Reading 42: Financial Statement Analysis: Applications -

答案和详解如下：

1.According to the Management Discussion and Analysis section of Frankfurt Supply Company’s annual report, Frankfurt recently decreased the sales prices of its products in order to increase market share. In addition, Frankfurt recently lowered its requirements for credit customers and increased the credit limits of some customers. What is the most likely impact on Frankfurt’s accounts receivable turnover and inventory turnover as a result of these changes?

A)                 Decrease                         Decrease

B)                 Increase                           Increase

C)                 Decrease                         Increase

D)                 Increase                          Decrease

The correct answer was C)

Accounts receivable turnover will likely decrease as a result of offering credit to customers with weak credit histories. Collections will likely slow down and bad debt expense will likely increase. Iinventory turnover is likely to increase as sales of Frankfurt’s products increase from more liberal credit terms and the decrease in price.

2.National Scooter Company and Continental Chopper Company are motorcycle manufacturing companies. National’s target market includes consumers that are switching to motorcycles because of the high cost of operating automobiles and they compete on price with other manufacturers. The average age of National’s customers is 24 years.

Continental manufactures premium motorcycles and aftermarket accessories and competes on the basis of quality and innovative design. Continental is in the third year of a five-year project to develop a customized hybrid motorcycle. Which of the two firms would most likely report higher gross profit margin, and which firm would most likely report higher operating expense stated as a percentage of total cost?

A)           Continental                          National

B)           National                               Continental

C)           National                               National

D)           Continental                          Continental

The correct answer was D)

Continental likely has the highest gross profit margin percentage since it is selling a customized product and does not compete primarily based on price. Because of the research and development costs of developing a new hybrid motorcycle, Continental likely has the higher operating expense stated as a percentage of total cost.

3.The following footnote appeared in Crabtree Company’s 20X7 annual report:

“On December 31, 20X7, Crabtree recognized a restructuring charge of $20 million, of which $5 million was for severance pay for employees who will be terminated in 20X8 and $15 million was for land that became permanently impaired in 20X7.”

Based only on these changes, Crabtree’s net profit margin and fixed asset turnover ratio in 20X8 as compared to 20X7 will be?

A)           Higher                                    Higher

B)           Lower                                     Unchanged

C)           Lower                                     Higher

D)           Higher                                    Unchanged

The correct answer was D)

The restructuring charge and asset write-down are non-recurring transactions; thus, net income will be higher in 20X8, all else equal. In 20X8, fixed asset turnover will be the same as 20X7, all else equal. The asset impairment charge is a one-time charge, so fixed assets will not be reduced further in 20X8.