CMA / P2 / Sec. A / HW-2 / Class 7 1 CMA Part 2 Financial Decision Making Financial Statement Analysis Sec. A (Homework - 2) 1.

CMA / P2 / Sec. A / HW-2 / Class 7

1

CMA Part 2

Financial Decision Making

Financial Statement Analysis

Sec. A (Homework - 2)

1. Indicate the effects of transactions listed in the following table on total current assets, current ratio,

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. (Note: A good accounting background is necessary to answer

some of these questions; if yours is not strong, just answer the questions you can handle.)

Total Effect

Current Current on Net

Assets Ratio Income

a. Cash is acquired through issuance of

additional common stock.

b. Merchandise is sold for cash.

c. Federal income tax due for the

previous year is paid.

d. A fixed asset is sold for less than

book value.

e. A fixed asset is sold for more than

book value.

f. Merchandise is sold on credit.

g. Payment is made to trade creditors

for previous purchases.

h. A cash dividend is declared and paid.

i. Cash is obtained through short-term

bank loans.

j. Short-term notes receivable are sold at

a discount.

k. Marketable securities are sold below

cost.

l. Advances are made to employees.

m. Current operating expenses are paid.

n. Short-term promissory notes are issued

to trade creditors in exchange for past due

accounts payable.

o. Ten-year notes are issued to pay off

accounts payable.

p. A fully depreciated asset is retired.

q. Accounts receivable are collected.

r. Equipment is purchased with short-term

.

s. Merchandise is purchased on credit.

t. The estimated taxes payable are increased.

2. Balance sheet analysis Complete the balance sheet and sales information that follows using the

following financial data:

Debt ratio: 50%

Current ratio: 1.8 X

Total assets turnover: 1.5 X

Days sales outstanding: 36.5 days a

Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 25%

Inventory turnover ratio: 5 X

a Calculation is based on a 365- day year.

Balance Sheet

Cash Accounts payable

Accounts receivable Long-term debt 60 , 000

Inventories Common Stock

Fixed Assets Retained earnings 97 , 500

Total Assets $300,000 Total liabilities and equity

Sales Cost of goods sold