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  • 8/10/2019 Intermediate Accounting Stice Stice Skousen

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    2 $ha"ter 21 Analysis of Financial Statements

    31 Effect of "re"arin! financial statements a.*uste. for "rice-le%el chan!es32 9aluation of machinery on a "rice-le%el a.*uste. balance sheet33 $om"utation of "urchasin! "ower loss on net monetary items34 $om"utation of realize. hol.in! !ain un.er current cost/nominal .ollar

    accountin!3# etermination of en.in! in%entory on com"arati%e constant "urchasin!

    "ower a.*uste. balance sheet3& $om"utation of unrealize. hol.in! !ain un.er current cost/nominal

    .ollar accountin!3+ $om"utation of unrealize. hol.in! !ain3 $om"utation of net monetary "osition3 $om"utation of translate. net income4 $om"utation of translation a.*ustment amount

    P RO$LEMS

    1 re"are common-size balance sheet com"arin! "ercenta!es2 $om"utation of in%entory turno%er rate an. number of .ays6 sales in

    in%entory3 $om"utation of current ratio: net an. !ross mar!in: .ebt-to-e7uity ratio:

    etc;4 $om"utation of in%entory turno%er: number of .ays6 sales in in%entory:

    !ross mar!in# $om"utation of recei%ables turno%er: number of .ays6 sales in

    recei%ables& $om"utation of earnin!s on e7uity: times bon. interest earne.: E S:

    "rice-earnin!s ratio: boo %alue "er share: .ebt-to-e7uity ratio+ $om"utation of total e7ui"ment "urchases: cash "ai. for ta,es an..i%i.en.s

    $om"utation of en. of year "urchasin! "ower !ains/losses re"are balance sheet restatement

    1 $om"utation of realize. hol.in! !ain or loss an. unrealize. hol.in!!ain or loss

    11 re"are an income statement restate. in terms of en.-of-year constant.ollars;

    12 re"are translate. balance sheet 13 re"are translate. trial balance

    14 re"aration of Form 2 F reconciliation1# $om"rehensi%e statement of cash flows1& Accountin! .ifferences an. ratio analysis1+ Accountin! .ifferences an. ratio analysis1 Accountin! .ifferences an. ratio analysis1 re"aration of Form 2 F reconciliation2 re"aration of Form 2 F reconciliation

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    Test auh $or"oration ha. a current ratio of 2; at the en. of 2 1; $urrentassets

    )(1 an. current liabilities increase. by e7ual amounts .urin! 2 2; The effectson net wor in! ca"ital an. on the current ratio: res"ecti%ely: werea; no effect? increase;b; no effect? .ecrease;c; increase? increase;.; .ecrease? .ecrease;

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    & $ha"ter 21 Analysis of Financial Statements

    a #; 0hich of the followin! ratios measures short-term sol%ency=)(1 a; $urrent ratio

    b; $re.itors6 e7uity to total assetsc; >eturn on in%estment.; Total asset turno%er

    . &; 'f a firm chan!es its in%entory metho. from F'F( to )'F( *ust "rior to a"erio.

    )(2 of risin! "rices: the effect in the ne,t "erio. will be$urrent >atio 'n%entory Turno%er

    a; @o effect 'ncreaseb; @o effect ecreasec; 'ncrease ecrease.; ecrease 'ncrease

    b +; 0hich of the followin! transactions woul. increase a firm6s current ratio=)(1 a; urchase of in%entory on account

    b; ayment of accounts "ayablec; $ollection of accounts recei%able.; urchase of tem"orary in%estments for cash

    c ; ow are tra.e recei%ables use. in the calculation of each of the followin!=)(1 >ecei%able

    $urrent >atio Turno%era; @ot use. @umerator b; @umerator @umerator

    c; @umerator enominator .; enominator @umerator

    b ; 'n com"arin! the current ratios of two com"anies: why is it in%ali. toassume

    )(1 that the com"any with the hi!her current ratio is the better com"any=a; A hi!h current ratio may in.icate ina.e7uate in%entory on han.;b; A hi!h current ratio may in.icate inefficient use of %arious assets an.

    liabilities;c; The two com"anies may .efine wor in! ca"ital in .ifferent terms;.; The two com"anies may be .ifferent sizes;

    c 1 ; A metho. of accountin! base. on measures of historical "rices in .ollars:

    each)(4 of which has the same !eneral "urchasin! "ower: is

    a; current cost/constant .ollar accountin!;b; current cost/nominal .ollar accountin!;c; historical cost/constant .ollar accountin!;

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    Test ecei%ables un.er ca"italize. leasesb; (bli!ations un.er ca"italize. leasesc; oo.will.; Accounts "ayable

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    . 1&; 'n current cost accountin!)(4 a; !eneral "rice le%el !ains or losses are reco!nize. on net monetary

    items;b; amounts are always state. in common "urchasin! "ower units of

    measurement;c; hol.in! !ains are i!nore.;.; current %alues may be measure. in nominal .ollars or constant .ollars;

    . 1+; 0hich of the followin! is the "rimary factor in .eterminin! the functional)(# currency of a forei!n subsi.iary=

    a; ow the costs for the forei!n entity8s "ro.uct are .etermine.b; The .enomination of the forei!n entity8s financin!c; The location of the "rimary sales mar et that influences the "rice of the

    forei!n entity8s "ro.uct.; 5ana!ement8s assessment of all rele%ant factors

    a 1 ; A translation a.*ustment resultin! from the translation "rocess is .isclose.on

    )(# the financial statementsa; as a se"arate com"onent of stoc hol.ers8 e7uity;b; as a below-the-line item on the income statement;c; as an a.*ustment to retaine. earnin!s;.; as a "art of income from o"erations on the income statement;

    . 1 ; 0hich of the followin! is the least li ely means a com"any mi!ht choose to)(3 meet the nee.s of international in%estors=

    a; Translation of financial statements or annual re"orts into the lan!ua!e

    of the user;b; enomination of the financial statements in the currency of the countrywhere the financial statements will be use.;

    c; artial or com"lete restatement of financial statements to the accountin!"rinci"les of the financial statement users8 country;

    .; 5utual reco!nition in which one country acce"ts the financialstatements

    of another country for re!ulatory "ur"oses such as listin! on stoce,chan!es or filin! annual re"orts;

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    . 22; Selecte. information from the accountin! recor.s of Thorne $om"any is as)(1 followsB

    @et sales for 2 2;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; C :$ost of !oo.s sol. for 2 2;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; & :'n%entory at ecember 31: 2 1;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 1 :'n%entory at ecember 31: 2 2;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 1#&:

    Thorne6s in%entory turno%er for 2 2 isa; #;3& times;b; 3; # times;c; 3;&+ times;.; 3;#+ times;

    a 23; Selecte. information from the accountin! recor.s of the 9assar $om"any is)(1 as followsB

    @et accounts recei%able at ecember 31: 2 1;;;;;;;; C :@et accounts recei%able at ecember 31: 2 2;;;;;;;; 1: :

    Accounts recei%able turno%er;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; # to 1'n%entories at ecember 31: 2 1;;;;;;;;;;;;;;;;;;;;;;;;;;;;; C1:1 :'n%entories at ecember 31: 2 2;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 1:2 :'n%entory turno%er;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 4 to 1

    0hat was 9assar6s !ross mar!in for 2 2=a; C1# :b; C2 :c; C4 :.; C# :

    c 24; The followin! .ata were abstracte. from the recor.s of Dohnson$or"oration

    )(1 for the yearBSales;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; C1: :

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    b 2#; Selecte. information for enry $om"any is as followsB)(1 ecember 31

    2 1 2 2$ommon stoc ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; C& : C& :

    A..itional "ai.-in ca"ital;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 2# : 2# :>etaine. earnin!s;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 1+ : 3+ :@et income for year;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 12 : 24 :

    enry6s return on common stoc hol.er6s e7uity: roun.e. to the nearest"ercenta!e "oint: for 2 2 isa; 2 "ercent;b; 21 "ercent;c; 2 "ercent;.; 4 "ercent;

    b 2&; Selecte. information from the accountin! recor.s of Ellison 5anufacturin!)(1 $om"any followsB

    @et sales;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; C3:& :$ost of !oo.s sol.;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 2:4 :'n%entories at Danuary 1;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; &+2:'n%entories at ecember 31;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; #+&:

    0hat is the number of .ays6 sales in a%era!e in%entories for the year=a; 1 2;2b; 4;c; +;&.; & ;1

    c 2+; (rchar. $or"oration8s ca"ital stoc at ecember 31 consiste. of thefollowin!B

    )(1 a $ommon stoc : C2 "ar %alue? 1 : shares authorize.: issue.: an.outstan.in!;

    b 1 G noncumulati%e: noncon%ertible "referre. stoc : C1 "ar %alue?1:

    shares authorize.: issue.: an. outstan.in!;(rchar.6s common stoc : which is liste. on a ma*or stoc e,chan!e: was7uote. at C4 "er share on ecember 31; (rchar.6s net income for the year en.e. ecember 31 was C# : ; The yearly "referre. .i%i.en. was.eclare.; @o ca"ital stoc transactions occurre.; 0hat was the "rice-earnin!s ratio on (rchar.6s common stoc at ecember 31=a; & to 1b; to 1c; 1 to 1.; 1& to 1

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    . 2 ; Selecte. financial .ata of Ale,an.er $or"oration for the year en.e.ecember

    )(1 31: 2 2: is "resen

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