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 – $900,000 Current ratio $3,095,000 ÷ $900,000 Quick ratio $1,866,000 ÷ $900,000 Accounts receivable turnover $8,280,000 ÷ [($714,000 + $740,000) ÷ 2] Number of days' sales in receivables [($714,000 + $740,000) ÷ 2] ÷ ($8,280,000 ÷ 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 $2,590,000 ÷ $4,019,000 Times interest earned Balance Sheet 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. Balance Sheet December 31, 20Y6 Assets Current assets: Cash $823,000 Marketable securities fill in the blank 3c69aa05cfb807c_1 Accounts receivable (net) fill in the blank 3c69aa05cfb807c_2 Inventory fill in the blank 3c69aa05cfb807c_3 Prepaid expenses fill in the blank 3c69aa05cfb807c_4 Total current assets $fill in the blank 3c69aa05cfb807c_5 Long-term investments fill in the blank 3c69aa05cfb807c_6 Property, plant, and equipment (net) fill in the blank 3c69aa05cfb807c_7 Total assets $fill in the blank 3c69aa05cfb807c_8 Liabilities Current liabilities $fill in the blank 3c69aa05cfb807c_9 Long-term liabilities fill in the blank 3c69aa05cfb807c_10 Total liabilities $fill in the blank 3c69aa05cfb807c_11 Stockholders' Equity Preferred stock, $10 par $fill in the blank 3c69aa05cfb807c_12 Common stock, $5 par fill in the blank 3c69aa05cfb807c_13 Retained earnings fill in the blank 3c69aa05cfb807c_14 Total stockholders' equity $fill in the blank 3c69aa05cfb807c_15 Total liabilities and stockholders' equity $fill in the blank 3c69aa05cfb807c_16

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 – $900,000 Current ratio $3,095,000 ÷ $900,000 Quick ratio $1,866,000 ÷ $900,000 Accounts receivable turnover $8,280,000 ÷ [($714,000 + $740,000) ÷ 2] Number of days' sales in receivables [($714,000 + $740,000) ÷ 2] ÷ ($8,280,000 ÷ 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 $2,590,000 ÷ $4,019,000 Times interest earned Balance Sheet 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. Balance Sheet December 31, 20Y6 Assets Current assets: Cash $823,000 Marketable securities fill in the blank 3c69aa05cfb807c_1 Accounts receivable (net) fill in the blank 3c69aa05cfb807c_2 Inventory fill in the blank 3c69aa05cfb807c_3 Prepaid expenses fill in the blank 3c69aa05cfb807c_4 Total current assets $fill in the blank 3c69aa05cfb807c_5 Long-term investments fill in the blank 3c69aa05cfb807c_6 Property, plant, and equipment (net) fill in the blank 3c69aa05cfb807c_7 Total assets $fill in the blank 3c69aa05cfb807c_8 Liabilities Current liabilities $fill in the blank 3c69aa05cfb807c_9 Long-term liabilities fill in the blank 3c69aa05cfb807c_10 Total liabilities $fill in the blank 3c69aa05cfb807c_11 Stockholders' Equity Preferred stock, $10 par $fill in the blank 3c69aa05cfb807c_12 Common stock, $5 par fill in the blank 3c69aa05cfb807c_13 Retained earnings fill in the blank 3c69aa05cfb807c_14 Total stockholders' equity $fill in the blank 3c69aa05cfb807c_15 Total liabilities and stockholders' equity $fill in the blank 3c69aa05cfb807c_16

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

9th Edition

ISBN:9781305635937

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter4: Analysis Of Financial Statements

Section: Chapter Questions

Problem 5DQ

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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 – $900,000
Current ratio		$3,095,000 ÷ $900,000
Quick ratio		$1,866,000 ÷ $900,000
Accounts receivable turnover		$8,280,000 ÷ [($714,000 + $740,000) ÷ 2]
Number of days' sales in receivables		[($714,000 + $740,000) ÷ 2] ÷ ($8,280,000 ÷ 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		$2,590,000 ÷ $4,019,000
Times interest earned

Balance Sheet

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.

Balance Sheet December 31, 20Y6
Assets
Current assets:
Cash	$823,000
Marketable securities	fill in the blank 3c69aa05cfb807c_1
Accounts receivable (net)	fill in the blank 3c69aa05cfb807c_2
Inventory	fill in the blank 3c69aa05cfb807c_3
Prepaid expenses	fill in the blank 3c69aa05cfb807c_4
Total current assets	$fill in the blank 3c69aa05cfb807c_5
Long-term investments	fill in the blank 3c69aa05cfb807c_6
Property, plant, and equipment (net)	fill in the blank 3c69aa05cfb807c_7
Total assets	$fill in the blank 3c69aa05cfb807c_8
Liabilities
Current liabilities	$fill in the blank 3c69aa05cfb807c_9
Long-term liabilities	fill in the blank 3c69aa05cfb807c_10
Total liabilities	$fill in the blank 3c69aa05cfb807c_11
Stockholders' Equity
Preferred stock, $10 par	$fill in the blank 3c69aa05cfb807c_12
Common stock, $5 par	fill in the blank 3c69aa05cfb807c_13
Retained earnings	fill in the blank 3c69aa05cfb807c_14
Total stockholders' equity	$fill in the blank 3c69aa05cfb807c_15
Total liabilities and stockholders' equity	$fill in the blank 3c69aa05cfb807c_16

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