Reading 30: Analysis of Financial Statements: A Synthesis L black, equity, balance, adjusted

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11.ABC's ratio of long-term debt to equity based on the adjusted balance sheet is:

A)   0.50.

B)   0.30.

C)   0.62.

D)   0.86.

12.ABC's fixed asset turnover based on the adjusted balance sheet is:

A)   1.92 times.

B)   1.95 times.

C)   2.78 times.

D)   3.13 times.

13.The Baker Company has an accrued postretirement benefit cost of $3 million on its balance sheet. Examining the notes to Baker's financial statements you find that the accumulated postretirement benefit obligation is $2.5 million. The adjustment you would make to Baker's reported balance sheet in analysis of these statements would be:

A)   an increase in plan assets of $0.5 million.

B)   a reduction in the reported postretirement obligation of $0.5 million.

C)   an increase in the reported postretirement obligation of $0.5 million.

D)   an increase in the reported postretirement obligation of $2.5 million.

14.

NGS Corporation Balance Sheet
(in millions)
Assets			Liabilities & Owners’ Equity
Cash	$20		Accounts payable	$25
Marketable securities	50		Notes payable	10
Accounts receivable	30		Total current liabilities	$35
Inventories	50
Total current assets	$150
			Long-term debt	$75
			Common stock (20M shs)	40
Net property, plant & equip.	$145		Retained earnings	150
Intangible assets	5		Total stockholders’ equity	$190
Total assets	$300		Total liabilities & equity	$300

The financial statement footnotes provide the following data:

§  Inventory valued at cost as determined by last in, first out (LIFO).

§  LIFO reserve is $5 million (ignore deferred taxes).

§ Operating leases finance other operational facilities and have a present value of $10 million.

§ $5 million of goodwill from previous acquisitions are intangible assets.

§ Due to a increase in interest rates, NGS’ long-term debt has a current market value of $70 million.

Once the balance sheet has been adjusted and restated, what is the total stockholders’ equity?

A)   $195.

B)   $167.

C)   $172.

D)   $203.

15.Long-term debt-to-equity ratios based on the historical balance sheet and the adjusted balance sheet, in this instance, would be:

A)   Historical balance sheet =39.5%; Adjusted balance sheet =41.0%.

B)   Historical balance sheet =35.9%; Adjusted balance sheet =48.9%.

C)   Historical balance sheet =39.5%; Adjusted balance sheet =55.9%.

D)   Historical balance sheet =41.9%; Adjusted balance sheet =59.9%.

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11-1３答案和详解如下：

11.ABC's ratio of long-term debt to equity based on the adjusted balance sheet is:

A)   0.50.

B)   0.30.

C)   0.62.

D)   0.86.

The correct answer was A)

ABC Company Adjusted Balance Sheet (in thousands of dollars)
Assets			Liabilities and Stockholders' Equity
Cash	$5,000		Accounts payable	$18,000
Marketable securities	3,000		Notes payable	7,000
Accounts receivable	20,000		Total current liabilities	$25,000
Inventories	10,000
Total current assets	$38,000		Long-term debt	$25,000
			Capitalized operating leases	10,000
Net P, P, & E	$90,000		Preferred stock (100,000 shares)	$5,000
Intangible assets	2,000		Common stock (4 million shares)	40,000
			Retained earnings	32,000
Total assets	$130,000		Equity adjustments	-7,000
			Total stockholders' equity	$70,000
			Total liabilities & equity	$130,000

Equity adjustments: -$8,000 [goodwill] -1,000 [increase in long-term debt] + 2,000 [decrease in preferred stock] = -$7,000

$35,000 / $70,000 = 0.500

12.ABC's fixed asset turnover based on the adjusted balance sheet is:

A)   1.92 times.

B)   1.95 times.

C)   2.78 times.

D)   3.13 times.

The correct answer was C)

ABC Company Adjusted Balance Sheet (in thousands of dollars)
Assets			Liabilities and Stockholders' Equity
Cash	$5,000		Accounts payable	$18,000
Marketable securities	3,000		Notes payable	7,000
Accounts receivable	20,000		Total current liabilities	$25,000
Inventories	10,000
Total current assets	$38,000		Long-term debt	$25,000
			Capitalized operating leases	10,000
Net P, P, & E	$90,000		Preferred stock (100,000 shares)	$5,000
Intangible assets	2,000		Common stock (4 million shares)	40,000
			Retained earnings	32,000
Total assets	$130,000		Equity adjustments	-7,000
			Total stockholders' equity	$70,000
			Total liabilities & equity	$130,000

Equity adjustments: -$8,000 [goodwill] -1,000 [increase in long-term debt] + 2,000 [decrease in preferred stock] = -$7,000

PPE on the adjusted balance sheet is adjusted upward by capitalizing the operating leases by their present value of $10,000. New net PPE = $80,000 + $10,000 leases = $90,000

Fixed asset turnover = sales/fixed assets = $250,000/$90,000 = 2.78

13.The Baker Company has an accrued postretirement benefit cost of $3 million on its balance sheet. Examining the notes to Baker's financial statements you find that the accumulated postretirement benefit obligation is $2.5 million. The adjustment you would make to Baker's reported balance sheet in analysis of these statements would be:

A)   an increase in plan assets of $0.5 million.

B)   a reduction in the reported postretirement obligation of $0.5 million.

C)   an increase in the reported postretirement obligation of $0.5 million.

D)   an increase in the reported postretirement obligation of $2.5 million.

The correct answer was B)    

The excess of the accrued cost over the obligation is the excess accrual (i.e., $3 million - 2.5 million), which reduces the firm's liability.

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１４－１５答案和详解如下：

14.

NGS Corporation Balance Sheet
(in millions)
Assets			Liabilities & Owners’ Equity
Cash	$20		Accounts payable	$25
Marketable securities	50		Notes payable	10
Accounts receivable	30		Total current liabilities	$35
Inventories	50
Total current assets	$150
			Long-term debt	$75
			Common stock (20M shs)	40
Net property, plant & equip.	$145		Retained earnings	150
Intangible assets	5		Total stockholders’ equity	$190
Total assets	$300		Total liabilities & equity	$300

The financial statement footnotes provide the following data:

§  Inventory valued at cost as determined by last in, first out (LIFO).

§  LIFO reserve is $5 million (ignore deferred taxes).

§ Operating leases finance other operational facilities and have a present value of $10 million.

§ $5 million of goodwill from previous acquisitions are intangible assets.

§ Due to a increase in interest rates, NGS’ long-term debt has a current market value of $70 million.

Once the balance sheet has been adjusted and restated, what is the total stockholders’ equity?

A)   $195.

B)   $167.

C)   $172.

D)   $203.

The correct answer was A)

Equity adjustments follow:

+$5 (inventory adjustment)
-$5 (goodwill adjustment)
+$5 (long-term debt adjustment)
+$5 Million.

15.Long-term debt-to-equity ratios based on the historical balance sheet and the adjusted balance sheet, in this instance, would be:

A)   Historical balance sheet =39.5%; Adjusted balance sheet =41.0%.

B)   Historical balance sheet =35.9%; Adjusted balance sheet =48.9%.

C)   Historical balance sheet =39.5%; Adjusted balance sheet =55.9%.

D)   Historical balance sheet =41.9%; Adjusted balance sheet =59.9%.

The correct answer was A)

$75/190 = 39.5% based on historical balance sheet.

Adjusted debt = 70 market value + 10 operating lease = 80

$80/195 = 41.0% based on adjusted balance sheet.

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