lia'ilities............................................... 7 6 !otes pa%a'le9 short term................................... 11 11

Total c(rrent lia'ilities........................................... +2 +/

!onc(rrent lia'ilities:Bon)s pa%a'le..................................................... /1 /

Total lia'ilities........................................................ 64 6/Stockhol)ersN e(it%:

referre) stock9 >1 par9 2?............................... 1 1Common stock9 >& par........................................ 12 12A))itional pai)-in capitalMcommon stock.......... & &Retaine) earnings................................................ /2 /1

Total stockhol)ersN e(it%...................................... 192 191Total lia'ilities stockhol)ersN e(it%.................. >197+ >1962

16-!% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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!arasaki Compan%Income Statement

For the Lear $n)e) ++

124. !arasaki Compan%5s times interest earne) for Lear & *as closest to:A 14.6B 1.6C 7.6/ >/ 1.6

126. !arasaki Compan%5s )e't-to-e(it% ratio at the en) of Lear & *as closest to:A .6B .+C 1.//192 .6&

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-!5


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armeter Corporation5s most recent 'alance sheet an) income statement appear 'elo*:

Statement of Financial osition191 >1916


Acco(nts pa%a'le............................................. > 14 > 17Accr(e) l ia'ilities............................................ / !otes pa%a'le9 short term................................ 6 7

Total c(rrent lia'ilities........................................ &7 ++

Bon)s pa%a'le..................................................... 4 1&Total lia'ilities..................................................... +2 /Stockhol)ersN e(it%:...........................................

referre) stock9 >1 par val(e9 /?................ 1 1Common stock9 >& par val(e........................... & &A))itional pai)-in capitalMcommon stock....... 1& 1&Retaine) earnings............................................. +& +1

Total stockhol)ersN e(it%................................... 4 4+Total lia'ilities stockhol)ersN e(it%............... >191 >1916

16-!6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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127. The times interest earne) for Lear & is closest to:A /.14B 6.61C 2.14111 >16 2.14

14. The )e't-to-e(it% ratio at the en) of Lear & is closest to:A .&B ./2C .74 .7

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-!7


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19&2 >19&+Total lia'ilities................................ >/6 >/2Total stockhol)ersN e(it%.............. >26 >24


141. The times interest earne) for Lear & is closest to:

A 2.17B +.++C .++1+ >+ .++

16-! Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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14&. The )e't-to-e(it% ratio at the en) of Lear & is closest to:A .+

B .6/C 1.&126 .6/

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-!!


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%ssay #!estions

14+. $spinola Corporation5s most recent 'alance sheet an) income statement appear 'elo*:

Statement of Financial osition19/2 >197


Acco(nts pa%a'le.............................................. > & > 14Accr(e) lia'ilities.............................................. 6 6 !otes pa%a'le9 short term..................................

Total c(rrent lia'ilities.......................................... +& &7

Bon)s pa%a'le...................................................... &1 &&Total lia'ilities...................................................... /+ /1Stockhol)ersN e(it%:

referre) stock9 >1 par val(e9 /?.................. 1 1Common stock9 >1 par val(e............................. 1 1A))itional pai)-in capitalMcommon stock........ 1/ 1/Retaine) earnings.............................................. 26 2+

Total stockhol)ersN e(it%..................................... 19+ 76Total lia'ilities stockhol)ersN e(it%................. >19/2 >197

16-1"" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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tho(san). / tho(san). The market price of common stock at the en) ofLear & *as >1&.64 per share.

Re(ire):

Comp(te the follo*ing for Lear &:a. ross margin percentage. '. $arnings per share 0of common stock.c. rice-earnings ratio.).


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Ans:

a. ross margin percentage ross margin Sales >+ >19&& +/.&?

'. $arnings per share 0!et Income D referre) 1 >1 per share 1 shares

c. rice-earnings ratio ,arket price per share $arnings per share 0see a'ove >1&.64 >.7 1.+

). 1 shares >. per share

e. 7+ 1 shares >7.+ per share!(m'er of common shares o(tstan)ing Common stock ar val(e >1 >1 per share 1 shares

i. 8orking capital C(rrent assets D C(rrent lia'ilities >4 - >+& >+6

16-1"# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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@. C(rrent ratio C(rrent assets C(rrent lia'ilities >4 >+& &.17

k. Aci)-test ratio O(ick assets C(rrent lia'ilities >/ >+& 1.27O(ick assets Cash ,arketa'le sec(rities Acco(nts receiva'le Short-term notes receiva'le >+& > >&& >/

l. Acco(nts receiva'le t(rnover Sales on acco(nt Average acco(ntsreceiva'le >19&& >&+ /.+Average acco(nts receiva'le 0>&& >& & >&+

m. Average collection perio) +2/ )a%s Acco(nts receiva'le t(rnover 0seea'ove +2/ )a%s /.+ 26.7 )a%s

n. Inventor% t(rnover Cost of goo)s sol) Average inventor% >47 >1+/ /.6/Average inventor% 0>1 >1+ & >1+/

o. Average sale perio) +2/ )a%s Inventor% t(rnover 0see a'ove +2/ )a%s /.6/ 2&. )a%s

p. Times interest earne) !et operating income Interest e;pense >12& >&2 2.&+

. /+ >19+ ./1

AACSB: Anal%tic AICA BB: Critical Thinking AICA F!: Reporting"#: 19&9+9 "evel: ,e)i(m

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-1"$


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14. Sla('a(gh Corporation5s most recent 'alance sheet an) income statement appear 'elo*:

Statement of Financial osition19+4 >19+6


Acco(nts pa%a'le................................................ > 12 > 16Accr(e) lia'ilities............................................... 6 6 !otes pa%a'le9 short term................................... 6 6

Total c(rrent lia'ilities........................................... +& +Bon)s pa%a'le........................................................ 4 1Total lia'ilities........................................................ +7

Stockhol)ersN e(it%:referre) stock9 >1 par val(e9 1?................. & &Common stock9 >1 par val(e.............................. & &A))itional pai)-in capitalMcommon stock.......... 1+ 1+Retaine) earnings................................................ / 1

Total stockhol)ersN e(it%...................................... 76 7Total lia'ilities stockhol)ersN e(it%.................. >19+4 >19+6

16-1"% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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& tho(san). & tho(san). The market price of common stock at the en) ofLear & *as >&.66 per share.

Re(ire):

Comp(te the follo*ing for Lear &:a. ross margin percentage. '. $arnings per share 0of common stock.c. rice-earnings ratio.). 19+/ +7.+?

'. $arnings per share 0!et Income - referre) & >1 per share & shares

c. rice-earnings ratio ,arket price per share $arnings per share 0see a'ove >&.66 >.+ 7.2

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-1"5


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). & & shares >.1 per share

e. 46 & shares >+.7 per share

!(m'er of common shares o(tstan)ing Common stock ar val(e >& >1 per share & shares

AACSB: Anal%tic AICA BB: Critical Thinking AICA F!: Reporting"#: 19& "evel: ,e)i(m

16-1"6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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14/. hilo Corporation5s most recent income statement appears 'elo*:

Sales 0all on acco(nt................................. >/219Cost of goo)s sol)...................................... +&/9ross margin.............................................. &+29Selling an) a)ministrative e;pense............ 129 !et operating income................................. 1+9Interest e;pense.......................................... +/9 !et income 'efore ta;es............................. 7/9Income ta;es.............................................. +9 !et income................................................. > 2/9

Re(ire):

Comp(te the gross margin percentage.

Ans:

ross margin percentage ross margin Sales >&+29 >/219 &.1?

AACSB: Anal%tic AICA BB: Critical Thinking AICA F!: Reporting"#: 1 "evel: $as%

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 16-1"7


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142. Financial statements for ratt Compan% appear 'elo*:

ratt Compan%Statement of Financial osition 1 > 1Acco(nts receiva'le9 net..................................... 17 16Inventor%............................................................. 1/ 1/repai) e;penses................................................. 4 4

Total c(rrent assets................................................. // /

!onc(rrent assets:lant e(ipment9 net....................................... 197 19&

Total assets............................................................. >&9 >1972

C(rrent lia'ilities:Acco(nts pa%a'le................................................ > 12 > 12Accr(e) lia'ilities............................................... / 2 !otes pa%a'le9 short term................................... &+ &/

Total c(rrent lia'ilities........................................... 4 !onc(rrent lia'ilities:

Bon)s pa%a'le..................................................... + +

Total lia'ilities........................................................ 4 44Stockhol)ersN e(it%:

referre) stock9 >/ par9 1?............................... 1& 1&Common stock9 >/ par........................................ 16 16A))itional pai)-in capitalMcommon stock.......... &1 &1Retaine) earnings................................................ 47 26

Total stockhol)ersN e(it%...................................... 19+ 1917Total lia'ilities stockhol)ersN e(it%.................. >&9 >1972



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ratt Compan%Income Statement

For the Lear $n)e) &+1

1&1 tho(san)9 of *hich >1& tho(san) *ere preferre))ivi)en)s. The market price of a share of common stock on


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Ans:

a. $arnings per share 0!et Income D referre) 16 >/ +2

'. rice-earnings ratio ,arket price per share $arnings per share 0see a'ove >6 >2.6 1+.&

c. 1916 +2 >+&.46

!(m'er of common shares o(tstan)ing Common stock ar val(e >16 >/ +2



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h. 8orking capital C(rrent assets D C(rrent lia'ilities >// D > >11

i. C(rrent ratio C(rrent assets C(rrent lia'ilities >// > 1.&/

@. Aci)-test ratio O(ick assets C(rrent lia'ilities >++ > .4/

O(ick assets Cash ,arketa'le sec(rities Acco(nts receiva'le Short-term notes receiva'le >1 >17 >++

k. Acco(nts receiva'le t(rnover Sales on acco(nt Average acco(ntsreceiva'le >&9 >16/ 1.61

Average acco(nts receiva'le 0>17 >16 & >16/

l. Average collection perio) +2/ )a%s Acco(nts receiva'le t(rnover +2/ 1.61 ++.6 )a%s See a'ove

m. Inventor% t(rnover Cost of goo)s sol) Average inventor% >19 >1/ 7.++

Average inventor% 0>1/ >1/ & >1/

n. Average sale perio) +2/ )a%s Inventor% t(rnover +2/ 7.++ +7.1 )a%s See a'ove

o. Times interest earne) !et operating income Interest e;pense >+2 >+ 1&.

p. 4 >19+ ./4

AACSB: Anal%tic AICA BB: Critical Thinking AICA F!: Reporting"#: &9+9 "evel: ,e)i(m

Garrison/Noreen/Brewer, Managerial Acc

chapter 161.doc

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