Question

Your friend, another accountant, has bet you that with your knowledge of accounting and just the calculations for common analytical measures, you can figure out many aspects of a company's financial statements. You take the bet! Match each calculation to one of the liquidity and solvency measures in the table. (Hint: Begin by looking for simple calculations and identifying the amounts in those calculations. Look for other measures that use those amounts.) Liquidity and Solvency Measures Calculations $4,100,000($1,072,000+$1,100,000)2] V Inventory turnover Ratio of liabilities to stockholders' equity Current ratio Number of days' sales in inventory Number of times interest charges are earned Number of times preferred dividends are earned Ratio of fixed assets to long-term liabilities Accounts receivable turnover Number of days' sales in receivables Quick ratio Working capital $2,530,000 $4,077,000 $3,093,000 $840,000 $1,072,000+$1,100,000)+ 21 ($4,100,000 365) V 989,400+$127,000)$127,000 $801,420 $65,000 $2,690,000 +$1,690,000 $8,280,000[($714,000+$740,000)2 V $714,000+$740,000)21 ($8,280,000365) $1,866,000 $840,000 $3,093,000-$840,000 s Points: 11 11

Answer 1

Balance Sheet amounts December 31
Assets
Current Assets:
Cash			$823,000
Marketable Securities			$329,000
Account Receivable (Net)			$714,000
Inventory			$1,072,000
Prepaid Expenses			$155,000
Total Current Assets			$3,093,000
Long term Investment			$824,000
Property, Plant and Equipment (Net)			$2,690,000
Total Assets			$6,607,000
Liabilities
Current Liabilities			$840,000
Long term liabilities			$1,690,000
Total Liabilities			$2,530,000
Stockholders' Equity
Preferred Stock, $10 par			$487,500
Common Stock, $5 par			$1,250,000
Retained Earnings			$2,339,500
Total Stockholders' Equity			$4,077,000
Total Liabilities and Stockholders' Equity			$6,607,000
Balance Sheet amounts December 31
	Year 2	Year 1	Amount Increase (Decrease)	Percentage Increase (Decrease)
Sales	$8,280,000	$7,287,000	$993,000	13.6
Cost of Goods Sold	$4,100,000	3$,444,000	$656,000	19.0
Gross Income	$4180000	$3843000	$337,000	8.8
Selling Expenses	$1821600	$1457600	$364,000	25.0
Administrative Expenses	$1,242,000	$1,106,000	$136,000	12.3
Total Operating Expenses	$3,063,600	$2,563,600	$500,000	19.5
Income from Operations	$1,116,400	$1,279,400	$-163,000	-12.7
Interest Expenses	$127,000	$120,600	$6,400	5.3
Income before Income Tax	$989,400	$1,158,800	$-169,400	-14.6
Income Tax Expense	$187,980	$181,980	$6,000	3.3
Net Income	$801,420	$976,820	$-175,400	-18.0