Homework Analyzing Financial Position Assignment
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May 9, 2024
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1.
What three pieces of information are needed to convert nominal dollars to constant
dollars?
The adjusted value of the account in historical or normal dollars
A price index that reflects the purchasing power in which the unadjusted value is currently expressed
A price index that reflects the purchasing power at the date the account is to be restarted.
2. For restating financial statements to convert to constant dollars, what index is required by
the Financial Accounting Standards Board?
The consumer price index is required by the financial accounting standards board 33 to restate historical cists to constant dollars
3. The HC method, which uses unadjusted historical costs, does not consider depreciation
expenses, purchasing power, and unrealized gains in replacement value. Despite these
weaknesses as a financial reporting method, the HC method is used more frequently for
accounting purposes than other methods, such as the HC-GPL, CV, and CV-GPL
methods. Why is this so?
The HC method is consistent and used more frequently because the other methods would provide some degree of inflationary adjustment. Changes in financial reporting methods also could influence decisions reached by regulatory and rate-setting organizations
4. What are two major methods of asset valuation?
5. Inflation was 8% during the most recent year and your organization's investment in land
rose 12%. If the beginning appraised land value was $1,000,000, what increase in
specific prices over general price level would be reported, stated in year-end dollars?
6. You purchased an MRI scanner two years ago for $2.0 million. The MRI has a 5-year
depreciable life with no salvage value. If that same MRI now costs $3.0 million, what
would be the difference between replacement cost depreciation and historical cost
depreciation?
Historical cost depreciation $2,000,000/5 = 400,000
Replacement cost depreciation $3,000,000/5 = 600,000
Difference in cost 600,000 – 400,000= $200,00
7. What are the four critical questions that must be answered for dashboard reporting?
What is most important to the firms success?
What are the critical drivers that influence preformation attainment?
What are the most relevant measures that reflect critical driver relationship?
What relevant benchmarking data are available to assess performance? Number as a measure of success can be misleading
8. What should be a firm's primary long-term financial objective?
A firm’s primary long term financial objective should be sustained growth.
9. What is/are the primary determinant(s) of firm value?
The primary determinants of firm value are profit, investment required to support operations and cost of capital 10. Listed below are the financial ratios for Calvin Community Clinic. Calvin improved its
overall financial condition from 2008 to 2009. Identify these areas of improvement and
attempt to explain how this improvement came about.
The Acid test ratio is more meaning there is more cash and marketable securities are available to pay off all current liabilities.
The days in accounts receivable are less which will increase working capital.
It took less days for bills to be paid under the average payment period.
DCOH was more and the organization could continue to operate given its current level of cash and operating expenses.
More money was invested in the organization’s plant and equipment based
on the fixed
asset turnover.
The Operating margin is more which means more operating income/total revenue which can help in growth, but we believe that relying on this number as a measure of success can be misleading in many situations.
More profit was earned for each dollar invested in assets based on the Return of total assets.
Debt service coverage was increased which helps to avoid financial risk exposure and the investment needs of its strategic plan
11. Listed below are the balance sheet and statement of operations for Wynn Memorial
Nursing Home for 2008 and 2009. Compute the following ratios:
1. Current Ratio: December 31, 2008:
Current Ratio = 365 / 240
Current Ratio = 1.52: 1
December 31, 2009:
Current Ratio = 405 / 295
Current Ratio = 1.37: 1
2. Acid-test Ratio: December 31, 2008:
Acid test = 285/ 240
Acid test = 1.18:1
December 31, 2009:
Acid test = 325/ 295
Acid test = 1.10: 1
3. Days in Accounts Receivable
: December 31, 2009:
Average payment period = 220/(1600/360)
Average payment period = 49.44
4. Average Payment Period: Average Accounts Receivable = (295 + 235) / 2
Average Accounts Receivable = $265
Days in Accounts Receivable = 365 * 265 / 1,400
Days’ in Accounts Receivable = 69.09 or 69 days
5. Long-term Debt to Net Assets Ratio:
December 31, 2008:
Long Term Debt to Net Assets Ratio = 20 / 355
Long Term Debt to Net Assets Ratio = 0.06 times
December 31, 2009:
Long Term Debt to Net Assets Ratio = 100 / 493
Long Term Debt to Net Assets Ratio = 0.20 times
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Related Questions
choose:
When a balance sheet amount is related to an income statement amount in comparing a ratio
a. The ratio losses its historical perspective because at the beginning of the year amount is combined with an end of the year amount.
b. The income statement amount should be converted to an average for the year.
c. Comparisons should be converted to market value
d. The balance sheet amount should be converted to an average for the year.
arrow_forward
For purposes of adjusting financial statements for changes in the general price level, monetary items consist of:
a. Assets and liabilities whose amounts are fixed by contract or otherwise in terms of pesos
b. Assets and liabilities classified as current
c. Cash and cash equivalents plus all receivables
d. Cash, other assets expected to be converted into cash and current liabilities
arrow_forward
Which of the following is not an element of the financial statements?
Group of answer choices
1.future potential sales price of inventory
2.assets
3.liabilities
4.equity
arrow_forward
Indicate the effect of the transactions listed in the following table on total current assets, current ration, and net income. Use (+) to indicate an increase, (-) to indicate a decrease, and (0) to indicate either no effect or an indeterminate effect. Be prepared to state any necessary assumptions and assume an initial current ratio of more than 1.0.
Merchandise is sold on credit.
arrow_forward
Listed below are several information characteristics and accounting principles and assumptions. Match the letter of each with the appropriate phrase that states its application. (Items a through k may be used more than once or not at all.)
Economic entity assumption g. Matching principle
Going concern assumption h. Full disclosure principle
Monetary unit assumption i. Relevance characteristic
Periodicity assumption j. Reliability characteristic
Historical cost principle k. Consistency characteristic
Revenue recognition principle
____ 1. Stable-dollar assumption (do not use historical cost principle).
____ 2. Earning process completed and realized or realizable.
____ 3. Presentation of error-free information with representational faithfulness.
____ 4. Yearly financial reports.
____ 5. Accruals and deferrals in the adjusting and closing process. (Do not use going concern.)
____ 6. Useful standard measuring unit for business…
arrow_forward
Several accounts are listed below
a. Purchases Returns and Allowances
b. Sales Discounts
c. Wages Expense
d. Allowance for Doubtful Accounts
e. Unearned Rent
f. Income Taxes Payable
g. Dividends Distributed
h. Interest Revenue
i. Inventory
REQUIRED:
List the accounts above that would normally have a credit balance
arrow_forward
Please help: options for matching answers are trend analysis, vertical analysis, retained analysis prepaid expense, net sales, net purchase, net income merchandise inventory, long term liabilities, income statement, horizontal analysis, gross profit, current ratio, current liabilities, current assets, cost of merchandise sold, comparative statements, common size statements, balance sheet, assets, asset turnover, acid test, accounts receivable, accounts payable.
arrow_forward
A bank that is examining the ratio of annual costs of goods sold to average inventory, is examining which category of ratios?
a.Profit measures
b.Operating efficiency measures
c.Liquidity measures
d.Expense control measures
arrow_forward
How to calculate the account receivable turnover ratio in a balance Sheet and income statement (explain it with the items on the income statement and balance Sheet eg.inventory, current receivable, current liability..and so on.
arrow_forward
. The operating cycle is equal to which one of the following?
A.
Inventory period plus the accounts payable period
B.
Accounts receivable period plus the cash cycle
C.
Inventory period minus the accounts payable period plus the accounts receivable period
D.
Accounts receivable period plus the inventory period
E.
Inventory period plus the cash cycle
arrow_forward
Which of the following items in the balance sheet does NOT have a constant relationship with sales in general when we use the percent of sale method to construct pro forma financial statements?
Retained earnings
Inventory
Accounts receivables
Accounts payables
arrow_forward
Which income statement account(s) would be affected by a policy choice at the same time as the inventory balance sheet account.
a.
Bad debts expense
b.
Cost of goods sold expense
c.
Depreciation or amortisation expense
d.
Sales revenue
arrow_forward
Indicate the normal balance and category of each of the following accounts:
CATEGORy options ARE: asset, contra-expense, contra-revenue, expense, liability, revenue.
Account
Normal Balance
Category
a.
Sales Returns and Allowances
b.
Merchandise Inventory
c.
Miscellaneous Income
d.
Payroll Tax Expense
e.
Sales Discounts
f.
Cost of Goods Sold
g.
Income Tax Payable
h.
Prepaid Expenses
arrow_forward
10. Choose the options to correctly complete the following statement.
Some balance sheet and income statement accounts that vary directly with sales include:
1. Cost of goods sold
II. Depreciation
III. Accounts payable
IV. Accounts receivable
O I, II, III only
O I, II, IV only
O I, III, IV only
O I, II, III, and IV
arrow_forward
compare the current rate method and the temporal method, evaluate how each aff ects theparent company’s balance sheet and income statement, and determine which method isappropriate in various scenarios;
arrow_forward
Which of the following is included in the calculation of the quick (acid-test) ratio?a. Inventory and short-term investmentsb. Inventory and prepaid expensesc. Cash and accounts receivabled. Prepaid expenses and cash
arrow_forward
Which of the ratios listed helps to indicate whether current liabilities could be paid without having to sell the inventory?
a.Current ratio
b.Profit margin
c.Quick ratio
d.Debt to equity
arrow_forward
Options I have for denominator are -
average accounts receivable, net
average total assets
cost of goods sold
current assets
current liabilities interest expense
net sales
arrow_forward
Using the worksheet to prepare financial statements
Answer the following questions:
Requirements
What type of normal balance does the Retained Earnings account have—debit or credit?
Which type of income statement account has the same type of balance as the Retained Earnings account?
Which type of income statement account has the opposite type of balance as the Retained Earnings account?
What do we call the difference between total debits and total credits on the income statement section of the worksheet?
arrow_forward
Which of the following assumptions is assumed in the percent of sales forecasting method?
All balance sheet assets accounts are tied directly to sales.
Accounts receivables and inventory are tied directly to sales.
Preferred stock and long-term debt are tied directly to sales.
Fixed assets, but not current assets, are tied directly to sales.
arrow_forward
What two purposes do firms achieve by estimating future uncollectible accounts?
arrow_forward
Determine the adjusted balances of the following:
1. Accounts Receivable
2. Inventories
3. Sales
4. Cost of Sales
5. Effect of errors to net income
arrow_forward
How do you calculate the estimate using the percentage of sales and aging of accounts methods
arrow_forward
Which of the following is not an element of the financial statements?A. future potential sales price of inventoryB. assetsC. liabilitiesD. equity
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Required: a. Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses:1. Prepare general journal entries to enter the transactions.2. Prepare the adjusting entry necessary on August 31 if financial statements are to be prepared at that time.3. Describe how the various items would be shown in the financial statements.b. Which of the two methods do you prefer and why?
arrow_forward
Assess the company’s level of liquidity and comment on its ability to meet its short-termfinancial obligations using the following ratios d. Accounts Receivable Turnover ratioe. Inventory Turnover Ratio
arrow_forward
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- choose: When a balance sheet amount is related to an income statement amount in comparing a ratio a. The ratio losses its historical perspective because at the beginning of the year amount is combined with an end of the year amount. b. The income statement amount should be converted to an average for the year. c. Comparisons should be converted to market value d. The balance sheet amount should be converted to an average for the year.arrow_forwardFor purposes of adjusting financial statements for changes in the general price level, monetary items consist of: a. Assets and liabilities whose amounts are fixed by contract or otherwise in terms of pesos b. Assets and liabilities classified as current c. Cash and cash equivalents plus all receivables d. Cash, other assets expected to be converted into cash and current liabilitiesarrow_forwardWhich of the following is not an element of the financial statements? Group of answer choices 1.future potential sales price of inventory 2.assets 3.liabilities 4.equityarrow_forward
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- . The operating cycle is equal to which one of the following? A. Inventory period plus the accounts payable period B. Accounts receivable period plus the cash cycle C. Inventory period minus the accounts payable period plus the accounts receivable period D. Accounts receivable period plus the inventory period E. Inventory period plus the cash cyclearrow_forwardWhich of the following items in the balance sheet does NOT have a constant relationship with sales in general when we use the percent of sale method to construct pro forma financial statements? Retained earnings Inventory Accounts receivables Accounts payablesarrow_forwardWhich income statement account(s) would be affected by a policy choice at the same time as the inventory balance sheet account. a. Bad debts expense b. Cost of goods sold expense c. Depreciation or amortisation expense d. Sales revenuearrow_forward
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