FINANCIAL ACCOUNTING: Review Questions

1. Comparative income statements for 2008 and 2007 follow.

2008 2007
Sales $9,434,000 $7,862,000
Cost of Sales 7,075,400 5,660,640
Gross Profit $2,358,600 $2,201,360
Operating Expenses 1,367,690 1,365,060
Operating ncome $ 990,910 $ 836,300
nterest Expense 157,500 126,000
Earnings !efore "ax $ 833,410 $ 710,300
ncome "axes 400,000 317,200
#et ncome $ 433,410 $ 393,100
$e%&ired'
a. Prepare a vertical common(si)e anal*sis of t+is statement for eac+ *ear, &sing sales as t+e
-ase.
-. Comment -riefl* on t+e c+anges -etween t+e two *ears, -ased on t+e vertical common(si)e
statement.
2."oledo "o*, a man&fact&rer of infants. -loc/s, presented t+e following data in its last ann&al report.
"+is trend anal*sis -egins wit+ t+e *ear of formation, 2000.
2008 2007 2001 2000
Sales $61,000 $41,000 $25,000 $13,000
Cost of Sales $41,300 $28,175 $17,201 $9,000
#et ncome $9,919 $6,412 $3,850 $2,000
Cases of !loc/s S+ipped 33,126 22,681 13,900 7,400
$e%&ired'
a. 2sing 2000 as t+e -ase *ear, perform a +ori)ontal, common(si)e anal*sis.
-. Comment on t+e res&lts of t+e +ori)ontal anal*sis.
3&ltiple C+oice 4&estions
1.5enver 5*namics +as net income of 62,000,000. Oa/land Enterprises +as net income of 62,000,000.
7+ic+ of t+e following -est compares t+e profita-ilit* of 5enver and Oa/land8
a. Oa/land Enterprises is 209 more profita-le t+an 5enver 5*namics.
-. Oa/land Enterprises is more profita-le t+an 5enver 5*namics, -&t t+e comparison can:t
-e %&antified.
c. Oa/land Enterprises is onl* more profita-le if it is smaller t+an 5enver 5*namics.
d. ;&rt+er information is needed for a reasona-le comparison.
e. Oa/land Enterprises is more profita-le if it is a larger firm t+an 5enver 5*namics.
2. .n financial statement anal*sis, ratios are'
a. t+e onl* t*pe of anal*sis w+ere ind&str* data are availa-le
-. a-sol&te n&m-ers converted to a common -ase
c. fractions &s&all* expressed in percent or times
d. t+e onl* indication of t+e financial position of t+e firm
e. none of t+e answers are correct