I.
THEORIES
1. When When a bala balanc nce e shee sheett amou amount nt is rela relate ted d to an inco income me stat statem emen entt amount in computing a ratio, a. The The inco income me stat statem emen entt amou amount nt s ho hou ld ld b e con ve ve rt rt ed ed t o an average for the ear. b. !ompar !ompariso isons ns "ith indust industr r ratios ratios are not meaningful. c. The bala balanc nce e shee sheett amou amount nt shou should ld be conv conver erte ted d to an average for the year. d. The r at at io io l os os es es i ts ts h is is to tor ic ic al al perspective because a beginning# of#the# of#the#ear ear amount amount is combined combined "ith an end#of#the#ear end#of#the#ear amount. $. Ho" Ho" are are %nan %nanci cial al rati ratios os used used in decision ma&ing' a. They hey can can help help iden identi tify fy the the reas reason ons s for for succ succes ess s and and f ai ail ur ur e in b us usi ne ne ss ss, b ut ut deci decisi sion on maki making ng requ requir ires es information information beyond the ratios. b. The The remove remove the uncer uncertai taint nt of the business environment. c. The are n( n( t us ef ef ul ul be ca caus e decision ma&ing is too comple). d. The The give give clear clear signals signals about about the appropriate action to ta&e. *. + useful useful tool in %nancial %nancial statement statement analsis is the common#sie %nancial statem statement ent.. What What does does this this tool tool enable the %nancial analst to do' a. Evalu Evaluate ate %nanci %nancial al statemen statements ts of companies "ithin a given industr of appro)imatel the same value. b. -ete -eterm rmin ine e "hic "hich h comp compan anie ies s in the same i nd ndustr are at appro)imatel the same stage of development. c. Comp Compar are e the the mix mix of asset assets, s, liabilit liabilities, ies, capital, capital, revenue, revenue, and expenses within a company over time or betw anie within within
i nt nt o an op er er at ati ng ng le ea as e. e. Th e compan8s debt ratio as measured b the balance sheet "ill a. Increase Increase "hether "hether the assets assets are purchased or leased. b. #ncr #ncrea ease se if the the asse assets ts are are pu rc rc ha has ed ed, and re ma mai n unchange unchanged d if the assets are leased. c . I nc ncre as as e i f t he he a ss ss et ets are purchase purchased, d, and decrease decrease if the assets are leased. d. Remain Remain unchanged unchanged "hether "hether the assets are purchased or leased.
gi ve ve n in du du st st ry ry wit ho hout respect to relative size. d. +scertain +scertain the the relativ relative e potential potential of of comp compan anie ies s of simi simila larr sie sie in dierent industries. /. Which of the follo" follo"ing ing is not not revealed revealed on a common sie balance sheet' a. The debt structure structure of a %rm. b. The capita capitall structure structure of a %rm. %rm. c. The peso peso amou amount nt of asse assets ts and liabilities. d. The distrib distribution ution of assets assets in "hich "hich funds are invested. 0. If a transacti transaction on causes causes total total liabilities liabilities to decrease decrease but does not aect the o"ners( euit, "hat change if an, "ill occur in total assets' a. +ssets +ssets "ill "ill be incr increas eased. ed. b. Assets Assets will will be decreased decreased. c. 2o chang change e in total total asse assets. ts. d. 2one 2one of of the the above above.. 3. 4ini) !o. !o. has a high sales#to sales#to#"or&i #"or&ing# ng# capital ratio. This could indicate a. The rm rm is undercap undercapital italized ized.. b. The The %rm is li&el li&el to have have liuidit liuidit problems. c. Wor&ing or&ing capita capitall is not pro%t pro%tabl abl utilied. d. The %rm is not not pro% pro%table. table. 5. When When compare compared d to a debt#to debt#to#ass #assets ets ratio, a debt#to#euit ratio "ould a. 6e about the same as the debt#to# debt#to# assets ratio. b. !e higher than the debt"to" debt"to" assets ratio. c. 6e lo"er than than the debt#to#asset debt#to#assets s ratio. d. Have no relation relationship ship at all to the debt#to#assets ratio. 7. +ssume +ssume that that a compan8 compan8s s debt ratio ratio is currentl 09:. It plans to purchase %)ed assets either b using borro"ed funds for the purchase or b entering
;.
In a sing single le#p #per erio iod d income statement, the >199:? is normall the a. @ros @ross s sal sales es c. 2et 2et b. $et sales sales
comm common on#si #sie e base amount cas cash h sal sales es d. 2et credit
1$. Which of the follo"ing follo"ing statements statements is correct'
a. An increase in a rm%s in ve ve nt nt or or ie ie s wil l ca ll ll f or or additi additiona onall nanci nancing ng unles unless s the increas increase e is o&set o&set by an equal equal or large larger r decrea decrease se in some other asset account. b. + high high uic uic& & rati ratio o is al"a al"as s a good indication of a "ell#managed liuidit position. c. + relativ relativel el lo" retu return rn on assets assets >RO+? >RO+? is al"a al"as s an indica indicator tor of managerial incompetence. d. + hi gh gh degree of operati ng ng leve levera rage ge lo"e lo"ers rs the the ris& ris& b stabil stabiliin iing g the %rm(s %rm(s earnin earnings gs stream. 1*. The ratio ratio that that measur measures es a %rm8s %rm8s abilit to generate earnings from its resources is a. -as8 sales in inventor inventor.. b. -as8 sales sales in receivables. c. Sales to "or&ing capital. d. Asset turnover. 1/. =lanners have determined that sales "ill increase b $0: ne)t ear, and that the pro%t margin "ill remain at 10: of sales. Which of the follo"ing statements is correct' a. 'rot will grow by ()*. b. The pro%t pro%t margin margin "ill gro" gro" b 10:. c. =ro%t =ro%t "ill gro" gro" proporti proportionat onatel el faster than sales. d. Ten percen percentt of the increas increase e in sales "ill become net income. 10. Which one of the follo"in follo"ing g ratios ratios "ould "ould provi provide de a best best measur measure e of liuidit' a. Sales minus returns to total debt. b. Total otal assets assets minus minus good" good"ill ill to total euit. c. Current assets minus inventories to current liabilities. d. 2et pro%t pro%t minus minus divide dividends nds to interest e)pense.
II.
=RO6AE4S
/olution 6ased on the above information,
+. The condensed balance sheet as of -ecember *1, $91/ of San 4atias !ompan is given belo". Bigures sho"n b a uestion mar& >'? ma be computed from the additional information givenC +SSETS !ash Trade receivable#net Inventor Bi)ed assets#net
= 39,999 ' ' $0$,999
Total +ssets = /79,999 AI+6. D STO!HOA-ERS( EFGIT< +ccounts paable = ' !urrent notes paable /9,999 Aong#term paable ' !ommon stoc& 1/9,999 Retained earnings ' Total A D SHE = /79,999 +dditional informationC !urrent ratio >as of -ec. 1 .; to *1, $91/? 1 Ratio of total liabilities to 1./ total stoc&holders( euit Inventor turnover based 10 on sales and ending times inventor Inventor turnover based 19 on cost of goods sold times and ending inventor @ross margin for $91/ =099,9 99 1. The balance of accounts paable of San 4atias as of -ecember *1, $91/ is '+, $. The balance of retained earnings of San 4atias as of -ecember *1, $91/ is '-, *. The balance of inventor of San 4atias as of -ecember *1, $91/ is ',
!urrent assets /79,999 $0$,999 $$7,999 !urrent liabilities $$7,999J1.; 1$9,999 +ccounts paable 1$9,999 /9,999 +, 1./ Total liabilitiesJ total euit Total liabilities 1/9: Total euit 199: Total liabilities D shareholders( euit 1/9: K 199: $/9: Total euit /79,999 J $/9: $99,999 Retained earnings $99,999 1/9,999 -, Sales 10J19 109: !O@S 19J19 199: Sales 109: 1,099,999 !O@S 199: 1,999,999 @ross margin 09: 099,999 Ending inventor 1.04J10 , Ending inventor 14J19 , 6.
1. What "as the operating income for $91/' '((0,) $. Ho" much "as the bonds paable' '1,2) *. Total current liabilities "ould amount to '1+),() /. Total current assets "ould amount to '03,+() /olution Sales 199: 1,*09,99 9 !O@S 30: 755,099 @4 *0: /5$,099 Operating e)penses 17: $/*,999 Operating income J 15: ((0,) E6IT Interest e)pense 1.5: $$,;09 Earni ngs before ta) $0.* $93,009 : Times interest earned E6ITJinterest e)pense Interest e)pense $$;,099 J 19 $$,;09 6 onds paabl e $$,;09 J $9: 1,2) -ebt or total liabilities 509,999 L .7 399,999 Total liabilities current liabilities K long term liabilities !urrent liabilities 399,999 11/,509 1+),() Total assets 509,999 K 399,999 1,*09,999 Fuic& assets /70,$09 L 1.* 3*9,7$0 Total current assets 3*9,7$0 K *99,999 03,+() !. Selected data from the ear#end %nancial statements of World !up !orp. are presented belo" The
dierence bet"een average and ending inventories is immaterial. !urrent ratio $.9 Fuic& ratio 1.0 !urrent liabilities =399,99 9 Inventor turnover >based 7 times on cost of sales? @ross pro%t margin /9: World(s net sales for the ear "ere' '1. million /olution !urrent assets 399,999 L $.9 1,$99,999 Fuic& assets 399,999 L 1.0 ;99,999 Inventor 1,$99,999 ;99,999 *99,999 !O@S *99,999 L 7 $,/99,999 Sales 199: 1,, ! O@S 3 9: $ ,/ 99 ,9 99 @4 /9: 1,399,999 -. Bor the ear $91/, -re !ompan(s income statement sho"s operating e)penses of =$9,/79. The follo"ing information is also availableC =repaid e)penses, Manuar =1,199 1, $91/ +ccrued e)penses paable, *,379 Manuar 1, $91/ Operating =repaid e)pensese)penses, $9,/79 1,$99 =repaid e)penses, 1J1 >1,199 -ecember *1, $91/ ? +ccrued e)penses paable, $,099 +ccrued e)penses, *,379 -ecember *1, $91/1J1 =repaid e)penses, 1$J*1 1,$99 +ccrued e)penses, >$,099 1$J*1 ? !ash pament for (,2- operating e)penses Ho" much "as the cash paid for operating e)penses' (,2-
account decreased b =;9,999 because of a cash sale for the same amount. Its euipment account increased b =/9,999 as a result of a cash purchase, and its bonds paable increased b =*0,999 due to an issuance for cash at face value. Ho" much is the net cash providedJused b investing activities' ), Sale of euipment ;9,999 +cuisition of euipment >/9,999? 2et cash provided in investing ),
