Week 3 Individual Assignment - Valimer Corporation Income...

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Valimer Corporation Income Statement Net Sales $315,0 00 Less: Cost of Goods Sold $130,7 50 Gross Profit $184,2 50 Less: Selling & Administrative Expenses $90,05 0 Operating Income $94,20 0 Add: Interest Revenue $5,000 Income before Income Tax $89,20 0 Income Tax Expense $2,500 Net Income $86,70 0 14. True or False 1. Corporations pay taxes based on the amount of income before income taxes . T 2. A company that changes from one accounting principle to another generally must report an extraordinary item in its income statement in the year of the change. T 3. The market price to book value ratio indicates how much investors are willing to pay for each $1 of a company’s net assets. T 4. If a corporation’s common stock has a much higher price-earnings ratio than its historical norm, sophisticated investors will typically view that stock as “bargain” priced. F 5. If Company A owns 35 percent of Company B’s common stock, Company A should use the equity method of accounting and consolidate both companies’ financial statements at year-end . F 6. Decision makers commonly use activity ratios to evaluate a company’s liquidity. F 7. Common-sized financial statements can be used to identify important structural changes in a company’s operating results and financial condition over a period of time. T 8. Financial leverage works to the advantage of company owners when the interest rate paid on borrowed funds exceeds the rate of return earned on those funds . F 9. The study of percentage changes in financial statement items over a period of time is known as trend analysis. T 10. Earnings quality generally refers to the degree of correlation between a firm’s
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