The following information applies to Questions 17 2017 S 555

The following information applies to Questions 1-7: 2017 S 5,550 S 5,094 1,813 1,324 1,709 10,396 S 10,325 18,500 15,737 S 28,896 $ 7,230 4,798 6,568 10,300 S 28,896 25,000 7,055 7064 Cameron\'s Accounts Cash and cash equivalents Receivables Inventory Prepaid expenses Total current assets Other assets Total assets Total current liabilities Long-term liabilities Common stock Retained earnings Total liabilities and equity Sales Cost of sales (COGS) Operating expenses Operating income Interest expense Income tax expense Net income 1.611 1,500 2,120 S 26,062 S 8,467 3,792 4,363 9,440 S 26,062 $ 6,821 210 2,563 S 8,107 Horizontal analysis of Cameron\'s balance sheet for 2017 would report (amounts rounded): A. Cash as 19.2% of Total Assets. B. Inventory Turnover of 5 times. C. 13.3% decrease in Inventory D. 11.7% decrease in inventory. 1. Vertical analysis of Cameron\'s balance sheet for 2017 would report (amounts rounded): A. Inventory Turnover of 5 times. B. Current Liabilities as 25.0% of Total Assets. C. 8.2% increase in Cash. D. 9.0% increase in Cash. 2. 3. A common-size income statement for Cameron would report (amounts rounded): A Inventory Turnover of 5 times. B. Sales of 86.5%. C. Net Income of 19% D. Cost of Sales at 2896.

Solution

1. Horizontal Analysis shows changes in the amount of financial statement items over a period of time. The Amount for period in comparison is compared usually with base year that is of last year therefore the 2017 amounts will be comaperd with that of 2016. They are usually reported in dollars or percentage.

Therefore answering the first question A & B Solutions are wrong because there is no comparison but in the option C there is comparison but the value is incorrect and that why option D is the right one. Calculation for option D Change in value = 1324-1500= -176

% of Change= (-176/1500)*100= -11.7% or decrease in inventory by 11.7% .

2. Vertical analysis is popular method to show each item of statement as a percentage of base figure of the same financial statements.

Because of this it rules out options A,C & D because they dont show any item as % of the base figure.

But the option C does shows the current liablities percentage to that of total assets and the value is also correct therfore option C is the correct one. Calculations: (current liabilities/Total assets)*100

(7230/28896)*100= 25.02%.

3.A common Size Income Statement is a statement in which each item is shown as percentage of sales.

Therefore according to the defination Option A is wrong becuase it not shown as a percentage of sales.

Options B & C are showns as a percentage but the values are incorect therefore those both answer are also wrong but the optoion D is correct becuase it shown as percenatge of sales and the figure is also correct. Calculations:

(Cost Of sales/Sales)*100

(7055/25000)*100= 28.22%.

4. Quick Ratio= (Cash & cash equivalents + receviables)/Total Current Liabilities

=(5550+1813) / 7230

7363/7230= 1.02 therefore the option C is the Correct One.

5. Inventory Turnover r

atio = cost of goods sold/ closing inventory

7055/1324= 5.3285 or rounded to 5 times therefore the answer is option A

6. Debt to Equity Ratio= Debt/Equity

4798/6568= 0.71 therfoer the option C is correct.

7. for calculating Time Intrest Earned ratio first we need to calculate EBIT

EBIT= Sales-cost of sales-operating expenses

25000-7055-7064=10881

Time Intrest Earned Ratio = EBIT/ Intrest expenses

10881/210=51.81 times rounded to 52 times therefor the option D is correct.