Acounting
1.
Liquidity ratios. Edison, Stagg, and Thornton
have the following financial information at the close of business on July 10:
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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
|
- 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
|
|||
| |
20X5
|
20X4
|
|
|
Net
|
$832,000
|
$760,000
|
|
|
Cost
|
530,000
|
400,000
|
|
|
Cash,
|
125,000
|
110,000
|
|
|
Average
|
205,000
|
156,000
|
|
|
Average
|
70,000
|
50,000
|
|
|
Accounts
|
115,000
|
108,000
|
|
| Instructions
a.
|
|
|
|
| |
|
|
|
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’
|
500,000
|
- Compute the profit
margin on sales ratio, the return on equity and the return on assets,
rounding calculations to two decimal places. - Does the firm have
positive or negative financial leverage? Briefly explain.
|
4. Horizontal analysis. Mary Lynn Corporation has
|
||
|
20X2
|
20X1
|
|
|
Current Assets
|
$86,000
|
$80,000
|
|
Property, Plant, and Equipment
|
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.
|
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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