Mastery Problem: Financial Statement Analysis 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 Computations Working capital $3,095,000 - $840,000 Current ratio $3,095,000 + $840,000 Quick ratio $1,866,000 + $840,000 Accounts receivable turnover $8,260,000 ÷ [($714,000 + $740,000) ÷ 2] Number of days' sales in receivables [($714,000 + $740,000) ÷ 2] + ($8,260,000 ÷ 365) 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 v Ratio of liabilities to stockholders' equity $2,530,000 + $4,079,000 v Times interest earned ($976,800 + $127,000) ÷ $127,000 v Balance Sheet Decemnber 311, 20Y6 AssetS Current assets:
Mastery Problem: Financial Statement Analysis 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 Computations Working capital $3,095,000 - $840,000 Current ratio $3,095,000 + $840,000 Quick ratio $1,866,000 + $840,000 Accounts receivable turnover $8,260,000 ÷ [($714,000 + $740,000) ÷ 2] Number of days' sales in receivables [($714,000 + $740,000) ÷ 2] + ($8,260,000 ÷ 365) 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 v Ratio of liabilities to stockholders' equity $2,530,000 + $4,079,000 v Times interest earned ($976,800 + $127,000) ÷ $127,000 v Balance Sheet Decemnber 311, 20Y6 AssetS Current assets:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Financial accounting
![Mastery Problem: Financial Statement Analysis
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
Computations
Working capital
$3,095,000 - $840,000
Current ratio
$3,095,000 ÷ $840,000
Quick ratio
$1,866,000 + $840,000
Accounts receivable turnover
$8,260,000 ÷ [($714,000 + $740,000) ÷ 2]
Number of days' sales in receivables
[($714,000 + $740,000) 2] ÷ ($8,260,000 ÷ 365)
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 ÷ $4,079,000 v
Times interest earned
($976,800 + $127,000) ÷ $127,000 v
Balance Sheet
December 31 20Y6
AssetS
Current assets:
Cash
$823,000
Marketable securities
329,000
Accounts receivable (net)
714,00o
Inventory
1,072, 000
Prepaid expenses
155,000
Total current assets
3,093,000
Long-term investments
824,000
Property, plant, and equipment (net)
2,490,000
Total assets
$4
6,607,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F41253626-900c-4f7a-a623-95abe0fc1d5c%2F92286be3-807c-478f-ac7f-d2795cf117c3%2F9m4zilb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Mastery Problem: Financial Statement Analysis
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
Computations
Working capital
$3,095,000 - $840,000
Current ratio
$3,095,000 ÷ $840,000
Quick ratio
$1,866,000 + $840,000
Accounts receivable turnover
$8,260,000 ÷ [($714,000 + $740,000) ÷ 2]
Number of days' sales in receivables
[($714,000 + $740,000) 2] ÷ ($8,260,000 ÷ 365)
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 ÷ $4,079,000 v
Times interest earned
($976,800 + $127,000) ÷ $127,000 v
Balance Sheet
December 31 20Y6
AssetS
Current assets:
Cash
$823,000
Marketable securities
329,000
Accounts receivable (net)
714,00o
Inventory
1,072, 000
Prepaid expenses
155,000
Total current assets
3,093,000
Long-term investments
824,000
Property, plant, and equipment (net)
2,490,000
Total assets
$4
6,607,000
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