Ch 19 revised 2005

Ch 19 revised 2005 - CHAPTER 19: FINANCIAL STATEMENT...

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Unformatted text preview: CHAPTER 19: FINANCIAL STATEMENT ANALYSIS 5. SmileWhite has higher quality of earnings for the following reasons: SmileWhite amortizes its goodwill over a shorter period than does QuickBrush. SmileWhite therefore presents more conservative earnings because it has greater goodwill amortization expense. SmileWhite depreciates its property, plant and equipment using an accelerated depreciation method. This results in recognition of depreciation expense sooner and also implies that its income is more conservatively stated. SmileWhites bad debt allowance is greater as a percent of receivables. SmileWhite is recognizing greater bad-debt expense than QuickBrush. If actual collection experience will be comparable, then SmileWhite has the more conservative recognition policy. 6. a. Equity Assets Assets Sales Sales profits Net Equity profits Net ROE = = = Net profit margin Total asset turnover Assets/equity % 92 . 9 0992 . 140 , 5 510 Sales profits Net = = = 66 . 1 100 , 3 140 , 5 Assets Sales = = 41 . 1 200 , 2 100 , 3 Equity Assets = = b. % 2 . 23 41 . 1 66 . 1 % 92 . 9 200 , 2 100 , 3 100 , 3 140 , 5 140 , 5 510 ROE = = = c.g = ROE plowback = 23.2% % 1 . 16 96 . 1 60 . 96 . 1 % 2 . 23 =- = 7. a. Palomba Pizza Stores Statement of Cash Flows For the year ended December 31, 1999 Cash Flows from Operating Activities Cash Collections from Customers $250,000 Cash Payments to Suppliers (85,000) Cash Payments for Salaries (45,000) Cash Payments for Interest (10,000 ) 19-1 Net Cash Provided by Operating Activities $110,000 Cash Flows from Investing Activities Sale of Equipment 38,000 Purchase of Equipment (30,000) Purchase of Land (14,000 ) Net Cash Used in Investing Activities (6,000) Cash Flows from Financing Activities Retirement of Common Stock (25,000) Payment of Dividends (35,000 ) Net Cash Used in Financing Activities (60,000 ) Net Increase in Cash 44,000 Cash at Beginning of Year 50,000...
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Ch 19 revised 2005 - CHAPTER 19: FINANCIAL STATEMENT...

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