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Financial Analysis

Part I
True/ False

1. Goodwill is computed as the residual between the total value of the company less the sum of the value of all its identifiable tangible and intangible assets?

T or F

2. Total Assets must Equal Total Liabilities minus Owner's Equity.

T or F

3. Working capital is current assets less total liabilities.

T or F

4. Every receipt of cash increases owner's equity.

T or F

5. Net Income represents a supply of cash that could be distributed to stockholders in the form of dividends.

T or F

6. Depreciation is a non-cash expense so that to calculate the cash produced by the business it is necessary to add back the depreciation charge.

T or F

7. When analyzing the financial condition of Pepsi Corporation one could reasonably compare Pepsi's ratios to those of General Motors.

T or F

8. On the asset side of the ledger we debit for increases in assets and credit for decreases
T of F

Part II
Multiple Choice

1. The debt ratio is a measure of a firm's:

a. leverage
b. profitability
c. liquidity.
d. coverage.

2. If you were given current assets and current liabilities, what ratio could you compute?

a. accounts receivable turnover ratio.
b. net profit margin.
c. current ratio.
d. current debt margin.

3. What financial statement explains the changes that took place in the firm's cash balance over a period?

a. statement of cash flow.
b. balance sheet.
c. income statement.
d. none of the above.

4. A company borrowed $100,000 to buy machinery. Which choice most accurately represents the balance sheet effect?

a. Assets increased, Liabilities increased, no change in owner's equity.
b. Assets increased. Liabilities increased, with an increase in owner's equity.
c. Assets decreased, liabilities decreased, owner's equity was unchanged.
d. No change in any accounts.

5. Company A has revenue of $1,000, operating expenses of $500 and depreciation expense of $200. The company income tax rate is 30%. How much tax is due?
a. $300
b. $150
c. $90
d. None of the above

Please show all work including equation you use, values input and final computation.

The balance sheet and income statement for Becker, Becker & Becker are
presented below. You do not need to use any beginning and ending year averages. Simply use the data provided for one period.

Balance Sheet
Assets
Cash $ 500
Accounts Receivable 1,500
Inventories 500
Current Assets $2,500
Net Fixed Assets 5,000
Total Assets $7,500

Liabilities
Accounts Payable $1,200
Bank Note 300
Total Current Liabilities $1,500

Long Term Debt 4,000
Total Liabilities $5,500

Shareholders Equity
Common Stock $300
Retained Earnings 1,700
Total Shareholder's Equity $2,000
Total Liabilities & Equity $7,500

Income Statement
Net Sales $8,500
Cost of Goods Sold (3,400)
Gross Profit $5,100

Operating Expenses (2,900)
Net Operating Income $2,200

Interest Expense 580
Earnings before taxes $1,620

Income Tax (34%) (551)
Net Income $1,069

Using the above financial statements compute the following ratios: (show your formulas and work) As you can see I have only provided the ending period values so you do not need to average beginning and ending values)

Current Ratio
Quick Ratio
Total Debt Ratio
Return on Assets
Return on Equity
Operating profit margin
Net Profit Margin

If the market value of Becker and Becker stock is $4,000 what is the market to book value ratio? Use the book value from the above balance sheet.

If there are 1000 shares outstanding what were the earnings per share?

Solution Preview

Explanations are included with the answers
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Part I
True/ False

1. Goodwill is computed as the residual between the total value of the company less the sum of the value of all its identifiable tangible and intangible assets?

T

2. Total Assets must Equal Total Liabilities minus Owner's Equity.

T

3. Working capital is current assets less total liabilities.

F : Working capital is CURRENT assets less CURRENT liabilities

4. Every receipt of cash increases owner's equity.

F : Receipt of cash increases assets and revenue accounts. Equity account only increases at initial investment of business, retained earnings or paid in capital in excess of stock investment

5. Net Income represents a supply of cash that could be distributed to stockholders in the form of dividends.

T: Net income can be distributed among holders of common stock as a dividend or held by the firm as retained earnings

6. Depreciation is a non-cash expense so that to calculate the cash produced by the business it is necessary to add back the depreciation charge.

T : FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base

7. When analyzing the financial condition of Pepsi Corporation one could reasonably compare Pepsi's ratios to those of General ...

Solution Summary

The solution answers a variety of financial accounting problems dealing with income statements, financial ratios, goodwill, the acounting equation, working capital and owners, equity.

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