ACC 240 Lecture Notes - Lecture 2: Inventory Turnover, Revenue Recognition, Matching Principle

4. What is your assessment of the manner in which HTCM ismanaging its assets? Pay attention to both trends and industryaverages.

SOLVENCY (Financing of Assets)

5. What is your assessment of the manner in which HTCM isfinancing its assets? Pay attention to both trends and industryaverages. What is the relationship between the debt to equity ratioand times interest earned as these relate to HTCM? And is there anyother possible explanation (outside of the firm’s financialstatements) for the observed trend in times interest earned?

PROFITABILITY

6. What can you say about HTCM’s gross profit ratio and netprofit ratio? Explain any patterns observed.

7. How are HTCM’s net profit ratio, and asset turnover ratioaffecting the firm’s pre-tax return on assets (ROA) and return onequity (ROE)? What is your overall assessment of the firm’sprofitability, including its earnings per share (EPS)?

CASH FLOW

8. Referring to HTCM’s statement of cash flow for 2016 and 2017,assess HTCM’s cash flow situation noting both inflows andoutflows?

OVERALL EVALUATION

9. Based on your answers to the questions above, what is youroverall evaluation of HTCM’s financial condition? (Pull all youranalysis together in answering this question.)

10. What is the market’s assessment of HTCM’s financialcondition? Explain. Does the market’s assessment confirm or refuteyour analysis?

11. Based on your evaluation of HTCM and the market’s assessmentof the firm, would you accept employment with the company?Explain.

1. Which of the following would NOT be considered a significantnon cash transaction?

Issuing debt to purchase plant assets

Exchanging plant assets

Paying stock dividends

All of the above are significant non cash transactions

2. During 2018, ABC Company reports the following activities

1. Net Income was recorded in the amount of $75,000

2. Depreciation expense was $10,000

3. Repaid a loan of $10,000 cash

4. Issued stock in exchange for $30,000

5. Sold equipment which had a book value of $20,000 for $17,000(recognizing a $3,000 loss).

6. Accounts Receivable decreased by $5,000

7. Accounts Payable decreased by $2,000

Calculate the cash provided by operating activities given theabove information.

3. ABC Company reports cash flows from operating activities of$30,000. In addition, ABC Company pays dividends of $5,000 and doesnot purchase any fixed assets during the year. Interest expense forthe year was $7,000. Calculate free cash flows for ABC Company.

4. The net income reported on the income statement for thecurrent year was $245,000. Depreciation was $40,000. Accountreceivable and inventories decreased by $12,000 and $35,000,respectively. Prepaid expenses and accounts payable increased,respectively, by $1,000 and $8,000. How much cash was provided byoperating activities?

5. In calculating cash flows from operating activities using theindirect method, a gain on the sale of equipment is

Ignored because it does not impact cash

Added to net income

Subtracted from net income

Not reported on the Statement of Cash Flows

6. The following data are availablefor ABC Corporation.

Sale ofland $225,000

Sale ofequipment $130,000

Issuance of commonstock 140,000

Purchase ofequipment 70,000

Payment of cashdividends 120,000

Net cash provided by investing activities is:

7. ABC Company issues $50,000 of common stock during the yearfor cash. How would this be reported on the statement of cashflows?

As an addition to financing activities

As an addition to planning activities

As an addition to investing activities

As a subtraction from operating activities

8. XYZ Store had net credit sales of $8,500,000 and cost ofgoods sold of $5,000,000 for the year. The Accounts Receivablebalances at the beginning and end of the year were $600,000 and$760,000, respectively. The accounts receivable turnover was

9. ABC Company reports net income of $50,000 for 2018. Theprofit margin for ABC Company is 5%. Calculate the net sales forABC Company

10. Turnbull Department Store had net credit sales of$18,000,000 and cost of goods sold of $15,000,000 for the year. Theaverage inventory for the year amounted to $2,500,000. The averagenumber of days that it took to convert inventory into cash for ABCwas

11. Each of the following is included in computing the acid-testratio EXCEPT

Net accounts receivable

Cash

Inventory

Short-term investments

12. ABC Corporation had net income of $240,000. The weightedaverage number of shares outstanding in 2017 was 60,000 shares. AleCorporation's common stock is selling for $76 per share on the NewYork Stock Exchange. ABC Corporation's price-earnings ratio is

13. ABC Company reports Sales revenue of the following amountsfor 2016, 2017 and 2018:

2016: $125,000

2017: $210,000

2018: $215,000

Calculate the percentage change in sales revenue from 2016 to2018

14. Horizontal analysis is also called:

Linear anlysis

Common sizing

Trend analysis

Vertical analysis

15. XYZ Company reports cost of goods sold of $80,000 in 2018and of $60,000 in 2017. Calculate the % change in cost of goodssold from 2017 to 2018.

16. ABC, Inc. has the following income statement (inmillions):

ABC,INC.

IncomeStatement

Forthe Year Ended December 31, 2017

NetSales $300

Cost of GoodsSold 180

GrossProfit 120

OperatingExpenses 45

NetIncome $75

Using vertical analysis, what percentage is assigned to NetIncome?

17. Vertical analysis is also called:

Ratio anlysis

Common sizing

Trend analysis

Horizontal analysis

18. Swiss Clothing Store had a balance in the AccountsReceivable account of $920,000 at the beginning of the year and abalance of $980,000 at the end of the year. Net credit sales duringthe year amounted to $6,650,000. The average collection period ofthe receivables in terms of days was