Finantial Statement Analysis
Practice Problems Financial Statement Analysis
Topics
1. Introduction
2. Review of Financial Statements
3. Quality of Earnings
4. Ratios
5. Credit & Equity Analysis
6. Receivables and Investments
7. Capital Assets
8. Investments
9. Liabilities and Leases
10. Future Taxes
11. Pensions
12. Equity
1. Introduction
1-14 (Application of qualitative characteristics)
The BMAC Company purchased land many years ago for $100,000 as a potential site for a new building. No building was ever constructed. A comparable lot near the site was recently sold for $350,000. Required: a. At what value should BMAC carry the land on its balance sheet? Support your answer with consideration for the conservatism, relevance, and reliability of the information that would result.
b. If BMAC wanted to borrow money from a bank, what information about the land would the bank want to know? Explain your answer. c. What information about the land would potential investors in BMAC want to know? Explain your answer.
1-16 (Application of qualitative characteristics)
Matrix Technologies designs and installs computer software for businesses. Recently, it learned that one of its major customers, representing 20% of annual sales, is in financial difficulty and is unlikely to be ordering for some time. Matrix is about to issue its quarterly report to shareholders. Required: a. Do you think the information about the customer should be disclosed in the quarterly report? Support your answer by referring to the qualitative characteristics described in this chapter.
1-44 (Information for decision-making)
How does the preparation of a classified balance sheet assist the user of the financial statement in predicting a company’s future cash flows? What qualitative characteristic(s) is/are illustrated?
2. Review of Financial Statements
3-56 (Income
Topics
1. Introduction
2. Review of Financial Statements
3. Quality of Earnings
4. Ratios
5. Credit & Equity Analysis
6. Receivables and Investments
7. Capital Assets
8. Investments
9. Liabilities and Leases
10. Future Taxes
11. Pensions
12. Equity
1. Introduction
1-14 (Application of qualitative characteristics)
The BMAC Company purchased land many years ago for $100,000 as a potential site for a new building. No building was ever constructed. A comparable lot near the site was recently sold for $350,000. Required: a. At what value should BMAC carry the land on its balance sheet? Support your answer with consideration for the conservatism, relevance, and reliability of the information that would result.
b. If BMAC wanted to borrow money from a bank, what information about the land would the bank want to know? Explain your answer. c. What information about the land would potential investors in BMAC want to know? Explain your answer.
1-16 (Application of qualitative characteristics)
Matrix Technologies designs and installs computer software for businesses. Recently, it learned that one of its major customers, representing 20% of annual sales, is in financial difficulty and is unlikely to be ordering for some time. Matrix is about to issue its quarterly report to shareholders. Required: a. Do you think the information about the customer should be disclosed in the quarterly report? Support your answer by referring to the qualitative characteristics described in this chapter.
1-44 (Information for decision-making)
How does the preparation of a classified balance sheet assist the user of the financial statement in predicting a company’s future cash flows? What qualitative characteristic(s) is/are illustrated?
2. Review of Financial Statements
3-56 (Income