338  Chapter 22/Analysis of Financial Statements Chapter 22/Analysis of Financial Statements  339 334 1. Information from Blain Company's balance sheet is as follows: Current assets: Cash $ 1,200,000   Marketable securities ............................. 3,750,000   Accounts receivable ............................... 28,800,000   Inventories ....................................... 33,150,000   Prepaid expenses .................................. 600,000   Total current assets $67,500,000 Current liabilities: ................................   Notes payable ..................................... $ 750,000   Accounts payable .................................. 9,750,000   Accrued expenses .................................. 6,250,000   Income taxes payable .............................. 250,000   Payments due within one year on long-term debt .... 1,750,000   Total current liabilities ......................... $18,750,000 What is Blain's current ratio? a. 0.26 to 1 b. 0.30 to 1 c. 1.80 to 1 d. 3.60 to 1 ANS: D DIF: Medium OBJ: LO 1 TOP: AICPA FN-Measurement MSC: AACSB Analytic 2. Millward Corporation's books disclosed the following information for the year ended December 31, 2008: Net credit sales .................................... $1,500,000 Net cash sales ...................................... 240,000 Accounts receivable at beginning of year ............ 200,000 Accounts receivable at end of year .................. 400,000 Millward's accounts receivable turnover is a. 3.75 times. b. 4.35 times. c. 5.00 times. d. 5.80 times. ANS: C DIF: Easy OBJ: LO 1 TOP: AICPA FN-Measurement MSC: AACSB Analytic TOP: AICPA FN-Measurement MSC: AACSB Analytic 3. Selected information from the accounting records of the Vassar Company is as follows: Net accounts receivable at December 31, 2007 .......... $ 900,000 Net accounts receivable at December 31, 2008 .......... 1,000,000 Accounts receivable turnover .......................... 5 to 1 Inventories at December 31, 2007 ...................... $1,100,000 Inventories at December 31, 2008 ...................... 1,200,000 Inventory turnover .................................... 4 to 1 What was Vassar's gross margin for 2008? a. $150,000 b. $200,000 c. $400,000 d. $500,000 ANS: A DIF: Medium OBJ: LO 1 TOP: AICPA FN-Measurement MSC: AACSB Analytic 4. The following data were abstracted from the records of Johnson Corporation for the year: Sales ................................................. $1,800,000 Bond interest expense ................................. 60,000 Income taxes .......................................... 300,000 Net income ............................................ 400,000 How many times was bond interest earned? a. 7.67 b. 11.67 c. 12.67 d. 13.67 ANS: C DIF: Easy OBJ: LO 1 TOP: AICPA FN-Measurement MSC: AACSB Analytic 5. Selected information for Henry Company is as follows: December 31 2007 2008 Common stock ................................ $600,0.

1. 338 Chapter 22/Analysis of Financial Statements
Chapter 22/Analysis of Financial Statements 339
334
1. Information from Blain Company's balance sheet is as
follows: Current assets:
Cash
$ 1,200,000
Marketable securities .............................
3,750,000
Accounts receivable ...............................
28,800,000
Inventories .......................................
33,150,000
Prepaid expenses ..................................
600,000
Total current assets
$67,500,000
Current liabilities: ................................
Notes payable .....................................
$ 750,000
Accounts payable ..................................
9,750,000
Accrued expenses ..................................
6,250,000
Income taxes payable ..............................
250,000
Payments due within one year on long-term debt ....
1,750,000
Total current liabilities .........................

2. $18,750,000
What is Blain's current ratio?
a.
0.26 to 1
b.
0.30 to 1
c.
1.80 to 1
d.
3.60 to 1
ANS: D DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
2. Millward Corporation's books disclosed the following
information for the year ended December 31, 2008:
Net credit sales ....................................
$1,500,000
Net cash sales ......................................
240,000
Accounts receivable at beginning of year ............
200,000
Accounts receivable at end of year ..................
400,000
Millward's accounts receivable turnover is
a.
3.75 times.
b.
4.35 times.
c.
5.00 times.

3. d.
5.80 times.
ANS: C DIF: Easy OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
TOP: AICPA FN-Measurement MSC: AACSB Analytic
3. Selected information from the accounting records of
the Vassar Company is as follows:
Net accounts receivable at December 31, 2007 ..........
$ 900,000
Net accounts receivable at December 31, 2008 ..........
1,000,000
Accounts receivable turnover ..........................
5 to 1
Inventories at December 31, 2007 ......................
$1,100,000
Inventories at December 31, 2008 ......................
1,200,000
Inventory turnover ....................................
4 to 1
What was Vassar's gross margin for 2008?
a.
$150,000
b.
$200,000
c.
$400,000
d.
$500,000

4. ANS: A DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
4. The following data were abstracted from the records
of Johnson Corporation for the year:
Sales .................................................
$1,800,000
Bond interest expense .................................
60,000
Income taxes ..........................................
300,000
Net income ............................................
400,000
How many times was bond interest earned?
a.
7.67
b.
11.67
c.
12.67
d.
13.67
ANS: C DIF: Easy OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
5. Selected information for Henry Company is as
follows:

5. December 31
2007
2008
Common stock ................................
$600,000
$600,000
Additional paid-in capital ..................
250,000
250,000
Retained earnings ...........................
170,000
370,000
Net income for year .........................
120,000
240,000
Henry's return on common stockholder's equity, rounded to the
nearest percentage point, for 2008 is
a.
20 percent.
b.
21 percent.
c.
28 percent.
d.
40 percent.
ANS: B DIF: Easy OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
6. Selected information from the accounting records of
Ellison Manufacturing lows:

6. Net sales .............................................
$3,600,000
Cost of goods sold ....................................
2,400,000
Inventories at January 1 .............................
672,000
Inventories at December 31 ............................
576,000
What is the number of days' sales in average inventories for the
year?
a.
102.2
b.
94.9
c.
87.6
d.
68.1
ANS: B DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
7. Orchard Corporation's capital stock at December 31
consisted of the following: (a) Common stock, $2 par value;
100,000 shares authorized, issued, and outstanding. (b) 10%
noncumulative, nonconvertible preferred stock, $100 par value;
1,000 shares authorized, issued, and outstanding.
Orchard's common stock, which is listed on a major stock
exchange, was quoted at $4 per share on December 31.
Orchard's net income for the year ended December 31 was
$50,000. The yearly preferred dividend was declared. No capital

7. stock transactions occurred. What was the price- earnings ratio
on Orchard's common stock at December 31?
a.
6 to 1
b.
8 to 1
c.
10 to 1
d.
16 to 1
ANS: C DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
8. Selected financial data of Alexander Corporation for
the year ended December 31, 2008, is presented below:
Operating income ......................................
$900,000
Interest expense ......................................
(100,000)
Income before income tax ..............................
$800,000
Income tax expense ....................................
(320,000)
Net income ............................................
$480,000
Preferred stock dividends .............................
(200,000)
Net income available to common stockholders ...........
$280,000
Common stock dividends were $120,000. The times-interest-
earned ratio is

8. a.
2.8 to 1.
b.
4.8 to 1.
c.
6.0 to 1.
d.
9.0 to 1.
ANS: D DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
9. During the year, The Grap Company purchased
$1,920,000 of inventory. The cost of goods sold for the year
was $1,800,000 and the ending inventory at December 31 was
$360,000. What was the inventory turnover for the year?
a.
5.0
b.
5.3
c.
6.0
d.
6.4
ANS: C DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
10. On December 31, 2007 and 2008, Taft Corporation
had 100,000 shares of common stock and 50,000 shares of
noncumulative and nonconvertible preferred stock issued and
outstanding. Additional information:

9. Stockholders' equity at 12/31/2008 ....................
$4,500,000
Net income year ended 12/31/2008 ......................
1,200,000
Dividends on preferred stock year ended 12/31/2008 ....
300,000
Market price per share of common stock at 12/31/2008 ..
144
The price-earnings ratio on common stock at December 31,
2008, was
a.
10 to 1.
b.
12 to 1.
c.
14 to 1.
d.
16 to 1.
ANS: D DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
11. Albright Distributing Inc. converts its foreign
subsidiary financial statements using the translation process.
Their German subsidiary reported the following for 2008:
revenues and expenses of 10,050,000 and 7,800,000 marks,
respectively, earned or incurred evenly throughout the year,
dividends of 2,000,000 marks were paid during the year. The
following exchange rates are available:
On January 1, 2008 ....................................
$.250

10. On December 31, 2008 ..................................
.285
Average rate for 2008 .................................
.270
Rate when dividends were declared and paid ............
.255
Translated net income for 2008 is
a.
$641,250.
b.
$607,500.
c.
$131,250.
d.
$97,500.
ANS: B DIF: Medium OBJ: LO 5
TOP: AICPA FN-Measurement MSC: AACSB Analytic
12. Tokyo Enterprises, a subsidiary of Worldwide
Enterprises based in Dallas, reported the following information
at the end of its first year of operations (all in yen): assets--
110,000,000; expenses--41,000,000; liabilities--97,500,000;
capital stock--5,500,000; revenues--48,000,000. Relevant
exchange rates are as follows:
On date subsidiary stock was purchased ................
$.085
Average rate for the year .............................
.078
At year end ...........................................
.075

11. As a result of the translation process, what amount is recorded
on the financial statements as the translation adjustment?
a.
$21,000 debit adjustment
b.
$76,000 debit adjustment
c.
$21,000 credit adjustment
d.
$76,000 credit adjustment
ANS: B DIF: Medium OBJ: LO 5
13) Selected information from the 2008 and 2008 financial
statements of SCL Corporation is presented below:
(in thousands)
As of December 31
2008
2007
Cash ...................................
$ 21
$ 35
Marketable securities
(current) ...........
27
22
Accounts receivable (net) ....
60
98

12. Inventory ............................
105
142
Prepaid expenses .................
5
3
Land and building (net) .........
247
315
Accounts payable ................
57
75
Accrued expenses ...............
10
14
Notes payable (short-term) ...
8
4
Bonds payable .....................
52
66
(in thousands)
As of December 31
2008
2007
Cash sales ...........................
$750
$675
Credit sales (percent of cash
sales) .............

13. 82%
85%
Cost of goods sold
(percent of total sales) ......
60%
58%
Net income ..........................
$ 30
$ 38
Interest expense ..................
6
9
Income tax expense .............
6
7
14. Refer to the SCL Corporation information above.
SCL's current ratio as of December 31, 2008, is
a.
2.84 to 1.
b.
3.37 to 1.
c.
2.91 to 1.
d.
3.33 to 1.
ANS: C DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic

14. 15. Refer to the SCL Corporation information above.
SCL's quick (acid test) ratio as December 31, 2008, is
a.
1.44 to 1.
b.
1.50 to 1.
c.
1.67 to 1.
d.
1.66 to 1.
ANS: A DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
16. Refer to the SCL Corporation information above.
SCL's account receivable turnover for 2008 is
a.
13.85.
b.
10.00.
c.
9.49.
d.
7.78.
ANS: D DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
17. Refer to the SCL Corporation information above.
SCL's merchandise inventory turnover for 2008 is
a.

15. 3.43.
b.
5.68.
c.
6.63.
d.
6.79.
ANS: C DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
18. Refer to the SCL Corporation information above.
SCL's turnover of assets and number of times interest earned for
2008 are respectively
Asset Turnover Times Interest Earned
a.
2.97 5.0
b.
2.94 5.0
c.
2.53 6.0
d.
2.53 7.0
ANS: D DIF: Medium OBJ: LO 1
A Letter to Next Semester’s Students
Guidelines: ∙The letter must be typed. (Please use 12-point font,
1-inch margins, and double space.) ∙The letter must be dated. ∙It
must begin “Dear (next semester’s date – i.e., Spring 2016)

16. College Success Student:” ∙It must be a minimum of two typed
pages. ∙You must sign it. ∙It must be turned in at the start of
your final exam. ∙It must include a discussion of the following
items
1. Introduction. You should introduce yourself to next
semester’s college success student, explaining briefly where
you are from, your educational background up to now, why you
chose to attend Collin College, and what you are planning to
study or major in while you are here. In addition, I want you to
explain one or two new things that you have discovered about
yourself this semester.
2. Transitions. Next, I want you to explain your most difficult
transitions this semester. You might want to focus on adjusting
to classroom expectations, managing your time, elevated stress
levels, meeting new people, etc. In the process, note ways in
which the college, fellow students, your College Success class,
family/friends, or faculty have helped you make these
transitions.
3. Support Resources. Another goal of our course has been to
discover the full range of educational opportunities and support
services available to students. I would like you to briefly
explain to next semester’s students the most important things
you have learned about our college in both of these two
categories.
4. Learning Strategies. Think about our course topics, such as
victim vs. creator; self-talk; goal setting and motivation; time
management; memory, forgetting and information processing;
learning preferences; fixed and growth mindset; emotional
intelligence; note-taking and test-taking; and critical thinking
(among others!). Please explain which learning strategies (at
least three) helped you the most this semester. Also explain how
these strategies helped you and how you plan to use these
strategies next semester.
5. College Engagement. Through the semester, we have
explored new areas and broadened our horizons by participating
in the Collin community. I would like you to explain at least

17. one way you involved yourself in the Collin community this
semester. Explain to next semester’s student why participation
in college life is such an important part of your experience in
higher education.
6. Becoming a Self-Aware Learner (or Using Metacognition).
Finally, I would like you to explain three or four ways in which
you have changed over this past semester. (This could be
personally, academically, socially, in attitudes toward college,
feelings toward others, understanding of how you learn, etc.)
What have you learned about yourself in the process? How have
you changed as a student as a result of this semester? How have
you used metacognition this semester and how will you use it
going forward?
7. Words of Wisdom: Close with advice and “words of wisdom”
for this next college success student. What would you
recommend in order for them to experience a successful
semester both in and out of class?
Notes: Please write your letter in an easy, friendly style, paying
attention to correct spelling, grammar, and so on. Illustrate your
general statements with examples whenever possible. Use
logical transitions from one topic to another (don’t make the
reader feel like you are jumping around!). Keep the entire letter
in essay form, and try to be as clear and concise in your
comments as possible. Use of the Writing Center is allowed and
encouraged.