Chapter 15: Q4RQ (page 835)
Question: What is trend analysis, and how does it differ from horizontal analysis?
Answer
Trend analysis is done by the companies to see the directions in which their business is going.
Both the analysis, i.e., trend and horizontal are almost similar.
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Consider the data for Klein Department Stores presented in Problem P15-24A.
Requirements
1.Prepare a common-size income statement and balance sheet for Klein. The first column of each statement should present Klein’s common-size statement, and the second column, the industry averages.
2.For the profitability analysis, compute Klein’s
3.For the analysis of financial position, compute Klein’s
Assume the current ratio industry average is 1.47, and the debt-to-equity industry average is 1.83. Is Klein’s financial position better or worse than the industry averages?
The following data are adapted from the financial statements of Bridget’s Shops, Inc.:
Total Current Assets $ 1,216,000
Accumulated Depreciation 2,000,000
Total Liabilities 1,540,000
Preferred Stock 0
Debt Ratio 55%
Current Ratio 1.60
Prepare Bridget’s condensed balance sheet as of December 31, 2018.
Match the different parts of the annual report with the appropriate description.
1..Includes the income statement, balance sheet, statement of stockholders’ equity, and statement of cash flows | a. Notes to financial statements |
2. Attests to the fairness of the presentation of the financial statements. | b. Report of independent registered public accounting firm |
3. Includes a summary of significant accounting policies and explanations of specific items on the financial statements. | c. Management’s discussion and analysis of financial condition and results of operations (MD&A) |
4. Is written by the company to help investors understand the results of operations and the financial condition of the company. | d. Financial statements |
Evaluating current ratio
Requirements
1. Compute Accel’s Companies’ current ratio at May 31, 2018 and 2017.
2. Did Accel’s Companies’ current ratio improve, deteriorate, or hold steady during 2018?
Briefly describe the ratios that can be used to evaluate a company’s ability to pay long-term debt.
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