Deck 14: Financial Statement Analysis

Question 1

The Jiffy Corporation data for the current year: $\begin{array}{|l|c|c|}\hline \text { Account } & \text { Current year } & \text { Prior year }\\\hline \text { Current assets } & \$ 72,000 & \$ 60,000 \\\hline \text { A/R } & \$ 49,500 & \$ 45,000 \\\hline \text { Mdse. Inventory } & \$ 56,000 & \$ 40,000 \\\hline \text { Current liabilities } & \$ 63,250 & \$ 55,000 \\\hline \text { Long-term liabilities } & \$ 31,500 & \$ 30,000 \\\hline \text { Common stock (5,000 shares) } & \$ 54,000 & \$ 40,000 \\\hline \text { Retained earnings } & \$ 28,750 & \$ 20,000 \\\hline \text { Net sales revenue } & \$ 565,600 & \$ 505,000 \\\hline \text { COGS } & \$ 454,250 & \$ 395,000 \\\hline \text { Gross Profit } & \$111,350 & \$ 110,000 \\\hline \text { Selling/General expenses } & \$46,800 & \$ 52,000 \\\hline \text { Net income before taxes } & \$ 64,550 & \$ 58,000 \\\hline \text { Income tax expense } & \$ 19,250 & \$ 17,500 \\\hline \text { Net Income } & \$ 45,300&\$40,000\\\hline\end{array}$


- What would a horizontal analysis report with respect to current liabilities?

A)Current liabilities are 11.18% of total capital.
B)Current liabilities saw a 15% increase from the prior year to the current year.
C)The current ratio is 1.14.
D)Current liabilities saw a 79.05% increase from the prior year to the current year.

Answer 1

Current liabilities saw a 15% increase from the prior year to the current year.

Question 2

A company reported the following amounts of net income: $$\begin{array} { | l | l | } \hline \text { Year 1 } & \$ 18,000 \\\hline \text { Year 2 } & \$ 27,000 \\\hline \text { Year 3 } & \$ 32,400 \\\hline\end{array}$$

-Which of the following is the percentage change from Year 2 to Year 3?

A)20.00%
B)50.00%
C)120.00%
D)80.00%

Answer 2

20.00%

Question 3

1-5 In a horizontal analysis,the current period is the base period.

Answer 3

False

Question 4

1-3 Horizontal analysis is the study of percentage changes in comparative financial statements.

Question 5

1-13 Which of the following types of analysis would include the comparison of operating expenses in Year 1 and Year 2?

A)Profitability
B)Capital
C)Trend
D)Horizontal

Question 6

1-10 Which type of analysis includes the computation of the percentage change in total assets between two balance sheet dates?

A)Profitability
B)Vertical
C)Capital
D)Horizontal

Question 7

1-6 A trend percentage is computed by dividing the base year by any other selected year.

Question 8

A company reported the following amounts of net income: $$\begin{array} { | l | l | } \hline \text { Year 1 } & \$ 18,000 \\\hline \text { Year 2 } & \$ 27,000 \\\hline \text { Year 3 } & \$ 32,400 \\\hline\end{array}$$

- Which of the following is the percentage change from Year 1 to Year 2?

A)120.00%
B)20.00%
C)80.00%
D)50.00%

Question 9

The Jiffy Corporation data for the current year: $\begin{array}{|l|c|c|}\hline \text { Account } & \text { Current year } & \text { Prior year }\\\hline \text { Current assets } & \$ 72,000 & \$ 60,000 \\\hline \text { A/R } & \$ 49,500 & \$ 45,000 \\\hline \text { Mdse. Inventory } & \$ 56,000 & \$ 40,000 \\\hline \text { Current liabilities } & \$ 63,250 & \$ 55,000 \\\hline \text { Long-term liabilities } & \$ 31,500 & \$ 30,000 \\\hline \text { Common stock (5,000 shares) } & \$ 54,000 & \$ 40,000 \\\hline \text { Retained earnings } & \$ 28,750 & \$ 20,000 \\\hline \text { Net sales revenue } & \$ 565,600 & \$ 505,000 \\\hline \text { COGS } & \$ 454,250 & \$ 395,000 \\\hline \text { Gross Profit } & \$111,350 & \$ 110,000 \\\hline \text { Selling/General expenses } & \$46,800 & \$ 52,000 \\\hline \text { Net income before taxes } & \$ 64,550 & \$ 58,000 \\\hline \text { Income tax expense } & \$ 19,250 & \$ 17,500 \\\hline \text { Net Income } & \$ 45,300&\$40,000\\\hline\end{array}$



-What would a horizontal analysis report with respect to long-term liabilities?

A)Long-term liabilities decreased by $1,500.
B)Long-term liabilities decreased by 5.57%.
C)Long-term liabilities increased by 8.21%.
D)Long-term liabilities increased by $1,500.

Question 10

1-12 Which of the following types of analysis include trend percentage analysis?

A)Horizontal
B)Vertical
C)Benchmarking
D)Profitability

Question 11

1-4 Horizontal analysis and vertical analysis are used to analyze the performance of a single company.

Question 12

1-14 Which of the following is an accurate description of horizontal analysis?

A)Study of changes in individual financial statement amounts as a percentage of a related base amount
B)Study of percentage changes in various financial statement amounts from year to year
C)Study of changes in key financial ratios from year to year
D)None of the above

Question 13

1-8 The study of percentage changes in comparative financial statements is an example of:

A)vertical analysis.
B)trend analysis.
C)horizontal analysis.
D)benchmarking.

Question 14

1-7 In a horizontal analysis,knowing the percentage change is a better analytical tool than knowing the actual dollar change.

Question 15

1-9 Using a base year as 100% and expressing other years as a percentage of the base year is an example of:

A)vertical analysis.
B)trend analysis.
C)horizontal analysis.
D)benchmarking.

Question 16

1-2 Most financial statement analysis covers trends of more than one year.

Question 17

The Jiffy Corporation data for the current year: $\begin{array}{|l|c|c|}\hline \text { Account } & \text { Current year } & \text { Prior year }\\\hline \text { Current assets } & \$ 72,000 & \$ 60,000 \\\hline \text { A/R } & \$ 49,500 & \$ 45,000 \\\hline \text { Mdse. Inventory } & \$ 56,000 & \$ 40,000 \\\hline \text { Current liabilities } & \$ 63,250 & \$ 55,000 \\\hline \text { Long-term liabilities } & \$ 31,500 & \$ 30,000 \\\hline \text { Common stock (5,000 shares) } & \$ 54,000 & \$ 40,000 \\\hline \text { Retained earnings } & \$ 28,750 & \$ 20,000 \\\hline \text { Net sales revenue } & \$ 565,600 & \$ 505,000 \\\hline \text { COGS } & \$ 454,250 & \$ 395,000 \\\hline \text { Gross Profit } & \$111,350 & \$ 110,000 \\\hline \text { Selling/General expenses } & \$46,800 & \$ 52,000 \\\hline \text { Net income before taxes } & \$ 64,550 & \$ 58,000 \\\hline \text { Income tax expense } & \$ 19,250 & \$ 17,500 \\\hline \text { Net Income } & \$ 45,300&\$40,000\\\hline\end{array}$



- What would a horizontal analysis report with respect to net income before income tax expense and net income?

A)Both net income before tax expense and net income were 8.01% of net sales revenue.
B)Both net income before income tax expense and net income increased by $85,800.
C)There was an increase in both net income before income tax expense and net income of 11.85%.
D)The current ratio is: 1:14.

Question 18

The Jiffy Corporation data for the current year: $\begin{array}{|l|c|c|}\hline \text { Account } & \text { Current year } & \text { Prior year }\\\hline \text { Current assets } & \$ 72,000 & \$ 60,000 \\\hline \text { A/R } & \$ 49,500 & \$ 45,000 \\\hline \text { Mdse. Inventory } & \$ 56,000 & \$ 40,000 \\\hline \text { Current liabilities } & \$ 63,250 & \$ 55,000 \\\hline \text { Long-term liabilities } & \$ 31,500 & \$ 30,000 \\\hline \text { Common stock (5,000 shares) } & \$ 54,000 & \$ 40,000 \\\hline \text { Retained earnings } & \$ 28,750 & \$ 20,000 \\\hline \text { Net sales revenue } & \$ 565,600 & \$ 505,000 \\\hline \text { COGS } & \$ 454,250 & \$ 395,000 \\\hline \text { Gross Profit } & \$111,350 & \$ 110,000 \\\hline \text { Selling/General expenses } & \$46,800 & \$ 52,000 \\\hline \text { Net income before taxes } & \$ 64,550 & \$ 58,000 \\\hline \text { Income tax expense } & \$ 19,250 & \$ 17,500 \\\hline \text { Net Income } & \$ 45,300&\$40,000\\\hline\end{array}$



- What would a horizontal analysis report with respect to selling/general expenses?

A)The current ratio is: 1.14.
B)There was an 11.11% increase from prior to current year.
C)There was a 10% decrease from prior to current year.
D)Selling/general expenses are 8.27% of net sales revenue.

Question 19

1-11 Which type of analysis would reveal a sales increase of $5000 from Year 1 to Year 2?

A)Capital
B)Horizontal
C)Profitability
D)Vertical

Question 20

1-1 Investors and creditors generally evaluate a company by using multi-year data.

Question 21

The Jiffy Corporation data for the current year: $\begin{array}{|l|c|c|}\hline \text { Account } & \text { Current year } & \text { Prior year }\\\hline \text { Current assets } & \$ 72,000 & \$ 60,000 \\\hline \text { A/R } & \$ 49,500 & \$ 45,000 \\\hline \text { Mdse. Inventory } & \$ 56,000 & \$ 40,000 \\\hline \text { Current liabilities } & \$ 63,250 & \$ 55,000 \\\hline \text { Long-term liabilities } & \$ 31,500 & \$ 30,000 \\\hline \text { Common stock (5,000 shares) } & \$ 54,000 & \$ 40,000 \\\hline \text { Retained earnings } & \$ 28,750 & \$ 20,000 \\\hline \text { Net sales revenue } & \$ 565,600 & \$ 505,000 \\\hline \text { COGS } & \$ 454,250 & \$ 395,000 \\\hline \text { Gross Profit } & \$111,350 & \$ 110,000 \\\hline \text { Selling/General expenses } & \$46,800 & \$ 52,000 \\\hline \text { Net income before taxes } & \$ 64,550 & \$ 58,000 \\\hline \text { Income tax expense } & \$ 19,250 & \$ 17,500 \\\hline \text { Net Income } & \$ 45,300&\$40,000\\\hline\end{array}$



- What would a horizontal analysis report with respect to net sales revenue?

A)There was an increase of 12.00% in net sales revenue.
B)There is a sales return of $8.10.
C)The cost of goods sold is 80.31% of net sales revenue.
D)There is an accounts receivable turnover of 11.43 times.

Question 22

The Galloway Corporation data for the current year: $\begin{array}{|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Prior year } \\\hline \text { Current assets } & \$ 46,200 & \$ 42,000 \\\hline \text { A/R } & \$ 69,000 & \$ 60,000 \\\hline \text { Mdse. Inventory } & \$ 67,500 & \$ 50,000 \\\hline \text { Current liabilities } & \$ 46,200 & \$ 33,000 \\\hline \text { Long-term liabilities } & \$ 26,600 & \$ 28,000 \\\hline \text { Common stock (5,000 shares) } & \$ 42,000 & \$ 35,000 \\\hline \text { Retained earnings } & \$ 67,900 & \$ 56,000 \\\hline \text { Net sales revenue } & \$ 625,000 & \$ 500,000 \\\hline \text { COGS } & \$ 520,000 & \$ 400,000 \\\hline \text { Gross Profit } & \$ 105,000 & \$ 100,000 \\\hline \text { Selling/General expenses } & \$ 45,000 & \$ 50,000 \\\hline \text { Net income before taxes } & \$ 60,000 & \$ 50,000 \\\hline \text { Income tax expense } & \$ 16,500 & \$ 15,000 \\\hline \text { Net Income } & \$ 43,500 & \$ 35,000\\\hline\end{array}$




-What would a horizontal analysis report with respect to common stock?

A)An increase of 6.72 in sales revenue
B)Sales return of $6.96
C)An increase of 83.33% from prior to current year
D)Increase of $7,000 in common stock

Question 23

Use the following information to do a horizontal analysis of Magic Corporation's income statement for the current year and prior year: $$\begin{array} { | l | l | l | l | l | } \hline \text { Account } & \text { Current year } & \text { Priar year } & \text { Dollar Change } & \text { \% Change } \\\hline \text { Cost af good sold } & \$ 375,000 & \$ 300,000 & & \\\hline \text { Selling/general exp } & \$ 60,000 & \$ 40,000 & & \\\hline \text { Gross prafit } & \$ 102,600 & \$ 76,000 & & \\\hline \text { Net incarne } & \$ 17,600 & \$ 22,000 & & \\\hline\end{array}$$

- What is the dollar change in gross profit?

A)$20,000
B)$(4,000)
C)$26,600
D)$178,600

Question 24

Use the following information to do a horizontal analysis of Magic Corporation's income statement for the current year and prior year: $$\begin{array} { | l | l | l | l | l | } \hline \text { Accaunt } & \text { Current year } & \text { Priar year } & \text { Dollar Change } & \text { \%6 Change } \\\hline \text { Cost af gaod sold } & \$ 375,000 & \$ 300,000 & & \\\hline \text { Selling/general exp } & \$ 60,000 & \$ 40,000 & & \\\hline \text { Grass profit } & \$ 102,600 & \$ 76,000 & & \\\hline \text { Net incarne } & \$ 17,600 & \$ 22,000 & & \\\hline\end{array}$$

- What is the percentage change in net income?

A)-20.00%
B)17.15%
C)80.00%
D)35.00%

Question 25

2-1 Trend percentages are a form of vertical analysis.

Question 26

Use the following information to do a horizontal analysis of Boyer Corporation's income statement for the current year and prior year:
$\begin{array} { | l | l | l | } \hline \text { Account } & \text { Current } & \text { Prior } \\\hline \text { Cost of goods sold } & \$ 341,600 & \$ 305,000 \\\hline \text { Selling/general expenses } & \$ 40,000 & \$ 32,000 \\\hline \text { Gross profit } & \$ 92,400 & \$ 84,000 \\\hline \text { Net income } & \$ 12,600 & \$ 12,000 \\\hline\end{array}$

Question 27

The Jiffy Corporation data for the current year: $\begin{array}{|l|c|c|}\hline \text { Account } & \text { Current year } & \text { Prior year }\\\hline \text { Current assets } & \$ 72,000 & \$ 60,000 \\\hline \text { A/R } & \$ 49,500 & \$ 45,000 \\\hline \text { Mdse. Inventory } & \$ 56,000 & \$ 40,000 \\\hline \text { Current liabilities } & \$ 63,250 & \$ 55,000 \\\hline \text { Long-term liabilities } & \$ 31,500 & \$ 30,000 \\\hline \text { Common stock (5,000 shares) } & \$ 54,000 & \$ 40,000 \\\hline \text { Retained earnings } & \$ 28,750 & \$ 20,000 \\\hline \text { Net sales revenue } & \$ 565,600 & \$ 505,000 \\\hline \text { COGS } & \$ 454,250 & \$ 395,000 \\\hline \text { Gross Profit } & \$111,350 & \$ 110,000 \\\hline \text { Selling/General expenses } & \$46,800 & \$ 52,000 \\\hline \text { Net income before taxes } & \$ 64,550 & \$ 58,000 \\\hline \text { Income tax expense } & \$ 19,250 & \$ 17,500 \\\hline \text { Net Income } & \$ 45,300&\$40,000\\\hline\end{array}$



- What would a horizontal analysis report with respect to current assets?

A)Inventory turnover of 8.11 times
B)A 20% increase in current assets
C)Current ratio of 1.14
D)Current assets as 40.56% of total assets

Question 28

The Galloway Corporation data for the current year: $\begin{array}{|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Prior year } \\\hline \text { Current assets } & \$ 46,200 & \$ 42,000 \\\hline \text { A/R } & \$ 69,000 & \$ 60,000 \\\hline \text { Mdse. Inventory } & \$ 67,500 & \$ 50,000 \\\hline \text { Current liabilities } & \$ 46,200 & \$ 33,000 \\\hline \text { Long-term liabilities } & \$ 26,600 & \$ 28,000 \\\hline \text { Common stock (5,000 shares) } & \$ 42,000 & \$ 35,000 \\\hline \text { Retained earnings } & \$ 67,900 & \$ 56,000 \\\hline \text { Net sales revenue } & \$ 625,000 & \$ 500,000 \\\hline \text { COGS } & \$ 520,000 & \$ 400,000 \\\hline \text { Gross Profit } & \$ 105,000 & \$ 100,000 \\\hline \text { Selling/General expenses } & \$ 45,000 & \$ 50,000 \\\hline \text { Net income before taxes } & \$ 60,000 & \$ 50,000 \\\hline \text { Income tax expense } & \$ 16,500 & \$ 15,000 \\\hline \text { Net Income } & \$ 43,500 & \$ 35,000\\\hline\end{array}$




-What would a horizontal analysis report with respect to selling/general expenses?

A)An 11.11% increase
B)Selling/general expenses as 7.20% of net sales revenue
C)A 10% decrease
D)A current ratio of 1.00

Question 29

The Galloway Corporation data for the current year: $\begin{array}{|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Prior year } \\\hline \text { Current assets } & \$ 46,200 & \$ 42,000 \\\hline \text { A/R } & \$ 69,000 & \$ 60,000 \\\hline \text { Mdse. Inventory } & \$ 67,500 & \$ 50,000 \\\hline \text { Current liabilities } & \$ 46,200 & \$ 33,000 \\\hline \text { Long-term liabilities } & \$ 26,600 & \$ 28,000 \\\hline \text { Common stock (5,000 shares) } & \$ 42,000 & \$ 35,000 \\\hline \text { Retained earnings } & \$ 67,900 & \$ 56,000 \\\hline \text { Net sales revenue } & \$ 625,000 & \$ 500,000 \\\hline \text { COGS } & \$ 520,000 & \$ 400,000 \\\hline \text { Gross Profit } & \$ 105,000 & \$ 100,000 \\\hline \text { Selling/General expenses } & \$ 45,000 & \$ 50,000 \\\hline \text { Net income before taxes } & \$ 60,000 & \$ 50,000 \\\hline \text { Income tax expense } & \$ 16,500 & \$ 15,000 \\\hline \text { Net Income } & \$ 43,500 & \$ 35,000\\\hline\end{array}$



-What would a horizontal analysis report with respect to current liabilities?

A)Current liabilities are 71.43% of total capital.
B)Current liabilities saw a 40.00% increase from the prior year to the current year.
C)The current ratio is 1.00.
D)Current liabilities saw a 7.39% increase from the prior year to the current year.

Question 30

Use the following information to do a horizontal analysis of Hewitt Corporation's balance sheet for the end of the current and prior years.Fill in the table.
$\begin{array} { | l | l | l | l | l | } \hline \text { Account } & \text { Current } & \text { Prior } & \begin{array} { l } \text { Dollar } \\\text { Change }\end{array} & \text { \% Change } \\\hline \text { Current assets } & \$ 119,000 & \$ 85,000 & & \\\hline \text { Accounts receivable } & \$ 99,000 & \$ 110,000 & & \\\hline \text { Merchandise inventory } & \$ 70,775 & \$ 74,500 & & \\\hline & & & & \\\hline \text { Current liabilities } & \$ 47,500 & \$ 38,000 & & \\\hline \text { Long-term liabilities } & \$ 63,000 & \$ 60,000 & & \\\hline \text { Common stock } & \$ 45,000 & \$ 45,000 & & \\\hline \text { Retained earnings } & \$ 133,275 & \$ 126,500 & & \\\hline\end{array}$

Question 31

A company reported the following amounts of net income: $$\begin{array} { | l | l | } \hline \text { Year 1 } & \$ 112,000 \\\hline \text { Year 2 } & \$ 151,200 \\\hline \text { Year 3 } & \$ 181,440 \\\hline\end{array}$$

- Which of the following is the percentage change from Year 2 to Year 3?

A)62.00%
B)20.00%
C)120.00%
D)35.00%

Question 32

The Jiffy Corporation data for the current year: $\begin{array}{|l|c|c|}\hline \text { Account } & \text { Current year } & \text { Prior year }\\\hline \text { Current assets } & \$ 72,000 & \$ 60,000 \\\hline \text { A/R } & \$ 49,500 & \$ 45,000 \\\hline \text { Mdse. Inventory } & \$ 56,000 & \$ 40,000 \\\hline \text { Current liabilities } & \$ 63,250 & \$ 55,000 \\\hline \text { Long-term liabilities } & \$ 31,500 & \$ 30,000 \\\hline \text { Common stock (5,000 shares) } & \$ 54,000 & \$ 40,000 \\\hline \text { Retained earnings } & \$ 28,750 & \$ 20,000 \\\hline \text { Net sales revenue } & \$ 565,600 & \$ 505,000 \\\hline \text { COGS } & \$ 454,250 & \$ 395,000 \\\hline \text { Gross Profit } & \$111,350 & \$ 110,000 \\\hline \text { Selling/General expenses } & \$46,800 & \$ 52,000 \\\hline \text { Net income before taxes } & \$ 64,550 & \$ 58,000 \\\hline \text { Income tax expense } & \$ 19,250 & \$ 17,500 \\\hline \text { Net Income } & \$ 45,300&\$40,000\\\hline\end{array}$



-What would a horizontal analysis report with respect to common stock?

A)Stockholder's equity as 9.55% of total capital
B)Sales return of $8.10
C)74.07% increase from prior to current year of cost of goods sold
D)Increase of $14,000 in common stock

Question 33

The Galloway Corporation data for the current year: $\begin{array}{|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Prior year } \\\hline \text { Current assets } & \$ 46,200 & \$ 42,000 \\\hline \text { A/R } & \$ 69,000 & \$ 60,000 \\\hline \text { Mdse. Inventory } & \$ 67,500 & \$ 50,000 \\\hline \text { Current liabilities } & \$ 46,200 & \$ 33,000 \\\hline \text { Long-term liabilities } & \$ 26,600 & \$ 28,000 \\\hline \text { Common stock (5,000 shares) } & \$ 42,000 & \$ 35,000 \\\hline \text { Retained earnings } & \$ 67,900 & \$ 56,000 \\\hline \text { Net sales revenue } & \$ 625,000 & \$ 500,000 \\\hline \text { COGS } & \$ 520,000 & \$ 400,000 \\\hline \text { Gross Profit } & \$ 105,000 & \$ 100,000 \\\hline \text { Selling/General expenses } & \$ 45,000 & \$ 50,000 \\\hline \text { Net income before taxes } & \$ 60,000 & \$ 50,000 \\\hline \text { Income tax expense } & \$ 16,500 & \$ 15,000 \\\hline \text { Net Income } & \$ 43,500 & \$ 35,000\\\hline\end{array}$




-What would a horizontal analysis report with respect to long-term liabilities?

A)Long-term liabilities decreased by $1,400.
B)Long-term liabilities increased by 4.26%.
C)The current ratio is: 1.00.
D)The debt ratio is: 39.85%.

Question 34

A company reported the following amounts of net income: $$\begin{array} { | l | l | } \hline \text { Year 1 } & \$ 112,000 \\\hline \text { Year 2 } & \$ 151,200 \\\hline \text { Year 3 } & \$ 181,440 \\\hline\end{array}$$

-Which of the following is the percentage change from Year 1 to Year 2?

A)20.00%
B)62.00%
C)120.00%
D)35.00%

Question 35

Use the following information to do a horizontal analysis of Magic Corporation's income statement for the current year and prior year: $$\begin{array} { | l | l | l | l | l | } \hline \text { Account } & \text { Current year } & \text { Priar year } & \text { Dollar Change } & \text { \% Change } \\\hline \text { Cost af good sold } & \$ 375,000 & \$ 300,000 & & \\\hline \text { Selling/general exp } & \$ 60,000 & \$ 40,000 & & \\\hline \text { Gross prafit } & \$ 102,600 & \$ 76,000 & & \\\hline \text { Net incarne } & \$ 17,600 & \$ 22,000 & & \\\hline\end{array}$$

-What is the percentage change in cost of goods sold?

A)25.00%
B)35.00%
C)-20.00%
D)125.00%

Question 36

2-2 Vertical analysis is the analysis of a financial statement that reveals the relationship of each statement item to a specified base.

Question 37

The Galloway Corporation data for the current year: $\begin{array}{|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Prior year } \\\hline \text { Current assets } & \$ 46,200 & \$ 42,000 \\\hline \text { A/R } & \$ 69,000 & \$ 60,000 \\\hline \text { Mdse. Inventory } & \$ 67,500 & \$ 50,000 \\\hline \text { Current liabilities } & \$ 46,200 & \$ 33,000 \\\hline \text { Long-term liabilities } & \$ 26,600 & \$ 28,000 \\\hline \text { Common stock (5,000 shares) } & \$ 42,000 & \$ 35,000 \\\hline \text { Retained earnings } & \$ 67,900 & \$ 56,000 \\\hline \text { Net sales revenue } & \$ 625,000 & \$ 500,000 \\\hline \text { COGS } & \$ 520,000 & \$ 400,000 \\\hline \text { Gross Profit } & \$ 105,000 & \$ 100,000 \\\hline \text { Selling/General expenses } & \$ 45,000 & \$ 50,000 \\\hline \text { Net income before taxes } & \$ 60,000 & \$ 50,000 \\\hline \text { Income tax expense } & \$ 16,500 & \$ 15,000 \\\hline \text { Net Income } & \$ 43,500 & \$ 35,000\\\hline\end{array}$




- What would a horizontal analysis report with respect to net income before income tax expense and net income?

A)Both net income before tax expense and net income are 6.96% of net sales revenue.
B)Both net income before income tax expense and net income increased by $78,500.
C)There was an increase in net income of 24.29% .
D)The current ratio is: 1.00.

Question 38

Use the following information to do a horizontal analysis of Magic Corporation's income statement for the current year and prior year: $$\begin{array} { | l | l | l | l | l | } \hline \text { Account } & \text { Current year } & \text { Priar year } & \text { Dollar Change } & \text { \% Change } \\\hline \text { Cost af good sold } & \$ 375,000 & \$ 300,000 & & \\\hline \text { Selling/general exp } & \$ 60,000 & \$ 40,000 & & \\\hline \text { Gross prafit } & \$ 102,600 & \$ 76,000 & & \\\hline \text { Net incarne } & \$ 17,600 & \$ 22,000 & & \\\hline\end{array}$$

- What is the dollar change in selling/general expenses?

A)$100,000
B)$75,000
C)$(4,400)
D)$20,000

Question 39

The Galloway Corporation data for the current year: $\begin{array}{|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Prior year } \\\hline \text { Current assets } & \$ 46,200 & \$ 42,000 \\\hline \text { A/R } & \$ 69,000 & \$ 60,000 \\\hline \text { Mdse. Inventory } & \$ 67,500 & \$ 50,000 \\\hline \text { Current liabilities } & \$ 46,200 & \$ 33,000 \\\hline \text { Long-term liabilities } & \$ 26,600 & \$ 28,000 \\\hline \text { Common stock (5,000 shares) } & \$ 42,000 & \$ 35,000 \\\hline \text { Retained earnings } & \$ 67,900 & \$ 56,000 \\\hline \text { Net sales revenue } & \$ 625,000 & \$ 500,000 \\\hline \text { COGS } & \$ 520,000 & \$ 400,000 \\\hline \text { Gross Profit } & \$ 105,000 & \$ 100,000 \\\hline \text { Selling/General expenses } & \$ 45,000 & \$ 50,000 \\\hline \text { Net income before taxes } & \$ 60,000 & \$ 50,000 \\\hline \text { Income tax expense } & \$ 16,500 & \$ 15,000 \\\hline \text { Net Income } & \$ 43,500 & \$ 35,000\\\hline\end{array}$




- What would a horizontal analysis report with respect to current assets?

A)Inventory turnover of 7.70 times
B)A 10% increase in current assets
C)Current ratio of 1.00
D)Current assets as 25.29% of total assets

Question 40

The Galloway Corporation data for the current year: $\begin{array}{|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Prior year } \\\hline \text { Current assets } & \$ 46,200 & \$ 42,000 \\\hline \text { A/R } & \$ 69,000 & \$ 60,000 \\\hline \text { Mdse. Inventory } & \$ 67,500 & \$ 50,000 \\\hline \text { Current liabilities } & \$ 46,200 & \$ 33,000 \\\hline \text { Long-term liabilities } & \$ 26,600 & \$ 28,000 \\\hline \text { Common stock (5,000 shares) } & \$ 42,000 & \$ 35,000 \\\hline \text { Retained earnings } & \$ 67,900 & \$ 56,000 \\\hline \text { Net sales revenue } & \$ 625,000 & \$ 500,000 \\\hline \text { COGS } & \$ 520,000 & \$ 400,000 \\\hline \text { Gross Profit } & \$ 105,000 & \$ 100,000 \\\hline \text { Selling/General expenses } & \$ 45,000 & \$ 50,000 \\\hline \text { Net income before taxes } & \$ 60,000 & \$ 50,000 \\\hline \text { Income tax expense } & \$ 16,500 & \$ 15,000 \\\hline \text { Net Income } & \$ 43,500 & \$ 35,000\\\hline\end{array}$




-What would a horizontal analysis report with respect to net sales revenue?

A)An increase of 25.00% in net sales revenue
B)A sales return of 6.96%
C)Cost of goods sold as 83.20% of net sales revenue
D)Accounts receivable turnover of 9.06 times

Question 41

Use the following information about The Reimer Company to do a vertical analysis of the income statement for the current year.Fill in the missing components in the table.
$$\begin{array} { | l | l | l | l | } \hline \text { Account } & \text { Current } & \text { Prior } & \text { Percent } \\\hline \text { Net sales revenue } & \$ 350,000 & \$ 312,000 & \\\hline \text { Cost of goods sold } & \$ 203,000 & \$ 215,000 & \\\hline \text { Gross profit } & \$ 147,000 & \$ 97,000 & \\\hline \text { Selling/general expenses } & \$ 80,500 & \$ 36,500 & \\\hline \text { Net income before tax } & \$ 66,500 & \$ 60,500 & \\\hline \text { Income tax } & \$ 10,500 & \$ 6,400 & \\\hline \text { Net income } & \$ 56,000 & \$ 54,100 & \\\hline\end{array}$$

Question 42

Ferrero Company reported the following information for the current year: $\begin{array}{|l|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Percentage } & \text { Prior year } \\\hline \text { Net sales revenue } & \$ 360,000 & 100 \% & \$ 300,000 \\\hline \text { COGS } & \$ 223,200 & ? & \$ 240,000 \\\hline \text { Gross Profit } & \$ 136,800 & 38.00 \% & \$ 60,000 \\\hline \text { Selling/General Exp. } & \$ 64,800 & 18.00 \% & \$ 12,000 \\\hline \text { Net income before tax } & \$ 72,000 & ? & \$ 48,000 \\\hline \text { Income Tax } & \$ 3,600 & 1.00 \% & \$ 3,000 \\\hline \text { Net Income } & \$ 68,400 & ? & \$ 45,000 \\\hline\end{array}$


-What would a vertical analysis report with respect to current year net income before income tax and income tax expense?

A)Net income before tax of 20% and income tax of 1.00% of net sales revenue
B)An increase of both net income before income tax and income tax of 20%
C)An increase of $24,000 in net income before tax
D)An increase of $120,000 from prior to current year

Question 43

Ferrero Company reported the following information on for the current year: $\begin{array}{|l|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Percentage } & \text { Prior year } \\\hline \text { Net sales revenue } & \$ 360,000 & 100 \% & \$ 300,000 \\\hline \text { COGS } & \$ 223,200 & ? & \$ 240,000 \\\hline \text { Gross Profit } & \$ 136,800 & 38.00 \% & \$ 60,000 \\\hline \text { Selling/General Exp. } & \$ 64,800 & 18.00 \% & \$ 12,000 \\\hline \text { Net income before tax } & \$ 72,000 & ? & \$ 48,000 \\\hline \text { Income Tax } & \$ 3,600 & 1.00 \% & \$ 3,000 \\\hline \text { Net Income } & \$ 68,400 & ? & \$ 45,000 \\\hline\end{array}$


-What would a vertical analysis report with respect to current year selling and general expenses?

A)An increase of $52,8000
B)A decrease of .81.46%
C)18% of net sales revenue
D)440.00% of net sales revenue

Question 44

To follow is selected information about The Blaz Company for the current year and prior year. $$\begin{array} { | l | l | l | } \hline \text { Account } & \text { Current } & \text { Priar } \\\hline \text { Net sales revenue } & \$ 648,000 & \$ 595,000 \\\hline \text { Cost of goods sold } & \$ 401,760 & \$ 425,000 \\\hline \text { Gross profit } & \$ 246,240 & \$ 170,000 \\\hline \text { Selling/general expenses } & \$ 136,080 & \$ 93,500 \\\hline \text { Net income before tax } & \$ 110,160 & \$ 76,500 \\\hline \text { Income tax } & \$ 32,400 & \$ 22,800 \\\hline \text { Net income } & \$ 77,760 & \$ 53,700 \\\hline\end{array}$$

-What is the current year's income tax percentage (as would be found on a vertical analysis of the income statement for the current year)?

A)5.45%
B)42.11%
C)14211%
D)5.00%

Question 45

To follow is selected information about The Blaz Company for the current year and prior year. $$\begin{array} { | l | l | l | } \hline \text { Account } & \text { Current } & \text { Priar } \\\hline \text { Net sales revenue } & \$ 648,000 & \$ 595,000 \\\hline \text { Cost of goods sold } & \$ 401,760 & \$ 425,000 \\\hline \text { Gross profit } & \$ 246,240 & \$ 170,000 \\\hline \text { Selling/general expenses } & \$ 136,080 & \$ 93,500 \\\hline \text { Net income before tax } & \$ 110,160 & \$ 76,500 \\\hline \text { Income tax } & \$ 32,400 & \$ 22,800 \\\hline \text { Net income } & \$ 77,760 & \$ 53,700 \\\hline\end{array}$$

-What is the current year's net income percentage (as would be found on a vertical analysis of the income statement for the current year)?

A)44.80%
B)12.00%
C)13.07%
D)144.80%

Question 46

2-10 Which of the following is RARELY the object of a vertical analysis?

A)Income statement
B)Statement of cash flows
C)Balance sheet
D)All of the above are commonly used as an object of a vertical analysis.

Question 47

3-2 The common size statement percentages are different from those that appear in horizontal analysis.

Question 48

2-9 Which is generally used as the base amount in performing a vertical analysis of a balance sheet?

A)Total assets
B)Net assets
C)Total liabilities
D)Total stockholder's equity

Question 49

2-3 The formula used in vertical analysis of the balance sheet is: (each income statement item/net sales)= vertical %.

Question 50

2-5 In a vertical analysis of a balance sheet,total assets is assigned a percentage of 100.

Question 51

2-7 An analysis of a financial statement that reveals the relationship of each statement item to a specific base defines:

A)benchmarking.
B)horizontal analysis.
C)capital analysis.
D)vertical analysis.

Question 52

To follow is selected information about The Blaz Company for the current year and prior year. $$\begin{array} { | l | l | l | } \hline \text { Account } & \text { Current } & \text { Priar } \\\hline \text { Net sales revenue } & \$ 648,000 & \$ 595,000 \\\hline \text { Cost of goods sold } & \$ 401,760 & \$ 425,000 \\\hline \text { Gross profit } & \$ 246,240 & \$ 170,000 \\\hline \text { Selling/general expenses } & \$ 136,080 & \$ 93,500 \\\hline \text { Net income before tax } & \$ 110,160 & \$ 76,500 \\\hline \text { Income tax } & \$ 32,400 & \$ 22,800 \\\hline \text { Net income } & \$ 77,760 & \$ 53,700 \\\hline\end{array}$$

-What is the current year's cost of goods sold percentage (as would be found on a vertical analysis of the income statement for the current year)?

A)62.00%
B)67.52%
C)-5.47%
D)94.53%

Question 53

Ferrero Company reported the following information on for the current year: $\begin{array}{|l|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Percentage } & \text { Prior year } \\\hline \text { Net sales revenue } & \$ 360,000 & 100 \% & \$ 300,000 \\\hline \text { COGS } & \$ 223,200 & ? & \$ 240,000 \\\hline \text { Gross Profit } & \$ 136,800 & 38.00 \% & \$ 60,000 \\\hline \text { Selling/General Exp. } & \$ 64,800 & 18.00 \% & \$ 12,000 \\\hline \text { Net income before tax } & \$ 72,000 & ? & \$ 48,000 \\\hline \text { Income Tax } & \$ 3,600 & 1.00 \% & \$ 3,000 \\\hline \text { Net Income } & \$ 68,400 & ? & \$ 45,000 \\\hline\end{array}$


- What would a vertical analysis report with respect to current year income tax expense?

A)A decrease of $23,400
B)Income tax expense is 1.00% of net sales revenue
C)A decrease of 20% from prior to current year
D)A decrease of $600

Question 54

2-4 In a vertical analysis of an income statement,net income is assigned a percentage of 100.

Question 55

2-8 Which is generally used as the base amount in performing a vertical analysis of an income statement?

A)Total expenses
B)Net sales
C)Gross sales
D)Gross profit

Question 56

2-6 Trend analysis is the same thing as a vertical analysis.

Question 57

Ferrero Company reported the following information on for the current year: $\begin{array}{|l|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Percentage } & \text { Prior year } \\\hline \text { Net sales revenue } & \$ 360,000 & 100 \% & \$ 300,000 \\\hline \text { COGS } & \$ 223,200 & ? & \$ 240,000 \\\hline \text { Gross Profit } & \$ 136,800 & 38.00 \% & \$ 60,000 \\\hline \text { Selling/General Exp. } & \$ 64,800 & 18.00 \% & \$ 12,000 \\\hline \text { Net income before tax } & \$ 72,000 & ? & \$ 48,000 \\\hline \text { Income Tax } & \$ 3,600 & 1.00 \% & \$ 3,000 \\\hline \text { Net Income } & \$ 68,400 & ? & \$ 45,000 \\\hline\end{array}$


-What would a vertical analysis report with respect to the relationship between current year net sales revenue and COGS?

A)A 7% decrease from prior to current year
B)COGS was 62.00% of net sales revenue.
C)A decrease of $16,800 from prior to current year
D)An increase of $463,200 from prior to current year

Question 58

3-1 A common size statement reports only percentages and dollar amounts.

Question 59

Ferrero Company reported the following information on for the current year: $\begin{array}{|l|l|l|l|}\hline \text { Account } & \text { Current year } & \text { Percentage } & \text { Prior year } \\\hline \text { Net sales revenue } & \$ 360,000 & 100 \% & \$ 300,000 \\\hline \text { COGS } & \$ 223,200 & ? & \$ 240,000 \\\hline \text { Gross Profit } & \$ 136,800 & 38.00 \% & \$ 60,000 \\\hline \text { Selling/General Exp. } & \$ 64,800 & 18.00 \% & \$ 12,000 \\\hline \text { Net income before tax } & \$ 72,000 & ? & \$ 48,000 \\\hline \text { Income Tax } & \$ 3,600 & 1.00 \% & \$ 3,000 \\\hline \text { Net Income } & \$ 68,400 & ? & \$ 45,000 \\\hline\end{array}$


-What would a vertical analysis report with respect to current year net sales revenue?

A)COGS would be 15.00% of net sales revenue
B)A dividend yield of $8.20
C)Net sales revenue would be the base amount
D)A decrease of 10% in net sales revenue

Question 60

To follow is selected information about The Blaz Company for the current year and prior year. $$\begin{array} { | l | l | l | } \hline \text { Account } & \text { Current } & \text { Priar } \\\hline \text { Net sales revenue } & \$ 648,000 & \$ 595,000 \\\hline \text { Cost of goods sold } & \$ 401,760 & \$ 425,000 \\\hline \text { Gross profit } & \$ 246,240 & \$ 170,000 \\\hline \text { Selling/general expenses } & \$ 136,080 & \$ 93,500 \\\hline \text { Net income before tax } & \$ 110,160 & \$ 76,500 \\\hline \text { Income tax } & \$ 32,400 & \$ 22,800 \\\hline \text { Net income } & \$ 77,760 & \$ 53,700 \\\hline\end{array}$$

- What is the current year's selling and general expenses percentage (as would be found on a vertical analysis of the income statement for the current year)?

A)22.87%
B)14.43%
C)21.00%
D)145.54%

Question 61

Presented are the income statements of Haley and Johnston Publications companies for the current year: $\begin{array}{|l|l|l|l|l|}\hline & \text { Haley } & & \text { Johnston } & \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 & 100.00 \% \\\hline \text { COGS } & 400,000 & 82.14 \% & 395,000 & 79.00 \% \\\hline \text { Gross Profit } & 87,000 & 17.86 \% & 105,000 & 21.00 \% \\\hline \text { Selling/Gen Expenses } & \underline{30,000} & 6.16 \% & 50,000 & 10.00 \% \\\hline \text { Income from operations } & 57,000 & 11.70 \% & 55,000 & 11.00 \% \\\hline \text { Income tax expense } & 17,100 & 3.51 \% & 16,500 & 3.30 \% \\\hline \text { Net Income } & \$ 39,900 & 8.19 \% & \$ 38,500 & 7.70 \% \\\hline\end{array}$


- Which company has the better relationship percentage-wise between selling and general expenses compared to net sales revenue?

A)Impossible to determine
B)Both have the same relationship
C)Johnston
D)Haley

Question 62

4-4 The acid test ratio is a tighter measure of a company's ability to pay current liabilities than the current ratio.

Question 63

Presented are the income statements of Haley and Johnston Publications companies for the current year: $\begin{array}{|l|l|l|l|l|}\hline & \text { Haley } & & \text { Johnston } & \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 & 100.00 \% \\\hline \text { COGS } & 400,000 & 82.14 \% & 395,000 & 79.00 \% \\\hline \text { Gross Profit } & 87,000 & 17.86 \% & 105,000 & 21.00 \% \\\hline \text { Selling/Gen Expenses } & \underline{30,000} & 6.16 \% & 50,000 & 10.00 \% \\\hline \text { Income from operations } & 57,000 & 11.70 \% & 55,000 & 11.00 \% \\\hline \text { Income tax expense } & 17,100 & 3.51 \% & 16,500 & 3.30 \% \\\hline \text { Net Income } & \$ 39,900 & 8.19 \% & \$ 38,500 & 7.70 \% \\\hline\end{array}$


- Which company has the better relationship between net income and net sales revenue?

A)Impossible to determine
B)Both have the same relationship
C)Johnston
D)Haley

Question 64

4-6 The A/R turnover ratio is the ratio of average net A/R to one day's sales.

Question 65

Presented are the income statements of Haley and Johnston Publications companies for the current year: $\begin{array}{|l|l|l|l|l|}\hline & \text { Haley } & & \text { Johnston } & \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 & 100.00 \% \\\hline \text { COGS } & 400,000 & 82.14 \% & 395,000 & 79.00 \% \\\hline \text { Gross Profit } & 87,000 & 17.86 \% & 105,000 & 21.00 \% \\\hline \text { Selling/Gen Expenses } & \underline{30,000} & 6.16 \% & 50,000 & 10.00 \% \\\hline \text { Income from operations } & 57,000 & 11.70 \% & 55,000 & 11.00 \% \\\hline \text { Income tax expense } & 17,100 & 3.51 \% & 16,500 & 3.30 \% \\\hline \text { Net Income } & \$ 39,900 & 8.19 \% & \$ 38,500 & 7.70 \% \\\hline\end{array}$


- What should Johnston do to improve its performance to match or to exceed Haley's performance?

A)Reduce percentage of COGS.
B)Reduce percentage of income tax expense.
C)Reduce percentage of selling/general expenses.
D)Any of the above would be useful to improve performance.

Question 66

3-7 A table that lists items of a balance sheet in dollars and percentages for two companies would be:

A)a common-size balance sheet.
B)used for vertical analysis.
C)used for benchmarking.
D)used for horizontal analysis.

Question 67

3-3 Common size statements allow the comparison of two or more companies with different amounts of net sales and net assets.

Question 68

3-6 An analysis of a table that includes a balance sheet with dollars and percentages of each item for a company and for the industry would be an example of:

A)horizontal analysis.
B)ratio analysis.
C)benchmarking.
D)vertical analysis.

Question 69

4-2 Working capital is current assets minus current liabilities.

Question 70

3-5 Horizontal analysis allows the comparison of companies with different amounts of net sales and net assets.

Question 71

3-16 Which of the following is MOST helpful in comparing companies of different sizes?

A)Ratio analysis
B)Using common-sized statements
C)Both ratio analysis and using common-sized statements
D)Neither one

Question 72

3-4 Benchmarking is NOT a valid analysis measure of performance.

Question 73

3-13 Which of the following types of analysis include common-sized financial statements?

A)Trend analysis
B)Vertical analysis
C)Ratio analysis
D)Horizontal analysis

Question 74

Presented are the income statements of Haley and Johnston Publications companies for the current year: $\begin{array}{|l|l|l|l|l|}\hline & \text { Haley } & & \text { Johnston } & \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 & 100.00 \% \\\hline \text { COGS } & 400,000 & 82.14 \% & 395,000 & 79.00 \% \\\hline \text { Gross Profit } & 87,000 & 17.86 \% & 105,000 & 21.00 \% \\\hline \text { Selling/Gen Expenses } & \underline{30,000} & 6.16 \% & 50,000 & 10.00 \% \\\hline \text { Income from operations } & 57,000 & 11.70 \% & 55,000 & 11.00 \% \\\hline \text { Income tax expense } & 17,100 & 3.51 \% & 16,500 & 3.30 \% \\\hline \text { Net Income } & \$ 39,900 & 8.19 \% & \$ 38,500 & 7.70 \% \\\hline\end{array}$


-Which company has the better relationship between gross profit and net sales revenue?

A)Impossible to determine
B)Both have the same relationship
C)Johnston
D)Haley

Question 75

3-14 The practice of comparing one company's performance to another's can be accomplished using:

A)ratio analysis.
B)trend analysis.
C)benchmarking.
D)all of the above.

Question 76

Presented are the income statements of Haley and Johnston Publications companies for the current year: $\begin{array}{|l|l|l|l|l|}\hline & \text { Haley } & & \text { Johnston } & \\\hline \text { Net sales revenue } & \$ 487,000 & 100.00 \% & \$ 500,000 & 100.00 \% \\\hline \text { COGS } & 400,000 & 82.14 \% & 395,000 & 79.00 \% \\\hline \text { Gross Profit } & 87,000 & 17.86 \% & 105,000 & 21.00 \% \\\hline \text { Selling/Gen Expenses } & \underline{30,000} & 6.16 \% & 50,000 & 10.00 \% \\\hline \text { Income from operations } & 57,000 & 11.70 \% & 55,000 & 11.00 \% \\\hline \text { Income tax expense } & 17,100 & 3.51 \% & 16,500 & 3.30 \% \\\hline \text { Net Income } & \$ 39,900 & 8.19 \% & \$ 38,500 & 7.70 \% \\\hline\end{array}$


- Which company has the best inventory turnover rate?

A)Impossible to determine
B)Both have the same rate
C)Johnston
D)Haley

Question 77

4-5 The inventory turnover ratio indicates how rapidly inventory is sold.

Question 78

4-1 Benchmarking is the comparison of year-to-year results of the company.

Question 79

4-3 The current ratio is the most widely used ratio to measure a company's ability to pay current liabilities.

Question 80

3-15 Which of the following balance sheets displays only percentages?

A)Comparative
B)Account form
C)Common-size
D)Report form