Question 1

Reimer Company reports the following data:  When evaluating the results of operations,what can be said about Reimer Company?
A)Using vertical analysis,the company's profitability declined in 2014.
B)Using horizontal analysis,the company's profitability declined in 2014.
C)Using vertical analysis,the company's profitability declined in 2015.
D)Using horizontal analysis,the company's profitability declined in 2015.

Accepted Answer

Vertical analysis involves comparing different items of the financial statement to a common base within single year. Looking at the given data, we can see that the company's profitability declined in 2015 as compared to 2014, i.e. net income decreased from 18% of total revenue in 2014 to 16.5% in 2015. Option A and B are incorrect because there is no evidence of decline in profitability based on vertical or horizontal analysis for 2014. Option D is incorrect because there is no information given about profitability declining in 2015 based on horizontal analysis.

Question 2

In performing vertical analysis,the base for income tax expense is:
A)net sales.
B)gross revenues.
C)net income.
D)gross profit.

Accepted Answer

The answer of In performing vertical analysis,the base for income...

Question 3

Given the following data:  In vertical analysis,net income would be expressed as:
A)18%.
B)45%.
C)30%.
D)82%.

Accepted Answer

The answer of Given the following data:  In vertical...

Question 4

Prepare a vertical analysis for Katrina Corporation using the information shown below.Round percentages to the nearest one-tenth percent of one percent.

Accepted Answer

The answer of Prepare a vertical analysis for Katrina Corporation...

Question 5

Dynasty Incorporated has the following data available at December 31,2015:
  Prepare a vertical analysis of this company's balance sheet.Round to the nearest one-tenth of one percent.

Accepted Answer

The answer of Dynasty Incorporated has the following data available...

Question 6

Szidon Company reports the following data:  Using benchmarking,what can be said about Szidon Company?
A)Szidon is inferior to the key competitor because the key competitor's net income percentage is higher.
B)Szidon is superior to the key competitor because net income is higher.
C)There is not enough information to make any conclusions.
D)There is conflicting information so no conclusions can be reached.

Accepted Answer

The answer of Szidon Company reports the following data: ...

Question 7

On the statement of cash flows of a healthy company,Net Cash Provided by Operating Activities is generally less than net income.

Accepted Answer

In a healthy company, Net Cash Provided by Operating Activities is generally greater than or equal to net income, as it reflects actual cash generated from operations, excluding non-cash expenses like depreciation.

Question 8

Which of the following would be most helpful in the comparison of different size companies?
A)Horizontal analysis
B)Comparison of their net incomes
C)Comparison of their working capital balances
D)Preparation of common-size financial statements

Accepted Answer

Preparation of common-size financial statements would be most helpful in the comparison of different size companies. Common-size financial statements allow for the comparison of companies of different sizes by presenting financial information as a percentage of a common base. This allows for easier identification of trends and differences between companies. Horizontal analysis could also be helpful, but it would only show changes over time within a single company, not between different companies. Comparing net incomes and working capital balances would not be as helpful since these figures are affected by a company's size and industry.

Question 9

Hull Company reports the following data:  Based on the above data,what can be said about the Hull Company?
A)The company is controlling operating expenses.
B)The company is reducing sales levels over time.
C)The company is losing control of operating expenses.
D)The company is increasing sales over time.

Accepted Answer

The answer of Hull Company reports the following data: ...

Question 10

Walton Company's return on sales for the most recent year was 5%.The industry leader reports a return on sales of 7%.The comparison of Walton Company's return on sales to the industry leader is an example of:
A)benchmarking.
B)gross margin analysis.
C)detail analysis.
D)intercompany analysis.

Accepted Answer

Benchmarking is the process of comparing one company's performance to that of others in the same industry or market. In this case, Waltons Company is comparing its return on sales to the industry leader's return on sales, which is an example of benchmarking. Gross margin analysis, detailed analysis, and intercompany analysis are not relevant to the comparison of two companies' return on sales.

Question 11

You are the CEO of Company A and you are using an industry leader(Leader Company)for benchmarking.Company A is much smaller than Company B in terms of total assets and total sales revenue.We should compare the:
A)gross profit of Company A to the gross profit of Leader Company
B)net income of Company A to the net income of Leader Company
C)net sales of Company A to the net sales of Leader Company
D)net income to net sales ratio of Company A to net income to net sales ratio of Leader Company

Accepted Answer

Comparing the net income to net sales ratio of Company A to the net income to net sales ratio of Leader Company is the best choice. This ratio takes into account both profitability and efficiency, which are important factors to consider when comparing companies. Comparing gross profit or net sales alone may not provide an accurate picture of how efficiently the companies are operating, while comparing net income alone may not account for differences in sales volume. The net income to net sales ratio considers both factors, making it the best choice for benchmarking.

Question 12

Given the following data:  In vertical analysis,Accounts Receivable,net would be expressed as:
A)5%.
B)7%.
C)10%.
D)20%.

Accepted Answer

To perform vertical analysis, we need to express each item as a percentage of a base item, which is typically the total assets or total liabilities and equity. However, we do not have that information in the given data. Therefore, we cannot perform vertical analysis on the given data as it is incomplete.

Question 13

You are using a leading competitor,Company B,for benchmarking your company,Company A.When benchmarking,the gross margin of Company A is expressed as a percentage of:
A)the net sales of Companies A and B.
B)Company B's net sales.
C)Company A's net income.
D)Company A's net sales.

Accepted Answer

Gross margin is typically calculated as a percentage of a company's net sales. Therefore, when benchmarking, the gross margin of Company A should be expressed as a percentage of Company A's net sales, not Company B's net sales or Company A's net income. Comparing Company A's gross margin to Company B's net sales or Company A's net income would not provide an accurate benchmark.

Question 14

On a common-size income statement,income taxes expense is expressed as a percentage of:
A)net income.
B)total stockholders' equity.
C)total assets.
D)net sales.

Accepted Answer

Income taxes expense is typically expressed as a percentage of net sales on a common-size income statement, as it allows for easier comparison between companies in the same industry with differing levels of revenue.

Question 15

In 2014,the Zenon Company reported that property,plant and equipment were equal to 17% of total assets.In 2014,current assets were equal to 83% of total assets.In 2015 the company reported that property,plant and equipment were equal to 27% of total assets.In 2015,current assets were equal to 73% of total assets.What conclusion can be reached from this information?
A)In 2015,the company is downsizing.
B)In 2015,property,plant and equipment as a proportion of total assets increased.
C)In 2015,the company is investing in the future.
D)B and C

Accepted Answer

The increase in property, plant, and equipment as a proportion of total assets indicates that the company is investing in the future. The decrease in current assets as a proportion of total assets suggests that the company may be using its cash and liquid assets to make these investments, which is consistent with the idea of investing for the future rather than downsizing. Therefore, both options B and C are valid conclusions from the information provided.

Question 16

A financial statement that shows each line item as a percentage of one key item on the statement is referred to as:
A)benchmarking.
B)common-size statement.
C)horizontal analysis.
D)financial ratio analysis.

Accepted Answer

A common-size statement, also known as a vertical analysis, represents each line item on a financial statement as a percentage of a key item, such as revenue or total assets. This allows for easy comparison of different companies or different time periods within the same company. Benchmarking involves comparing a company's performance to that of its competitors or industry standards, while horizontal analysis compares changes in financial data over time. Financial ratio analysis involves calculating and analyzing various ratios to assess a company's financial health.

Question 17

Common-size financial statements report only dollar amounts.

Accepted Answer

Common-size financial statements report dollar amounts as percentages of a base amount, such as total assets or total revenue.

Question 18

On a common-size balance sheet,each line item is expressed as a percentage of:
A)current assets.
B)operating income.
C)total assets.
D)net income.

Accepted Answer

On a common-size balance sheet, each line item is expressed as a percentage of total assets. This allows for easier comparison between companies of different sizes and can highlight areas where a company may be investing too heavily.

Question 19

Wilhelm Company's gross profit percentages for the past 3 years are:  Based on the above data,what can be said about the Wilhelm Company?
A)The sales volume is decreasing.
B)The company is decreasing the income tax expense.
C)The company is controlling operating expenses.
D)The company is controlling cost of goods sold.

Accepted Answer

The consistent gross profit percentages over the past 3 years indicate that the company is effectively controlling its cost of goods sold. This means that the company is able to maintain a high level of profitability despite fluctuations in sales volume or operating expenses. The information provided does not suggest anything about income tax expenses, so option B can be eliminated. There is also no indication that sales volume is decreasing, so option A can be eliminated as well. Option C may be true, but it is not the most logical conclusion to draw from the given data.

Question 20

After vertical analysis of a balance sheet,current assets have increased from 42% to 56%,this would always mean that:
A)current assets have increased as a percentage of total assets.
B)the dollar amount of total assets has increased.
C)the dollar amount of total assets has decreased.
D)the dollar amount of long-term assets has increased.

Accepted Answer

Vertical analysis is a technique that expresses each financial statement item as a percentage of a base amount. In this case, the base amount is total assets. Therefore, if current assets have increased from 42% to 56%, it means that they represent a larger percentage of total assets. This indicates that the company has more resources available for short-term needs. The other options are not valid because they do not account for the vertical analysis technique.

Quiz 13: Financial Statement Analysis

Reimer Company reports the following data: When evaluating the results of operations,what can be said about Reimer Company?

In performing vertical analysis,the base for income tax expense is:

Given the following data: In vertical analysis,net income would be expressed as:

Prepare a vertical analysis for Katrina Corporation using the information shown below.Round percentages to the nearest one-tenth percent of one percent.

Dynasty Incorporated has the following data available at December 31,2015: Prepare a vertical analysis of this company's balance sheet.Round to the nearest one-tenth of one percent.

Szidon Company reports the following data: Using benchmarking,what can be said about Szidon Company?

On the statement of cash flows of a healthy company,Net Cash Provided by Operating Activities is generally less than net income.

Which of the following would be most helpful in the comparison of different size companies?

Hull Company reports the following data: Based on the above data,what can be said about the Hull Company?

Walton Company's return on sales for the most recent year was 5%.The industry leader reports a return on sales of 7%.The comparison of Walton Company's return on sales to the industry leader is an example of:

You are the CEO of Company A and you are using an industry leader(Leader Company) for benchmarking.Company A is much smaller than Company B in terms of total assets and total sales revenue.We should compare the:

Given the following data: In vertical analysis,Accounts Receivable,net would be expressed as:

You are using a leading competitor,Company B,for benchmarking your company,Company A.When benchmarking,the gross margin of Company A is expressed as a percentage of:

On a common-size income statement,income taxes expense is expressed as a percentage of:

A financial statement that shows each line item as a percentage of one key item on the statement is referred to as:

Common-size financial statements report only dollar amounts.

On a common-size balance sheet,each line item is expressed as a percentage of:

Wilhelm Company's gross profit percentages for the past 3 years are: Based on the above data,what can be said about the Wilhelm Company?

After vertical analysis of a balance sheet,current assets have increased from 42% to 56%,this would always mean that: