Question

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 $3,093,000 - $900,000 Working capital Current ratio $3,093,000 - $900,000 Quick ratio $1,866,000 - $900,000 Accounts receivable turnover $8,260,000 = [($714,000 + $740,000) = 2] → [($714,000 + $740,000) = 2] = ($8,260,000 = 365) ► Number of days' sales in receivables 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 - $4,017,000 Times interest earned ($976,800 + $ 127,000) = $127,000

Answer 1

I think here only requirement is to correct Comparative income statement

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Comparative Income statement

For the years ended December 31, 20Y6 ad 20Y5

.,	20Y6	20Y5	Increase / (Decrease) amount	Increase / (Decrease)   Percentage
Sales	8260000	7267000	993000	13.66%
Cost of goods sold	-4100000	-3444000	-656000	19.05%
Gross profit	4160000	3823000	337000	8.82%
Selling Expenses	-1817200	-1453200	-364000	25.05%
Administrative Exp.	-1239000	-1103000	-136000	12.33%
Total Operating expenses	-3056200	-2556200	-500000	19.56%
Operating Income	1103800	1266800	-163000	-12.87%
Other exp. (Interest )	-127000	-120600	-6400	5.31%
Income before Income taxes	976800	1146200	-169400	-14.78%
Income taxes	-185460	-179460	-6000	3.34%
Net income	791340	966740	-175400	-18.14%

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Increase / (Decrease) amount = 20Y6 items - 20Y5 items

Increase / (Decrease)   Percentage = Increase / (Decrease) amount / 20Y5 items.

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In denominator will be the 20Y5 base year items, not 20Y6 items