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Chapter 3 Fundamental Interpretations Made From Financial Statement Data 1) D 2) B 3) C 4) B 5) B 6) A 7) B

Chapter 3 of what number means accounting

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69 views

Chapter 3 Fundamental Interpretations Made From Financial Statement Data 1) D 2) B 3) C 4) B 5) B 6) A 7) B

Chapter 3 of what number means accounting

Uploaded by

Jue Wern
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Accounting - What the Numbers Mean, 12e (Marshall)

Chapter 3 Fundamental Interpretations Made from Financial Statement Data

1) D

2) B

3) C

4) B

5) B

6) A

7) B
Explanation: 12.5% = ? × 5.0
Solve for missing number: 12.5% divided by 5.0 = 2.5%

8) B
Explanation: 12% = 3% × ?
Solve for missing number: 12% divided by 3% = 4.0

9) D
Explanation:
Margin = $600,000 / $24,000,000 = 2.5%
Turnover = $24,000,000 / $8,000,000 = 3.0
ROI = 2.5% × 3.0 = 7.5%

10) C
Explanation:
Net income = 2% × $60,000,000 = $1,200,000
Average assets = $60,000,000 / 3.0 = $20,000,000
ROI = 2% × 3.0 = 6%

11) C
Explanation: Margin = Net income / Sales = $420,000 / $14,000,000 = 3.0%

12) A
Explanation: Turnover = Sales / Average assets = $14,000,000 / $10,000,000 = 1.4

13) D
Explanation:
ROI = $420,000 / $10,000,000 = 4.2%, or ROI = Margin × Turnover
= ($420,000 / $14,000,000) × ($14,000,000 / $10,000,000)
= 3.0% × 1.4 = 4.2%

1
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14) B
Explanation: Net income = Margin × Sales = 3% × $50,000,000 = $1,500,000

15) C
Explanation: Average assets = Sales / Turnover = $50,000,000 / 4.0 = $12,500,000

16) C
Explanation: ROI = Margin × Turnover = 3% × 4.0 = 12%

17) D

18) D

19) C
Explanation: $300,000 / ($2,000,000 − $500,000) = 20%

20) A
Explanation: $320,000 / ($1,600,000 + $2,400,000) = 8.0%

21) C

22) C

23) A

24) A

25) C

26) C

27) C

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28)

A) Calculate ROI for 2020


ROI = Margin × Turnover = (Net Income / Sales) × (Sales / Average assets)
= ($148,000 / $1,780,000) × [$1,780,000 / (($1,160,000 + $1,248,000) / 2)]
= 8.31% × 1.478 = 12.3%

B) Calculate ROE for 2020


ROE = Net income / Average stockholders' equity
= $148,000 / [($558,000 + $664,000) / 2] = 24.2%

C) Calculate working capital at December 31, 2020


Working capital = Current assets – Current liabilities
= $760,000 – $410,000 = $350,000

D) Calculate the current ratio at December 31, 2020


Current ratio = Current assets / Current liabilities
= $760,000 / $410,000 = 1.85

E) Calculate the acid-test ratio at December 31, 2020


Acid-test ratio = (Cash + Accounts Receivable) / Current liabilities
= ($90,000 + $268,000) / $410,000 = 0.87

29) Attesson, Inc. has a current ratio of 1.9 and current assets of $136,800.

Calculate Attesson's current liabilities and working capital.

$136,800 current assets / 1.9 current ratio = $72,000 current liabilities


$136,800 current assets – $72,000 current liabilities = $64,800 working capital

30) 2R Designs has accounts receivable of $4,100, cash of $3,500, property, plant, and
equipment of $30,200, merchandise inventory of $2,200, accounts payable of $5,700, other
accrued liabilities of $1,300, common stock of $10,000, and retained earnings of $23,000.

Calculate 2R Designs' working capital and current ratio.

$3,500 cash + $4,100 accounts receivable + $2,200 inventory = $9,800 current assets
$5,700 accounts payable + $1,300 other accrued liabilities = $7,000 current liabilities
$9,800 current assets – $7,000 current liabilities = $2,800 working capital
$9,800 current assets / $7,000 current liabilities = 1.4 current ratio

3
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31) One-Two-Tree Landscaping Services has net income of $18,000, sales of $300,000, and
average total assets of $125,000.

Calculate One-Two-Tree's margin, turnover, and return on investment (ROI).

$18,000 net income / $300,000 sales = 6% margin


$300,000 sales / $125,000 average total assets = 2.4 turnover
6% margin × 2.4 turnover = 14.4% ROI, or
$18,000 net income / $125,000 average total assets = 14.4% ROI

32) NTO Designs has a margin of 7%, turnover of 1.2, and sales of $2,100,000.

Calculate NTO Designs' net income, average total assets, and return on investment (ROI).

$2,100,000 sales × 7% margin = $147,000 net income


$2,100,000 sales / 1.2 turnover = $1,750,000 average total assets
7% margin × 1.2 turnover = 8.4% ROI, or
$147,000 net income / $1,750,000 average total assets = 8.4% ROI

33) FGT Motorsports had net assets at the end of the year of $320,000. The only transactions
affecting stockholders' equity during the year were net income of $51,000 and dividends of
$11,000..

Calculate FGT Motorsports' average stockholders' equity and return on equity (ROE).

Net assets = Assets – Liabilities = Stockholders' Equity


Thus, "net assets" at the end of the year = ending SE

ROE = Net income / Average stockholders' equity


Average stockholders' equity = (beginning SE + ending SE) / 2

Thus, you need to calculate beginning stockholders' equity in order to be able to


determine the average stockholders' equity.

$320,000 ending SE – $51,000 net income + $11,000 dividends =


$280,000 beginning SE

($280,000 beginning SE + $320,000 ending SE) / 2 = $300,000 average stockholders'


equity

$51,000 net income / $300,000 average stockholders' equity = 17% ROE

4
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