Chap011 - Financial Statement Analysis SOLUTIONS E11-1 Key data would be the recent(3-5 year trend in earnings per share cash dividends per share

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Financial Statement Analysis SOLUTIONS: E11-1. Key data would be the recent (3-5 year) trend in earnings per share, cash dividends per share, market price, and P/E ratio. These data would be in tabular and graphic format. Market price would be noted weekly. Quarterly and annual data to note are earnings and dividend trends. The sell/hold/buy decision is based on stock price performance relative to the price objective established from analysis of the above data. E11-2. This exercise can be used as a library assignment and directed specifically at source materials that are readily available for your students. Other information that students may be interested in knowing include: 1) the results of operations for the most recent quarter (or for any period of time that has passed by since the last balance sheet date), 2) significant economic events or other news items that have recently affected the company or the industry within which it operates, 3) key qualitative factors such as employment statistics, 4) the potential impact on the company of proposed legislation or pending litigation, and 5) the availability of financial information about key competitors and/or industry-wide data for comparative purposes. E11-3. Transaction/event Financial ratio +/ - Explanation a. Split the common stock 2 for 1. Book value per share of common stock. - The denominator doubles so the BV/share will be ½ of original. b. Collected accounts receivable. Number of days’ sales in accounts receivable. - Decrease in accounts receivable with no effect on average days’ sales. c. Issued common stock for cash. Total asset turnover - Increase in average total assets with no effect on sales. d. Sold treasury stock. Return on equity - Increase in average owners’ equity with no effect on net income. e. Accrued interest on a note receivable. Current ratio + Increase in current assets for interest receivable. f. Sold inventory on account. Acid-test ratio + Numerator increases (inventory turns into accounts receivable). g. Wrote off an uncollectible account. Accounts receivable turnover NE Net realizable value of accounts receivable is not affected by the write-off entry. h. Declared a cash dividend. Dividend yield + Dividends per share increase with no determinable effect on market price per share. i. Incurred operating expenses. Margin - Expenses reduce net income. j. Sold equipment at a loss. Earnings per share + Losses reduce net income.
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Chapter 11 E11-4. Transaction/event Financial ratio +/ - Explanation a. Purchased inventory on account. Number of days’ sales in inventory. + Increase in inventory causes the numerator to increase. b. Sold inventory for cash, at a profit. Inventory turnover + As sales volume increases, so does cost of goods sold and inventory turnover. c. Issued a 10% stock
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This note was uploaded on 04/04/2009 for the course ACC ACC/539 taught by Professor Michaeldonohoe during the Fall '05 term at University of Phoenix.

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Chap011 - Financial Statement Analysis SOLUTIONS E11-1 Key data would be the recent(3-5 year trend in earnings per share cash dividends per share

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