What is the basic format of the income statement and what is the relevance of the basic categories?

assignment 2 excel and microsoft due 01/03

Answer all of the following questions/problems and submit them to your mentor in a Word document.

You should use a financial calculator and Excel to solve the problems.

Remember: You must export your table(s) from Excel to Word before submitting your work.


  1. Discuss the importance of financial statements and how they are used by businesses.

  1. What is the basic format of the income statement and what is the relevance of the basic categories?

  1. Cash flows for an organization come from operating activities and investment activities. Discuss the importance of each to the organization.

  1. The Happy Auto Shop has the following annual information:


Gross Sales


Net sales


Gross profit


What are the shop’s returns and allowances and cost of goods sold?


  1. Construct a statement of financial position (balance sheet) for the Humperdink family using the following information:




Checking account


student loan balance


stocks and bonds


savings account






savings account


automobile loan balance


401K retirement account


furniture, clothing, jewelry


credit card balance


mortgage loan balance



  1. What is the purpose of financial statement analysis?  How do the three types of financial statement analysis differ from each other and when is each used?

  1. Samantha Knight is applying for a small-business loan. She provides the bank with the following information:


cash in checking accounts


cash in savings


home market value


first mortgage on house


home equity loan limit


home equity loan


automobile market value


automobile loan outstanding


credit card debt



    1. Calculate the debt-to-asset ratio.

    2. Calculate the debt-to-equity ratio.

    3. What percentage of Samantha’s assets is owned by others?


  1. Given the profit loss (income statement) and balance sheet for Sam’s Sandwich Delivery (Table 4-8, page 121 of your textbook), answer the following:

    1. Calculate the following ratios: current, quick, accounts receivable turnover, fixed asset turnover.

    2. Using the inventory figure on the balance sheet as average inventory, calculate the inventory turnover ratio.

    3. Calculate the debt-to-equity ratio, debt-to-total asset ratio, and operating profit margin ratio.

    4. Perform a vertical analysis of the income statement.

    5. Perform a vertical analysis of the balance sheet.

    6. Based on your analysis, would you consider investing in Sam’s Sandwich Delivery?


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