Reference no: EM132405569
Assignment - Financial Statements and Ratio Analysis Questions
Q1. Financial statement account identification Mark each of the accounts listed in the following table as follows:
a. In column (1), indicate in which statement-income statement (IS) or balance sheet (BS)-the account belongs.
b. In column (2), indicate whether the account is a current asset (CA), current liability (CL), expense (E), fixed asset (FA), long-term debt (LTD), revenue (R), or stockholders' equity (SE).
Q2. Income statement preparation - David Chan operates Speedy Delivery Service Company, a fleet of delivery trucks in a large metropolitan area, and has just completed his first full year in business. During the year, the company billed $420,000 for delivery services.
David has a total of 11 employees (10 truck drivers and a clerical assistant). In addition to his own monthly salary of $5,000, David paid annual salaries of $12,100 and $10,000 to each of the truck drivers and the clerical assistant, respectively. Employment taxes and benefit costs for David and his employees totaled $42,600 for the year. Sundry expenses, including office supplies, totaled $12,400 for the year. In addition, David spent $22,000 during the year on tax-deductible travel and entertainment associated with client visits and new business development. Lease payments for the rented office space (a tax-deductible expense) were $2,800 per month. Depreciation expense on the office furniture and delivery trucks was $16,300 for the year. During the year, David paid an interest of $18,000 on the $150,000 borrowed to start the business. The company was subject to an average tax rate of 40% during 2014.
a. Prepare an income statement for Speedy Delivery Service Company for the year ended December 31, 2014.
b. Evaluate the financial performance of the company in 2014.
Q3. Income statement preparation - Adam and Arin Adams have collected their personal income and expense information and have asked you to put together an income and expense statement for the year ended December 31, 2015. The following information is received from the Adams family.
a. Create a personal income and expense statement for the period ended December 31, 2015. It should be similar to a corporate income statement.
b. Did the Adams family have a cash surplus or cash deficit?
c. If the result is a surplus, how can the Adams family use that surplus?
Q4. Calculation of EPS and retained earnings - Zerbel Company Limited ended the year with a net profit before taxes of $361,000 in 2015. The company is subject to a 40% tax rate, and committed to pay $52,000 in preferred stock dividends before distributing any earnings on the 200,000 shares of common stock currently outstanding.
a. Calculate Zerbel's 2015 earnings per share (EPS).
b. If the firm paid common stock dividends of $0.60 per share, how many dollars would go to retained earnings?
Q5. Balance sheet preparation Use the appropriate items from the following list to prepare in good form Mellark's Baked Goods balance sheet at December 31, 2015.
Q6. Cross-sectional ratio analysis Use the financial statements below and on the next page for Fox Manufacturing Company for the year ended December 31, 2015, along with the industry average ratios below to do the following:
a. Prepare and interpret a complete ratio analysis of the firm's 2015 operations.
b. Summarize your findings and make recommendations.
Q7. Financial statement analysis - The financial statements of Zach Industries for the year ended December 31, 2015, follow.
a. Use the preceding financial statements to complete the following table. Assume that the industry averages given in the table are applicable for both 2014 and 2015.
b. Analyze Zach Industries' financial condition as it is related to (1) liquidity, (2) activity, (3) debt, (4) profitability, and (5) market. Summarize the company's overall financial condition.
Q8. Integrative: Complete ratio analysis - Given the following financial statements (following and on the next page), historical ratios, and industry averages, calculate Sterling Company's financial ratios for the most recent year. (Assume a 365-day year.)
Analyze its overall financial situation from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm's liquidity, activity, debt, profitability, and market.
Q9. DuPont system of analysis - Use the following ratio information for Johnson International and the industry averages for Johnson's line of business to:
a. Construct the DuPont system of analysis for both Johnson and the industry.
b. Evaluate Johnson (and the industry) over the 3-year period.
c. Indicate in which areas Johnson requires further analysis. Why?
Q10. Complete ratio analysis, recognizing significant differences Home Health, Inc., has come to Jane Ross for a yearly financial checkup. As a first step, Jane has prepared a complete set of ratios for fiscal years 2014 and 2015. She will use them to look for significant changes in the company's situation from one year to the next.
a. To focus on the degree of change, calculate the year-to-year proportional change by subtracting the year 2014 ratio from the year 2015 ratio and then dividing the difference by the year 2014 ratio. Multiply the result by 100. Preserve the positive or negative sign. The result is the percentage change in the ratio from 2014 to 2015. Calculate the proportional change for the ratios shown here.
b. For any ratio that shows a year-to-year difference of 10% or more, state whether the difference is in the company's favor or not.
c. For the most significant changes (25% or more), look at the other ratios and cite at least one other change that may have contributed to the change in the ratio that you are discussing.
Q11. ETHICS PROBLEM - Do some reading in periodicals or on the Internet to find out more about the Sarbanes-Oxley Act's provisions for companies. Select one of those provisions, and indicate why you think financial statements will be more trustworthy if company financial executives implement this provision of SOX.
Note - All required information are in attached file.
Attachment:- Financial Statements and Ratio Analysis Questions.rar