Acounting

Oct 28th, 2013
Anonymous
Category:
Accounting
Price: $25 USD

Question description


1. 
Liquidity ratios. Edison, Stagg, and Thornton
have the following financial information at the close of business on July 10:





 

Edison


 

 

Stagg


 

 

Thornton


 

 

Cash


 

 

$6,000


 

 

$5,000


 

 

$4,000


 

 

Short-term investments


 

 

3,000


 

 

2,500


 

 

2,000


 

 

Accounts receivable


 

 

2,000


 

 

2,500


 

 

3,000


 

 

Inventory


 

 

1,000


 

 

2,500


 

 

4,000


 

 

Prepaid expenses


 

 

800


 

 

800


 

 

800


 

 

Accounts payable


 

 

200


 

 

200


 

 

200


 

 

Notes payable: short-term


 

 

3,100


 

 

3,100


 

 

3,100


 

 

Accrued payables


 

 

300


 

 

300


 

 

300


 

 

Long-term liabilities


 

 

3,800


 

 

3,800


 

 

3,800


 





  1. Compute the current and
         quick ratios for each of the three companies. (Round calculations to two
         decimal places.) Which firm is the most liquid? Why?



 

2.  Computation and evaluation of
  activity ratios.
The following data relate to Alaska Products, Inc:


 

 
 

 

20X5


 

 

20X4


 

 

Net
  credit sales


 

 

$832,000


 

 

$760,000


 

 

Cost
  of goods sold


 

 

530,000


 

 

400,000


 

 

Cash,
  Dec. 31


 

 

125,000


 

 

110,000


 

 

Average
  Accounts receivable


 

 

205,000


 

 

156,000


 

 

Average
  Inventory


 

 

70,000


 

 

50,000


 

 

Accounts
  payable, Dec. 31


 

 

115,000


 

 

108,000


 

 
 
 

Instructions


 

a. 
 
Compute the accounts receivable and inventory turnover ratios
  for 20X5. Alaska rounds all calculations to two decimal places.


 

 
 

 
 

 
 

 
 

 
 

 
 

 
 


3. Profitability
ratios, trading on the equity.
Digital Relay has both
preferred and common stock outstanding. The com­pany reported the following
information for 20X7:








 

Net sales


 

 

$1,750,000


 

 

Interest expense


 

 

120,000


 

 

Income tax expense


 

 

80,000


 

 

Preferred dividends


 

 

25,000


 

 

Net income


 

 

130,000


 

 

Average assets


 

 

1,200,000


 

 

Average common stockholders'
  equity


 

 

500,000


 






  1. Compute the profit
         margin on sales ratio, the return on equity and the return on assets,
         rounding calculations to two decimal places.

  2. Does the firm have
         positive or negative financial leverage? Briefly ex­plain.



 

4.  Horizontal analysis. Mary Lynn Corporation has
  been operating for several years. Selected data from the 20X1 and 20X2
  financial statements follow.


 

 

20X2


 

 

20X1


 

 

Current Assets


 

 

$86,000


 

 

$80,000
 


 

 

Property, Plant, and Equipment
  (net)


 

 

99,000


 

 

90,000


 

 

Intangibles


 

 

25,000


 

 

50,000


 

 

Current Liabilities


 

 

40,800


 

 

48,000


 

 

Long-Term Liabilities


 

 

153,000


 

 

160,000


 

 

Stockholders’ Equity


 

 

16,200


 

 

12,000


 

 

Net Sales


 

 

500,000


 

 

500,000


 

 

Cost of Goods Sold


 

 

322,500


 

 

350,000


 

 

Operating Expenses


 

 

93,500


 

 

85,000


 

 
 

a. 
 
Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment
  on the results of your work.


 


5.Vertical analysis. Mary Lynn Corporation has been operating for several
years. Selected data from the 20X1 and 20X2 financial statements follow.



 

20X2


 

 

20X1


 

 

Current Assets


 

 

  $86,000


 

 

  $80,000


 

 

Property, Plant, and Equipment (net)


 

 

99,000


 

 

80,000


 

 

Intangibles


 

 

25,000


 

 

50,000


 

 

Current Liabilities


 

 

40,800


 

 

48,000


 

 

Long-Term Liabilities


 

 

  153,000


 

 

  150,000


 

 

Stockholders’ Equity


 

 

16,200


 

 

12,000


 

 

Net Sales


 

 

  500,000


 

 

  500,000


 

 

Cost of Goods Sold


 

 

  322,500


 

 

  350,000


 

 

Operating Expenses


 

 

  93,500


 

 

85,000


 


a.  Prepare a vertical analysis for 20X1 and
20X2. Briefly comment on the results of your work.


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