Identify And Compute Ratios For Analyzing A Company's Profitability

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CHAPTER 2
A Further Look at Financial Statements
Study Objectives
1.
2.
3.

Identify the sections of a classified balance sheet.
Identify and compute ratios for analyzing a company’s profitability.
Explain the relationship between a retained earnings statement and a statement of stockholders’ equity.
Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet.
Use the statement of cash flows to evaluate solvency.
Explain the meaning of generally accepted accounting principles.
Discuss financial reporting concepts.

4.
5.
6.
7.

Summary of Questions by Study Objectives and Bloom’s Taxonomy
Item

SO

BT

Item

SO

BT

Item

SO

BT

Item

SO

BT

Item

SO

BT

K
C
K
K

14.
15.
16.
17.

7
7
7
6

C
C
C
C

18.
19.
20.

7
7
1

C
C
C

9.
10.

7
7

K
K

11.

7

K

Do It! Review Exercises
3.
4, 5
K
4.
Exercises

7

K

10.
11.

4
4, 5

AP
AP

12.
13.

7
7

K
C

7.

2, 4,
5

8.

6, 7

E

AP

2, 4,
5

8.

6, 7

E

AP

Questions
1.
2.
3.
4.
5.

1
1
1
1
1

K
K
C
C
K

6.
7.
8.
9.

2, 4, 5
2, 4, 5
4
4, 5

C
K
C
C

10.
11.
12.
13.

4, 5
2, 4, 5
6
6, 7

Brief Exercises
1.
2.
3.

1
1
2

K
AP
AP

4.
5.
6.

3
4
4, 5

K
AP
AP

1.

1

AP

2.

1

AP

1.
2.
3.

1
1
1

AP
AP
AP

4.
5.
6.

1
1
1

AP
AP
AP

1.

1

AP

3.

1, 3

AP

2.

1.
2.

1, 3

1
1, 3

AP

AP
AP

4.

3.
4.

2, 4,
5

AN

1, 3

AP

2, 4,
5

Copyright © 2011 John Wiley & Sons, Inc.

AN

7.
8.

6
7

K
K

7.
2
AP
8. 1, 3, 4 AP
9.
4
AP
Problems: Set A
5.

2, 4,
5
AP
6. 2, 4,
5
AP
Problems: Set B
5. 2, 4,
5
AP
6. 2, 4,
5
AP

Kimmel Accounting, 4/e Solutions Manual

7.

(For Instructor Use Only)

2-1

ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number

Difficulty
Level

Time
Allotted (min.)

Simple

Description

10–20

1A
2A

Prepare financial statements.

Moderate

20–30

3A

Prepare financial statements.

Moderate

20–30

4A

Compute ratios; comment on relative profitability, liquidity, and solvency.

Moderate

20–30

5A

Compute and interpret liquidity, solvency, and profitability ratios. Simple

10–20

6A

Compute and interpret liquidity, solvency, and profitability ratios.

Moderate

15–25

7A

Compute ratios and compare liquidity, solvency, and profitability for two companies.

Moderate

15–25

8A

Comment on the objectives and qualitative characteristics of financial reporting.

Simple

10–20

1B

Prepare a classified balance sheet.

Simple

10–20

2B

Prepare financial statements.

Moderate

20–30

3B

Prepare financial statements.

Moderate

20–30

4B

Compute ratios; comment on relative profitability, liquidity, and solvency.

Moderate

20–30

5B

Compute and interpret liquidity, solvency, and profitability ratios. Simple

10–20

6B

Compute and interpret liquidity, solvency, and profitability ratios.

Moderate

15–25

7B

Compute ratios and compare liquidity, solvency, and profitability for two companies.

Moderate

15–25

8B

2-2

Prepare a classified balance sheet.

Comment on the objectives and qualitative characteristics of accounting information.

Simple

10–20

Copyright © 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

ANSWERS TO QUESTIONS
1.

A company’s operating cycle is the average time that is required to go from cash to cash in producing revenue.

2.

Current assets are assets that a company expects to convert to cash or use up within one year of the balance sheet date or the company’s operating cycle, whichever is longer. Current assets are listed in the order in which they are
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