Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 13, Problem 14ME
Describing the Effect of Accounting Decisions on Ratios
For each of the following three accounting choices, indicate the decision that will yield (a) a higher net profit margin and (b) a lower
- 1. Straight-line versus accelerated
depreciation (in the first year of the asset’s life). - 2. FIFO versus LIFO (in periods of constantly rising costs and rising inventory levels).
- 3. Straight-line depreciation with a four-year useful life versus a seven-year useful life (no residual value).
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Required:
(a) You are required to calculate the following ratios:(i) Gross profit margin(ii) Operating profit margin(iii) Expenses to sales(iv) Return on Capital Employed(v) Asset turnover(vi) Non-current asset turnover(vii) Current Ratio(viii) Quick Ratio(ix) Inventory days(x) Receivables days(xi) Payable days(xii) Interest cover
(b) In light of your calculations comment on the performance of the company over thelast two years.
Indicate the effect of the transactions listed in the following table on total current assets, current ration, and net income. Use (+) to indicate an increase, (-) to indicate a decrease, and (0) to indicate either no effect or an indeterminate effect. Be prepared to state any necessary assumptions and assume an initial current ratio of more than 1.0.
A fixed asset is sold for less than book value.
For each of the following situations, indicate whether FIFO, LIFO, or weighted average applies:
a. In a period of falling prices, net income would be highest.
b. In a period of falling prices, the unit cost of goods would be the same for ending inventory and cost of goods sold.
c. In a period of rising prices, net income would be highest.
d. In a period of rising
prices, cost of goods sold would be highest.
e. In a period of rising prices, ending inventory would be highest.
Chapter 13 Solutions
Fundamentals Of Financial Accounting
Ch. 13 - What is the general goal of trend analysis?Ch. 13 - Prob. 2QCh. 13 - What is ratio analysis? Why is it useful?Ch. 13 - What benchmarks are commonly used for interpreting...Ch. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Slow Cellars current ratio increased from 1.2 to...Ch. 13 - From last year to this year, Colossal Companys...Ch. 13 - From last year to this year, Berry Bam reported...Ch. 13 - Explain whether the following situations, taken...
Ch. 13 - What are the two essential characteristics of...Ch. 13 - Prob. 12QCh. 13 - Prob. 13QCh. 13 - Prob. 14QCh. 13 - Prob. 15QCh. 13 - Prob. 16QCh. 13 - 1. Which of the following ratios is not used to...Ch. 13 - Prob. 2MCCh. 13 - Prob. 3MCCh. 13 - Analysts use ratios to a. Compare different...Ch. 13 - Which of the following ratios incorporates stock...Ch. 13 - Prob. 6MCCh. 13 - Prob. 7MCCh. 13 - A bank is least likely to use which of the...Ch. 13 - Prob. 9MCCh. 13 - (Supplement 13A) Which of the following items is...Ch. 13 - Calculations for Horizontal Analyses Using the...Ch. 13 - Calculations for Vertical Analyses Refer to M13-1....Ch. 13 - Interpreting Horizontal Analyses Refer to the...Ch. 13 - Interpreting Vertical Analyses Refer to the...Ch. 13 - Prob. 5MECh. 13 - Prob. 6MECh. 13 - Prob. 7MECh. 13 - Analyzing the Inventory Turnover Ratio A...Ch. 13 - Inferring Financial Information Using the Current...Ch. 13 - Prob. 10MECh. 13 - Identifying Relevant Ratios Identify the ratio...Ch. 13 - Prob. 12MECh. 13 - Analyzing the Impact of Accounting Alternatives...Ch. 13 - Describing the Effect of Accounting Decisions on...Ch. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Prob. 5ECh. 13 - Matching Each Ratio with Its Computational Formula...Ch. 13 - Computing and Interpreting Selected Liquidity...Ch. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - Prob. 11ECh. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 - Analyzing the Impact of Alternative Inventory...Ch. 13 - Prob. 1CPCh. 13 - Prob. 2CPCh. 13 - Prob. 3CPCh. 13 - Prob. 4CPCh. 13 - Prob. 5CPCh. 13 - Prob. 6CPCh. 13 - Prob. 7CPCh. 13 - Prob. 1PACh. 13 - Prob. 2PACh. 13 - Prob. 3PACh. 13 - Prob. 4PACh. 13 - Prob. 5PACh. 13 - Using Ratios to Compare Loan Requests from Two...Ch. 13 - Prob. 7PACh. 13 - Prob. 1PBCh. 13 - Prob. 2PBCh. 13 - Prob. 3PBCh. 13 - Prob. 4PBCh. 13 - Prob. 5PBCh. 13 - Using Ratios to Compare Loan Requests from Two...Ch. 13 - Prob. 7PBCh. 13 - Prob. 1SDCCh. 13 - Prob. 2SDCCh. 13 - Prob. 5SDCCh. 13 - Prob. 6SDCCh. 13 - Prob. 7SDCCh. 13 - Prob. 1CC
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- Indicate the effect of the transactions listed in the following table on total current assets, current ration, and net income. Use (+) to indicate an increase, (-) to indicate a decrease, and (0) to indicate either no effect or an indeterminate effect. Be prepared to state any necessary assumptions and assume an initial current ratio of more than 1.0. A fixed asset is sold for more than book value.arrow_forwardSelected current year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31 of the prior year were inventory, $52,900; total assets, $219,400; common stock, $86,000; and retained earnings, $31,757.) Assets Cash Short-term investments Accounts receivable, net Merchandise inventory. Prepaid expenses Plant assets, net Total assets CABOT CORPORATION Income Statement For Current Year Ended December 31 Sales Cost of goods sold Gross profit $ 14,000 8,200 30,000 38,150 2,600 149,300 $ 242, 250 Operating expenses Interest expense Income before taxes Income tax expense Net income $ 456,600 297,750 158,850 99,000 4,600 55,250 22,257 $32,993 CABOT CORPORATION Balance Sheet December 31 of current year Liabilities and Equity Accounts payable Accrued wages payable Income taxes payable Long-term note payable, secured by mortgage on plant assets Common stock Retained earnings Total liabilities and equity $ 18,500 3,600 4,000…arrow_forwardPlease choose correct letter of answer and provide a solution Determine the level of current liabilities of a firm with the following information: Sales/Cost of Good Sold = P5,000.00; Current Ratio = 1.4; Inventory Turnover Ratio = 5; and Acid Test Ratio = 1.0 a. P500.00b. P1,500.00c. P2,500.00d. P3,500.00e. P4,500.00arrow_forward
- Generally speaking, do the following indicate good news or bad news?a. Increase in times interest earned ratio.b. Decrease in days to sell.c. Increase in gross profit percentage.d. Decrease in EPS.e. Increase in fixed asset turnover ratio.arrow_forwardWhich of the following requires an adjustment to the opening balance of retained earnings in the earliest period of the comparative financial statements presented? A change in the estimated useful life of machinery. A change in the expected residual value of a property. A change from straight line to declining balance depreciation. A change from first-in, first out (FIFO) to weighted average inventory cost flow assumptionarrow_forwardWhich of the following is an example of a conservative accounting practice? a. Estimate the allowance for uncollectible accounts to be a larger amount.b. Do not write down inventory for declines in net realizable value (estimated selling price).c. Record a lower amount of depreciation expense in the earlier years of an asset’s life.d. Record sales revenue before it is actually earned.arrow_forward
- Return on Assets, or ROA, can be expressed as the product of two ratios. Which two? Select one: a. Sales Turnover and Total Asset Turnover b. None of the options are correct c. Net income and total assets d. Profit margin and Total Asset Turnover e. Net Profit Margin and Fixed Asset turnoverarrow_forwardFirst solve your NI = Sales - COGS - Operating expenses - depreciation- interest- taxes Then subtract current year - prior year for AR, inventory, AP and accruals At last- NI + current year depreciation - changes in AR - changes in inventory + changes in AP + Changes in Accruals Don't do the subtraction for depreciation, you're using the current year for that onearrow_forwardState the accounting assumption, principle, qualitative characteristic, or constraint that is most applicable in the following cases. В. 1. All payments less than RM25 are expensed as incurred. 2. The company employs the same inventory valuation method from period to period. 3. A patent is capitalized and amortized over the periods benefited. 4. Assuming that dollars today will buy as much as ten years ago. 5. Rent paid in advance is recorded as prepaid rent. 6. Financial statements are prepared each year. 7. All significant post-statement of financial position events are reported. 8. Personal transactions of the proprietor are distinguished from business transactions. B.arrow_forward
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