Financial Accounting, 6th Edition by
David Spiceland
Complete Chapter Solutions Manual
are included (Ch 1 to 12)
** Immediate Download
** Swift Response
** All Chapters included
** Applying Excel Solutions
,Table of Contents are given below
Chapter 1: A Framework for Financial Accounting
Chapter 2: The Accounting Cycle: During the Period
Chapter 3: The Accounting Cycle: End of the Period
Chapter 4: Cash and Internal Controls
Chapter 5: Receivables and Sales
Chapter 6: Inventory and Cost of Goods Sold
Chapter 7: Long-Term Assets
Chapter 8: Current Liabilities
Chapter 9: Long-Term Liabilities
Chapter 10: Stockholders’ Equity
Chapter 11: Statement of Cash Flows
Chapter 12: Financial Statement Analysis
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure
that all chapters are included in this document. (Complete Chapters included Ch12-1)
Chapter 12
Financial Statement Analysis
REVIEW QUESTIONS
Question 12-1 (LO 12-1, 12-2)
The three types of comparisons commonly used in financial statement analysis are comparisons
between companies, comparisons over time, and comparisons to industry.
Question 12-2 (LO 12-1, 12-2)
For vertical analysis, we express each item as a percentage of the same base amount, such as a
percentage of sales in the income statement or as a percentage of total assets in the balance sheet.
We use horizontal analysis to analyze trends in financial statement data, such as the amount of
change and the percentage change, for one company over time.
Question 12-3 (LO 12-1)
Sales are commonly used as a base amount for income statement accounts. Total assets are
commonly used as a base amount for balance sheet accounts.
Question 12-4 (LO 12-1)
The company that has most of its equity balance in retained earnings is likely an older and more
established company. The retained earnings balance of a profitable company that pays little
dividends will grow substantially over the years. Walmart, Starbucks, and Facebook are all good
examples.
Question 12-5 (LO 12-2)
If the dollar amount of the change is small, it may not be all that important even if the percentage
change is very large. For example, in a large company, a $100 change is probably not important even
if it increased 1,000% from $10 to $110.
Question 12-6 (LO 12-3)
We measure income statement accounts over a period of time (like a video), while we measure
balance sheet accounts at a point in time (like a photograph). Therefore, ratios that compare an
income statement account with a balance sheet account should express the balance sheet account as
an average of the beginning and ending balances.
Question 12-7 (LO 12-3)
Liquidity refers to a company’s ability to pay its current liabilities. The accounts used to
calculate liquidity ratios are current assets and current liabilities. Solvency refers to a company’s
ability to pay its long-term liabilities.
, Chapter 12 - Financial Statement Analysis
Question 12-8 (LO 12-3)
(a) Receivable turnover ratio and average collection period.
(b) Inventory turnover ratio and average days in inventory.
(c) Times interest earned ratio
Question 12-9 (LO 12-3)
(a) Good news.
(b) Bad news.
(c) Good news.
(d) Bad news.
Question 12-10 (LO 12-3)
A $100,000 purchase of inventory on account will increase current assets and current liabilities
by $100,000. The new current ratio will increase to 0.92, calculated as current assets ($550,000)
divided by current liabilities ($600,000).
Question 12-11 (LO 12-4)
(a) Return on assets.
(b) Profit margin.
(c) Asset turnover.
Question 12-12 (LO 12-4)
(a) Good news.
(b) Bad news.
(c) Bad news.
(d) Good news.
Question 12-13 (LO 12-4)
The return on assets and the return on equity differ due to financial leverage – the amount of debt
each company carries. If a company earns a return on investment above the interest cost of
borrowing, then the additional debt will benefit investors in the company. The result, as is the case
for Hash Mark, Inc., is that the return on equity will exceed the return on assets.
Question 12-14 (LO 12-5)
Earnings persistence is the ability of current earnings to continue or persist into future years.
Items that are not expected to persist, like discontinued operations, are reported separately near the
bottom of the income statement.
Question 12-15 (LO 12-6)
The trend in earnings per share is favorable. Companies report discontinued operations
separately near the bottom of the income statement to allow investors to see that these are one-time
items that should be excluded in estimating income that will persist into future periods. Therefore,
excluding the discontinued operations, earnings per share increased from $1.30 last year to $1.50
this year.
David Spiceland
Complete Chapter Solutions Manual
are included (Ch 1 to 12)
** Immediate Download
** Swift Response
** All Chapters included
** Applying Excel Solutions
,Table of Contents are given below
Chapter 1: A Framework for Financial Accounting
Chapter 2: The Accounting Cycle: During the Period
Chapter 3: The Accounting Cycle: End of the Period
Chapter 4: Cash and Internal Controls
Chapter 5: Receivables and Sales
Chapter 6: Inventory and Cost of Goods Sold
Chapter 7: Long-Term Assets
Chapter 8: Current Liabilities
Chapter 9: Long-Term Liabilities
Chapter 10: Stockholders’ Equity
Chapter 11: Statement of Cash Flows
Chapter 12: Financial Statement Analysis
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure
that all chapters are included in this document. (Complete Chapters included Ch12-1)
Chapter 12
Financial Statement Analysis
REVIEW QUESTIONS
Question 12-1 (LO 12-1, 12-2)
The three types of comparisons commonly used in financial statement analysis are comparisons
between companies, comparisons over time, and comparisons to industry.
Question 12-2 (LO 12-1, 12-2)
For vertical analysis, we express each item as a percentage of the same base amount, such as a
percentage of sales in the income statement or as a percentage of total assets in the balance sheet.
We use horizontal analysis to analyze trends in financial statement data, such as the amount of
change and the percentage change, for one company over time.
Question 12-3 (LO 12-1)
Sales are commonly used as a base amount for income statement accounts. Total assets are
commonly used as a base amount for balance sheet accounts.
Question 12-4 (LO 12-1)
The company that has most of its equity balance in retained earnings is likely an older and more
established company. The retained earnings balance of a profitable company that pays little
dividends will grow substantially over the years. Walmart, Starbucks, and Facebook are all good
examples.
Question 12-5 (LO 12-2)
If the dollar amount of the change is small, it may not be all that important even if the percentage
change is very large. For example, in a large company, a $100 change is probably not important even
if it increased 1,000% from $10 to $110.
Question 12-6 (LO 12-3)
We measure income statement accounts over a period of time (like a video), while we measure
balance sheet accounts at a point in time (like a photograph). Therefore, ratios that compare an
income statement account with a balance sheet account should express the balance sheet account as
an average of the beginning and ending balances.
Question 12-7 (LO 12-3)
Liquidity refers to a company’s ability to pay its current liabilities. The accounts used to
calculate liquidity ratios are current assets and current liabilities. Solvency refers to a company’s
ability to pay its long-term liabilities.
, Chapter 12 - Financial Statement Analysis
Question 12-8 (LO 12-3)
(a) Receivable turnover ratio and average collection period.
(b) Inventory turnover ratio and average days in inventory.
(c) Times interest earned ratio
Question 12-9 (LO 12-3)
(a) Good news.
(b) Bad news.
(c) Good news.
(d) Bad news.
Question 12-10 (LO 12-3)
A $100,000 purchase of inventory on account will increase current assets and current liabilities
by $100,000. The new current ratio will increase to 0.92, calculated as current assets ($550,000)
divided by current liabilities ($600,000).
Question 12-11 (LO 12-4)
(a) Return on assets.
(b) Profit margin.
(c) Asset turnover.
Question 12-12 (LO 12-4)
(a) Good news.
(b) Bad news.
(c) Bad news.
(d) Good news.
Question 12-13 (LO 12-4)
The return on assets and the return on equity differ due to financial leverage – the amount of debt
each company carries. If a company earns a return on investment above the interest cost of
borrowing, then the additional debt will benefit investors in the company. The result, as is the case
for Hash Mark, Inc., is that the return on equity will exceed the return on assets.
Question 12-14 (LO 12-5)
Earnings persistence is the ability of current earnings to continue or persist into future years.
Items that are not expected to persist, like discontinued operations, are reported separately near the
bottom of the income statement.
Question 12-15 (LO 12-6)
The trend in earnings per share is favorable. Companies report discontinued operations
separately near the bottom of the income statement to allow investors to see that these are one-time
items that should be excluded in estimating income that will persist into future periods. Therefore,
excluding the discontinued operations, earnings per share increased from $1.30 last year to $1.50
this year.
