Current assets: Cash December 31, 20Y6 Assets Marketable securities Accounts receivable (net) Inventory Prepaid expenses Total current assets Long-term investments Property, plant, and equipment (net) Total assets Liabilities Current liabilities Long-term liabilities Total liabilities Stockholders' Equity Preferred stock, $10 par Common stock, $5 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $823,000

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Mastery Problem: Financial Statement Analysis

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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
Working capital
Current ratio
Quick ratio
Accounts receivable turnover
Number of days' sales in receivables
Inventory turnover
Number of days' sales in inventory
Ratio of fixed assets to long-term liabilities
Ratio of liabilities to stockholders' equity
Times interest earned
Balance Sheet
Computations
$3,095,000 - $840,000
$3,095,000 ÷ $840,000
$1,866,000 ÷ $840,000
$8,280,000 ÷ [($714,000+ $740,000) 21
[($714,000 + $740,000) ÷ 2] ÷ ($8,280,000 ÷ 365)
$4,100,000 ÷ [($1,072,000+ $1,100,000) ÷ 21
[($1,072,000+ $1,100,000) ÷ 21 ÷ ($4,100,000 ÷ 365)
$2,690,000 ÷ $1,690,000
$2,530,000 ÷ $4,079,000
($989,400 + $127,000) ÷ $127,000
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.
Transcribed Image Text:Liquidity and Solvency Measures Working capital Current ratio Quick ratio Accounts receivable turnover Number of days' sales in receivables Inventory turnover Number of days' sales in inventory Ratio of fixed assets to long-term liabilities Ratio of liabilities to stockholders' equity Times interest earned Balance Sheet Computations $3,095,000 - $840,000 $3,095,000 ÷ $840,000 $1,866,000 ÷ $840,000 $8,280,000 ÷ [($714,000+ $740,000) 21 [($714,000 + $740,000) ÷ 2] ÷ ($8,280,000 ÷ 365) $4,100,000 ÷ [($1,072,000+ $1,100,000) ÷ 21 [($1,072,000+ $1,100,000) ÷ 21 ÷ ($4,100,000 ÷ 365) $2,690,000 ÷ $1,690,000 $2,530,000 ÷ $4,079,000 ($989,400 + $127,000) ÷ $127,000 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.
Current assets:
Cash
Marketable securities
Balance Sheet
December 31, 20Y6
Assets
Accounts receivable (net)
Inventory
Prepaid expenses
Total current assets
Total assets
Long-term investments
Property, plant, and equipment (net)
Current liabilities
Total liabilities
Liabilities
Long-term liabilities
Stockholders' Equity
$
Preferred stock, $10 par
Common stock, $5 par
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity $
$
$
$823,000
Transcribed Image Text:Current assets: Cash Marketable securities Balance Sheet December 31, 20Y6 Assets Accounts receivable (net) Inventory Prepaid expenses Total current assets Total assets Long-term investments Property, plant, and equipment (net) Current liabilities Total liabilities Liabilities Long-term liabilities Stockholders' Equity $ Preferred stock, $10 par Common stock, $5 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ $ $ $823,000
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