Solutions Manual for Financial

Solutions Manual for Financial Accounting 12 th Edition By Jerry Weygandt, Paul Kimmel, Jill Mitchell (All Chapters 1-13, 100% Original Verified, A+ Grade)

All Chapters Arranged Reverse: 13-1

This is The Only Original and Complete Solutions Manual for 12 th Edition, All Other Files in the Market are Fake/Old/Wrong Edition.Supplement Files Download Link at The end of PDF. 1 / 4

CHAPTER 13

Financial Analysis: The Big Picture

Learning Objectives 1.Apply the concepts of sustainable income and quality of earnings.

2.Apply horizontal analysis and vertical analysis.

3.Analyze a company’s performance using ratio analysis.© 2022 John Wiley & Sons, Inc. All rights reserved.  Weygandt, Financial Accounting 12e, Solutions Manual  (For Instructor Use Only) 13-1 2 / 4

ANSWERS TO QUESTIONS

 1.Sustainable income is defined as the most likely level of income to be obtained in the future. It is the amount of regular income that a company can expect to earn from its normal operations. In order to distinguish a company’s net income from its sustainable income, unusual revenues, expenses, gains, and losses are separated from operating transactions. In addition, information on unusual items such as gains and losses on discontinued operations and components of other comprehensive income are disclosed separately.LO 1 BT: C Difficulty: Medium TOT: 3 min. AACSB: None AICPA FC: Reporting IMA: Reporting  2.This would not be considered a favorable trend for Hogan Inc. The relevant earnings per share figures are the $3.26 in 2026 and the $2.99 in 2027. These figures indicate that, unless there was an additional issuance of common stock, the earnings from the continuing operations of the company decreased during 2027. This should give the company’s management, and other concerned stakeholders, some concern because they will not always be able to count on income or gains from discontinued operations.LO 1 BT: AN Difficulty: Medium TOT: 4 min. AACSB: Analytic AICPA FC: Reporting IMA: FSA  3.Companies report a change from the FIFO method to the average-cost method for inventory costing retroactively. That is, they report both the current period and any previous periods reported on the face of the statement using the new principle. As a result, the same principle applies to all periods reported. This treatment improves the ability to compare results across years.LO 1 BT: C Difficulty: Easy TOT: 3 AACSB: None AICPA FC: Reporting IMA: Reporting  4.Apple reported “Total other comprehensive income” of $569 million for year ended September 25,

• “Comprehensive income” was more than “Net income” by 0.6% [($95,249 – $94,680) ÷

$94,680]

LO 1 BT: AN Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Reporting IMA: FSA

 5.Factors that affect the quality of earnings include:

(1)Use of alternative accounting methods. Variations among companies in the application of generally accepted accounting principles may hamper comparability.(2)Use of pro forma income measures that do not follow GAAP. Pro forma income is calculated by excluding items that the company believes are unusual or nonrecurring. It is often difficult to determine what was included and excluded.(3)Improper revenue and expense recognition. Many high-profile cases of inappropriate accounting involve recording items in the wrong period.LO 1 BT: K Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Reporting IMA: FSA

13-2© 2022 John Wiley & Sons, Inc. All rights reserved.  Weygandt, Financial Accounting 12e, Solutions Manual  (For Instructor Use Only) 3 / 4

Questions Chapter 13 (Continued)  6.(a)During a period of inflation, net income will be less under the LIFO inventory costing method than it will be using the FIFO method because LIFO results in the larger cost of goods sold amount.(b)Inflation does not affect the amount of depreciation taken (except through its effect on salvage value) since the depreciable amount is based on the acquisition cost. A six-year life produces greater depreciation for the first six years (thus, less net income) and less depreciation in years 7, 8, 9 (thus, more net income in those years) than a nine-year life.(c)Inflation does not affect the amount of depreciation taken. Use of the straight-line method results in less depreciation in the earlier years (thus, more net income) than the declining- balance method but more depreciation in the later years.LO 1 BT: AN Difficulty: Hard TOT: 5 min. AACSB: Analytic AICPA FC: Reporting IMA: FSA  7.Horizontal analysis, (also called trend analysis), measures the dollar and percentage increase or decrease of an item over a period of time. In this approach, the amount of the item on one statement is compared with the amount of that same item in one or more earlier periods.Vertical analysis, (also called common-size analysis), expresses each item within a financial statement as a percent of a relevant base amount, such as total assets for the balance sheet and net sales for the income statement.LO 2 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Reporting IMA: FSA  8.(a)$300,000 × 1.245 = $373,500, 2027 net income.(b)$300,000 ÷ .06 = $5,000,000, 2026 revenue.LO 2 BT: AP Difficulty: Medium TOT: 3 min. AACSB: Analytic AICPA FC: Reporting IMA: None  9.(a)Gina is not correct. There are three characteristics: liquidity, profitability, and solvency.(b)The three parties are not primarily interested in the same characteristics of a company.Short-term creditors are primarily interested in the liquidity of the enterprise. In contrast, long-term creditors and stockholders are primarily interested in the profitability and solvency of the company.LO 3 BT: C Difficulty: Medium TOT: 4 min. AACSB: None AICPA FC: Reporting IMA: FSA  10.(a)Comparison of financial information can be made on an intracompany basis, an inter- company basis, and an industry average basis.

1.An intracompany basis compares the same item with prior periods, or with other financial items in the same period within a company.

2.An intercompany basis compares the same item with other companies’ published reports.

3.The industry average compares the item with the industry average as compiled by Dun & Bradstreet or by trade associations.(b)The intracompany basis of comparison is useful in detecting changes in financial relation- ships and significant trends within a company.The intercompany basis of comparison provides insight into a company’s competitive position.The industry average basis provides information about a company’s relative position within the industry.LO 2 BT: C Difficulty: Easy TOT: 5 min. AACSB: None AICPA FC: Reporting IMA: FSA

© 2022 John Wiley & Sons, Inc. All rights reserved.  Weygandt, Financial Accounting 12e, Solutions Manual  (For Instructor Use Only) 13-3

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