Deck 15: Financial Statement Analysis

Question 1

A quarterly report filed with the Securities and Exchange Commission is called a Form 10-K.

Answer 1

False

Question 2

Horizontal analysis provides a year-to-year comparison of a company's performance in different periods.

Answer 2

True

Question 3

An external auditor is responsible for assessing the effectiveness of a company's internal controls.

Answer 3

True

Question 4

Investors and creditors cannot evaluate a company by examining only one year of data.

Question 5

To accurately determine the financial performance of a company, it is necessary to compare the company's performance ________.

A) with a competing company
B) to the budget
C) with companies in different industries
D) only with profitable companies

Question 6

The income statement is also known as the ________.

A) statement of operations
B) statement of cash flows
C) statement of stockholders' equity
D) statement of financial position

Question 7

List the three ways to analyze financial statements. State what each of these ways provides to investors and creditors.

Question 8

Ratio analysis ________.

A) cannot be used to evaluate a company's financial condition
B) is used most effectively to compare a company against other companies in the same industry and to denote trends within the company
C) cannot be used to compare a company against other companies in the same industry because the necessary information is not available
D) cannot be used to evaluate a company's performance

Question 9

The audit report in the annual report attests to the fairness of the presentation of the financial statements.

Question 10

A summary of significant accounting policies and explanations of specific items on the financial statements are included in ________.

A) the balance sheet
B) the income statement
C) the notes to financial statements
D) the report of the independent registered public accounting firm

Question 11

Ratio analysis is used most effectively to measure a company against other companies in different industries.

Question 12

An adverse opinion is issued if the auditor finds that the financial statements are not presented fairly.

Question 13

In an audit report in the annual report, a qualified opinion states that the financial statements are presented fairly in all material respects.

Question 14

Which of the following is NOT a way to accurately determine the financial performance of a company?

A) carefully examining one year of data
B) evaluating a company's performance from year to year
C) comparing a company's performance with a competing company
D) comparing a company's performance with the same industry as a whole

Question 15

There are three main ways to analyze financial statements. Which of the following does NOT represent one of these ways of analyzing financial statements?

A) horizontal analysis
B) ratio analysis
C) financial statement analysis
D) vertical analysis

Question 16

An annual report provides information about a company's financial condition.

Question 17

The audit report in the annual report is prepared by an internal auditor of a company.

Question 18

To accurately determine the financial performance of a company, it is necessary to compare its performance from year to year, with a competing company, and with the same industry as a whole.

Question 19

Investors and creditors can evaluate a company by examining only one year of data.

Question 20

Management's discussion and analysis of financial condition and results of operations section of the annual report is the company's attempt to explain its financial statements and discuss its performance.

Question 21

Which of the following best describes horizontal analysis?

A) comparing financial statement line items from year to year for the same company
B) expressing each financial statement amount as a percentage of a budgeted amount
C) comparing a company's financial statements with other companies
D) calculating key ratios to evaluate performance

Question 22

Which of the following statements regarding the management's discussion and analysis (MD&A) part of the annual report is NOT correct?

A) Investors are not interested in the MD&A because it is written by the company and could present a biased view of the company's financial condition and performance.
B) It often contains information that is not found in the financial data.
C) It provides forward-looking formation.
D) The MD&A is the company's attempt to explain its financial statements and to discuss its performance.

Question 23

Provide a description of the contents of each of the following components of the annual report.

-
$$\begin{array} { | l | l | } \hline \text { Annual Report Component } & \text { Description of the contents } \\\hline \text { MD\&A } & \\\\\\\hline \text { Notes to financial statements } & \\& \\& \\\\\hline\end{array}$$

Question 24

McDonald Corp. reported the following on its comparative income statement (in millions):
$\begin{array}{llll}&\underline{2019}&\underline{2018}&\underline{2017}\\\text { Revenue } & \$ 728 & \$ 675 & \$ 500 \\\text { Cost of goods sold } & 312 & 258 & 220\end{array}$ Prepare a horizontal analysis of revenues and cost of goods sold, both in dollar amounts and in percentages, for 2019 and 2018. (Round your percentage answers to two decimal places.)

Question 25

Horizontal analysis is computed by dividing a specific statement line item by its base amount and then multiplying by 100.

Question 26

Horizontal analysis is the study of percentage changes in line items in comparative financial statements.

Question 27

Data for Sherwood, Inc. for the years ended December 31, 2019 and 2018 are as follows:
$$\begin{array} { l l l } \text { Net Sales } & \underline { 2019 } & \underline { 201 8 } \\\text { Cost of Goods Sold } & \$ 850,000 & \$ 798,000 \\\text { Selling and Administrative Expenses } & 635,000 & 580,000 \\\text { Other Expenses (Interest Expense) } & 50,000 & 35,000 \\\text { Income Tax } & 20,000 & 15,000 \\& 40,000 & 55,000\end{array}$$ Prepare a horizontal analysis of the comparative income statement of Sherman, Inc. (Round to one decimal place.) Use a multi-step income statement.

Question 28

The following is a summary of information presented on the financial statements of a company on December 31, 2019. $$\begin{array} { | l | r | r | } \hline \text { Account } & { \mathbf { 2 0 1 9 } } & { \mathbf { 2 0 1 8 } } \\\hline \text { Net Sales Revenue } & \$ 607,000 & \$ 502,000 \\\hline \text { Cost of Goods Sold } & \underline { 450,000 } & \underline { 406,000 } \\\hline \text { Gross Profit } & 157,000 & 96,000 \\\hline \text { Selling Expenses } & \underline { 54,000 } & \underline { 52,000 } \\\hline \text { Net Income Before Income Tax Expense } & 103,000 & 44,000 \\\hline \text { Income Tax Expense } & \underline { 38,000 } & \underline { 24,000 } \\\hline \text { Net Income } & \$ 65,000 & \$ 20,000 \\\hline\end{array}$$ With respect to net sales revenue, a horizontal analysis reveals ________.

A) a 20.92% increase in net sales revenue
B) a 240.62% decrease in net sales revenue
C) a decrease of $44,000 in net sales revenue
D) a $44,000 increase in net sales revenue

Question 29

Which of the following is used to determine how the sales revenue of a company has changed from one year to the next?

A) vertical analysis of the balance sheet
B) horizontal analysis of the income statement
C) horizontal analysis of the balance sheet
D) vertical analysis of the income statement

Question 30

What is an annual report? Briefly describe the key parts of the annual report.

Question 31

The horizontal analysis is computed by which of the following formulas?

A) ((earlier period amount - later period amount)/base period amount) × 100
B) (later period amount/earlier period amount) × 100
C) (base period amount/dollar amount of change) × 100
D) (dollar amount of change/base period amount) × 100

Question 32

MacMan, Inc. reported the following data: $\begin{array}{|l|c|c|c|c|}\hline & 2019 & 2018 & \text { Amount } & \text { Percentage } \\\hline \text { Revenues } & \$ 6370 & \$ 4940 & \$ 1430 & 28.95\% \\\hline \text { Cost of goods sold. } & 3450 & 2200 & 1250 & 56.82 \%\\\hline \text { Gross profit } & 2920 & 2740 & 180 & 6.57\%\\\hline \text { Operating expenses: } & & & & \\\hline \text { Sales and marketing expense } & 710 & 630 & 80 & 12.7\% \\\hline \begin{array}{l}\text { General and administrative } \\\text { expenses }\end{array} & 410 & 425 & -15 & -3.53\% \\\hline \begin{array}{l}\text { Research and development } \\\text { expense }\end{array} & 480 & 490 & -10 & -2.04\% \\\hline \text { Other expense } & 440 & 710 & (270) & (38.03)\% \\\hline \text { Total operating expenses } & 2040 & \underline{2255} & (215) & (9.53 )\%\\\hline \text { Income before income tax } & 880 & 485 & 395 & 81.44 \% \\\hline \text { Income tax expense } & 260 & 240 & \$ 20 & 8.33\% \\\hline \text { Net income (loss) } & \$ 620 & \$ 245 & \$ 375 & 153.06\% \\\hline\end{array}$
The horizontal analysis shows that cost of goods sold has ________. (Round your answer to two decimal places.)

A) increased by 28.95%
B) decreased by 28.95%
C) increased by 56.82%
D) decreased by 56.82%

Question 33

Data for Kahn, Inc. follows:
Kahn, Inc.
Comparative Income Statement
Years Ended Dec. 31, 2019 and 2018 $$\begin{array} { l l l } & 2019 & 2018 \\\text { Net Sales Reverue } & \$ 550,000 & \$ 500,000\end{array}$$ Expenses:
$\begin{array}{lll}\text { Cost of Goods Sold } & 245,000 & 220,000 \\\text { Selling and Administrative Expenses } & 100,000 & 96,000 \\\text { Other Expenses (Interest Expense) } & 12,000 & 9,000 \\\text { Income Tax Expense } & \underline{58,000} & \underline{47,000} \\\text { Total Expenses } & \underline{\$ 415,000} &\underline{ \$ 372,000 }\\\text { Net Income } &\underline{ \$ 135,000 }& \underline{\$ 128,000}\end{array}$ Prepare a horizontal analysis of the comparative income statement of Kahn, Inc. (Round to one decimal place.) Use a multi-step format for the income statement.

Question 34

Provide a description of the contents of each of the following components of the annual report.

-
$$\begin{array} { | l | l | } \hline \text { Annual Report Component } & \text { Description of the contents } \\\hline \text { Financial statements } & \\& \\\hline \text { Report of independent } \\\text { registered public accounting } \\\text { firm }\\\hline\end{array}$$

Question 35

Which of the following is NOT a part of a corporation's annual report?

A) report of independent registered public accounting firm
B) MD&A
C) notes to financial statements
D) employees' pay rates

Question 36

Horizontal analysis compares the change in each statement item from one year to the next.

Question 37

Horizontal analysis compares each item in the income statement to the net sales amount.

Question 38

Annual reports ________.

A) are required to be prepared by every corporation
B) discuss the company's competitors and the risks related to the company's business
C) are also called a Form 10-Q
D) only include the company's financial statements

Question 39

The following is a summary of information presented on the financial statements of a company on December 31, 2019. $$\begin{array} { | l | r | r | } \hline \text { Account } & { \mathbf { 2 0 1 9 } } & { \mathbf { 2 0 1 8 } } \\\hline \text { Net Sales Revenue } & \$ 600,000 & \$ 504,000 \\\hline \text { Cost of Goods Sold } & \underline { 456,000 } & \underline { 405,000 } \\\hline \text { Gross Profit } & \$ 144,000 & \$ 99,000 \\\hline \text { Selling Expenses } & \underline { 51,000 } & \underline { 54,000 } \\\hline \text { Net Income Before Income Tax Expense } & \$ 93,000 & \$ 45,000 \\\hline \text { Income Tax Expense } & \underline { 39,000 } & \underline { 23,000 } \\\hline \text { Net Income } & \$ 54,000 & \$ 22,000 \\\hline\end{array}$$ With respect to net income, a horizontal analysis reveals ________. (Round your answer to two decimal places.)

A) that net income is 14.55% of net sales revenue
B) a $22,000 increase in net income
C) a 145.45% decrease in net income
D) a 145.45% increase in net income

Question 40

The auditor's report ________.

A) attests that the financial statements are error-free
B) is prepared by the internal auditors
C) states whether the financial statements are presented in accordance with GAAP
D) does not include an assessment of the effectiveness of the company's internal controls

Question 41

The trend analysis report of Marswell, Inc. is given below (in millions): $$\begin{array} { | l | r | r | r | r | r| } \hline & 2019 & 2018 & 2017 & 2016 & 2015 \\\hline \text { Net income } & \$ 700 & \$ 605 & \$ 456 & \$ 407 & \$ 400 \\\hline \text { Trend percentages } & 175 \% & 151 \% & 114 \% & 102 \% & 100 \% \\\hline\end{array}$$ Which of the following is a correct conclusion from the above analysis?

A) Net income for 2017 has increased by 114% over that for 2015.
B) Net income for 2017 has decreased by 14% over that for 2015.
C) Net income for 2017 has decreased by 114% over that for 2015.
D) Net income for 2017 has increased by 14% over that for 2015.

Question 42

Which of the following best describes trend analysis?

A) calculating key ratios to evaluate performance
B) expressing each financial statement amount as a percentage of a budgeted amount
C) comparing a company's financial statements with that of other companies
D) expressing each year's financial statement line item as a percentage of the base year amount

Question 43

In a vertical analysis of the balance sheet, each line item is shown as a percentage of stockholders' equity.

Question 44

The horizontal analysis of the balance sheet shows the changes in net sales and net income.

Question 45

A trend analysis would be used if an analyst wants to see how the gross profit of a company has changed from one year to the next.

Question 46

In a vertical analysis of the income statement, each line item is shown as a percentage of net sales revenue.

Question 47

The following is summary of information presented on the financial statements of a company on December 31, 2019. $$\begin{array} { | l | r | r | } \hline \text { Account } & { \mathbf { 2 0 1 9 } } & { \mathbf { 2 0 1 8 } } \\\hline \text { Current Assets } & \$ 66,000 & \$ 50,000 \\\hline \text { Accounts Receivable } & 83,000 & 78,000 \\\hline \text { Merchandise Inventory } & 53,000 & 44,000 \\\hline \text { Current Liabilities } & 75,000 & 52,000 \\\hline \text { Long-term Liabilities } & 31,000 & 53,000 \\\hline \text { Common Stock } & 51,000 & 40,000 \\\hline \text { Retained Earnings } & 45,000 & 27,000 \\\hline & & \\\hline \text { Net Sales Revenue } & \$ 527,000 & \$ 506,000 \\\hline \text { Cost of Goods Sold } & \underline { 400,000 } & \underline { 401,000 } \\\hline \text { Gross Profit } & \$ 127,000 & \$ 105,000 \\\hline \text { Selling Expenses } & \underline { 48,000 } & \underline { 50,000 } \\\hline \text { Net Income Before Income Tax Expense } & \$ 79,000 & \$ 55,000 \\\hline \text { Income Tax Expense } & \underline { \$ 5,000 } & \$ 17,000 \\\hline \text { Net Income } & \$ 54,000&\$38,000 \\\hline\end{array}$$ With respect to current liabilities, a horizontal analysis reveals ________. (Round your answer to two decimal places.)

A) that current liabilities are 37.13% of total equity
B) a 44.23% increase in current liabilities
C) a current ratio of 0.88
D) a 30.67% increase in current liabilities

Question 48

Night Owl, Inc. reported the following data: The horizontal analysis shows that the amount of total liabilities has __________.

A) increased by $23,000
B) increased by $2800
C) decreased by $2800
D) increased by $24,600

Question 49

The following is a summary of information presented on the financial statements of a company on December 31, 2019. $$\begin{array} { | l | r | r | } \hline \text { Account } &{ \mathbf { 2 0 1 9 } } & { \mathbf { 2 0 1 8 } } \\\hline \text { Current Assets } & \$ 87,000 & \$ 73,000 \\\hline \text { Accounts Receivable } & 85,000 & 81,000 \\\hline \text { Merchandise Inventory } & 63,000 & 56,000 \\\hline \text { Current Liabilities } & 53,000 & 51,000 \\\hline \text { Long-term Liabilities } & 44,000 & 52,000 \\\hline \text { Common Stock } & 70,000 & 57,000 \\\hline \text { Retained Earnings } & 68,000 & 50,000 \\\hline\end{array}$$ With respect to long-term liabilities, a horizontal analysis reveals ________.

A) long-term liabilities decreased by $13,000
B) long-term liabilities decreased by 22.81%
C) long-term liabilities decreased by 15.38%
D) long-term liabilities decreased by $2000

Question 50

Sapphire Corp. reported the following revenues and net income amounts.
$\begin{array}{llllll} & \underline{2019} & \underline{2018} & \underline{2017} & \underline{2016} & \underline{2015} \\\text { Revenue } & \$ 728 & \$ 675 & \$ 500 & \$ 485 & \$ 452 \\ \text { Cost of goods sold }&650 & 602 & 456 & 403 & 398\end{array}$ Calculate Sapphire's trend analysis for revenues and cost of goods sold. Use 2015 as the base year, and round to the nearest percent.

Question 51

A horizontal analysis would be used if an analyst wants to see how the assets of a company have changed from one year to the next.

Question 52

A vertical analysis percent is computed by dividing the base amount by the specific item and then multiplying by 100.

Question 53

A vertical analysis of a financial statement reveals the relationship of each statement item to its base amount, which is the 100% figure.

Question 54

The trend analysis report of Poplar, Inc. is given below (in millions): $$\begin{array} { | l | r | r | r | r | r |} \hline & 2019 & 2018 & 2017 & 2016 & 2015 \\\hline \text { Net income } & \$ 700 & \$ 606 & \$ 459 & \$ 406 & \$ 400 \\\hline \text { Trend percentages } & 175 \% & 152 \% & 115 \% & 102 \% & 100 \% \\\hline\end{array}$$ Which of the following is a correct conclusion from the above analysis?

A) Net income for 2019 is 175% of net income for 2015.
B) Net income for 2018 is 152% of the previous year.
C) Net income for 2018 decreased by 152% from 2017.
D) Net income for 2019 increased by 175% from 2018.

Question 55

Data for Michelle, Inc. follow:
Michelle, Inc.
Comparative Balance Sheet
December 31, 2019 and 2018
$\begin{array}{llcc} &2019&2018 \\\end{array}$
Assets
Current Assets:
$\begin{array}{lll}\text { Cash } & \$ 12,000 & \$ 10,200 \\\text { Accounts Receivable, Net } & 16,100 & 16,800 \\\text { Merchandise Inventory } & 45,000 & 31,000 \\\text { Prepaid Expenses } & \underline{6,500} & \underline{3,900} \\\text { Total Current Assets } & 79,600 & 61,900 \\\text { Property, Plant, and Equipment, Net } & \underline{265,000} & \underline{233,000} \\\text { Total Assets } & \underline{\$ 344,600} & \$ 294,900\end{array}$ Liabilities
$$\begin{array} { l l l } \text { Total Curent Liabilities } & \$ 9,900 & \$ 11,200 \\\text { Long-term Liabilities } & \underline { 60,000 } & \underline { 50,000} \\\text { Total Liabilities } & \underline { 69,900 } & \underline { 6 1 , 2 0 0 }\end{array}$$ Stockholders' Equity
$$\begin{array} { l l l } \text { Preferred Stock, 3\%, } \$ 50 \text { par } & 75,000 & 75,000 \\\text { Common Stockholders' Equity, no par } & \underline { 199,700 } & \underline { 1 58 , 700 }\\\text { Total Liabilities and Stockholders' Equity } & \$ 3 44,600 & \$ 294,900\end{array}$$ Prepare a horizontal analysis of the comparative balance sheet of Michelle, Inc. (Round to one decimal place.)

Question 56

Data for Gobell, Inc. follow:
Gobell, Inc.
Comparative Balance Sheet
December 31,2019 and 2018

$\begin{array}{llcc} &\text {2019 } & \text {2018 } \\\end{array}$
Assets
Current Assets:
$$\begin{array} { l l l } \text { Cash } & \$ 121,000 & \$ 100,000 \\\text { Accounts Receivables, Net } & 117,000 & 125,000 \\\text { Merchandise Inventory } & 70,000 & \$ 85,000 \\\text { Total Assets } & \$ 308 , 000 & \$ 310,000\end{array}$$ Liabilities
$$\begin{array} { l l l } \text { Total Current Liabilities } & \$ 63,500 & \$ 50,000 \\\text { Long-term Liabilities } & \underline { 100,000 } & \underline { 100,000 } \\\text { Total Liabilities } & \underline { 163,500 } & \underline { 150,000 }\end{array}$$ Stockholders' Equity
$\begin{array}{lll}\text { Retained Earnings } & 94,500 & 110,000 \\\text { Common Stockholders' Equity } &\underline{50,000}& \underline{50,000} \\\text { Total Liabilities and Stockholders' Equity } & \underline{\$ 308,000} & \underline{\$ 310,000}\end{array}$
Prepare a horizontal analysis of the comparative balance sheet of Gobell, Inc. (Round to one decimal place.)

Question 57

Vertical analysis involves comparing an amount for a line item in the financial statements with a corresponding amount for the line item of the previous year.

Question 58

The horizontal analysis of the balance sheet is based on the comparative balance sheet.

Question 59

Trend analysis is a form of horizontal analysis.

Question 60

Beary, Inc. provides the following historical data:
$$\begin{array} { l l l l l l l } & 2019 & 2018 & 2017 & 2016 & 2015 & 2014 \\\text { Net sales } & \$ 4,970 & \$ 4,500 & \$ 3,980 & \$ 3,270 & \$ 4,750 & \$ 4,400\end{array}$$ Prepare the trend analysis report. Use 2014 as the base year, and round answers to the nearest percent.

Question 61

Prepare a vertical analysis for the balance sheet data given below. (Round to two decimal places.)
Petals, Inc.
Balance Sheet
December 31,2019 Assets
Current Assets:
$$\begin{array} { l l } \text { Cash and Cash Equivalents } & \$ 10,000 \\\text { Accounts Receivable, Net } & 15,600 \\\text { Merchandise Inventory } & \underline { 38,000 } \\\text { Total Cument Assets } & 63,600 \\\text { Long-term Invetments } & 15,000 \\\text { Property, Plant, and Equipment, Net } & \underline { \$ 195,000} \\\text { Total Assets } & \underline {\$ 273,600}\end{array}$$ Liabilities
Current Liabilities:
$\begin{array}{ll}\text { Accounts Payable } & \$ 8,500 \\\text { Notes Payable } & \underline{1,400} \\\text { Total Current Liabilities } & 9,900 \\\text { Long-term Liabilities } & \underline{54,000} \\\text { Total Liabilities } & 63,900\end{array}$
Stockholders' Equity
$$\begin{array} { l l } \text { Common Stcck } & 161,000 \\\text { Retained Earnings } & \underline { 48,700 } \\\text { Total Stockholders' Equity } & \underline { 209,700 } \\\text { Total Liabilities and Stockholders' Equity } & \underline { \$ 273,600}\end{array}$$

Question 62

Dollar value bias is the bias one sees from comparing numbers in relative (dollars) rather than absolute (percentage) terms.

Question 63

Martin Company's cost of goods sold is 40% of net sales revenue. This means that for every $1 of net sales revenue, Martin has $0.60 of gross profit.

Question 64

Shelcal, Inc. provides the following data for the year 2019: $$\begin{array} { | l | l |} \hline \text { Net Sales Revenue } & 437,960 \\\hline \text { Cost of Goods Sold } & 257,000 \\\hline\end{array}$$ The cost of goods sold as a percentage of net sales revenue is ________. (Round your answer to two decimal places.)

A) 58.84%
B) 58.96%
C) 58.41%
D) 58.68%

Question 65

Reliable Moving Company reported the following amounts on its balance sheet as of December 31, 2019 and December 31, 2018: $$\begin{array} { | l | r | r | } \hline & { 2019 } &{ 2018 } \\\hline \text { Cash and Receivables } & \$ 75,000 & \$ 135,000 \\\hline \text { Merchandise Inventory } & 155,000 & 220,000 \\\hline \text { Property, Plant and Equipment, net } & 770,000 & 770,000 \\\hline \text { Total Assets } & \$ 1,000,000 & \$ 1,125,000 \\\hline \text { Total Liabilities } & \$ 465,000 & \$ 435,000 \\\hline\end{array}$$ For the vertical analysis, what is the percentage of total liabilities for December 31, 2018? (Round your answer to two decimal places.)

A) 100.00%
B) 46.50%
C) 31.03%
D) 38.67%

Question 66

Mercer, Inc. provides the following data for 2019: $$\begin{array} { | l | l | } \hline \text { Net Sales Revenue } & 602,000 \\\hline \text { Cost of Goods Sold } & 380,000 \\\hline\end{array}$$ The gross profit as a percentage of net sales is ________. (Round your answer to two decimal places.)

A) 35.24%
B) 36.88%
C) 63.12%
D) 38.21%

Question 67

Modern Moving Company reported the following amounts on its balance sheet as of December 31, 2019 and December 31, 2018: $$\begin{array} { | l | r | r | } \hline & { 2019 } & { 2018 } \\\hline \text { Cash and Receivables } & \$ 175,000 & \$ 135,000 \\\hline \text { Merchandise Inventory } & 235,000 & 170,000 \\\hline \text { Property, Plant and Equipment, net } & 780,000 & 790,000 \\\hline \text { Total Assets } & \$ 1,190,000 & \$ 1,095,000 \\\hline \text { Total Liabilities } & \$ 485,000 & \$ 445,000 \\\hline\end{array}$$ For the vertical analysis, what is the percentage of stockholders' equity as of December 31, 2019? (Round your answer to two decimal places.)

A) 100.00%
B) 59.36%
C) 59.24%
D) There is not enough information provided to make this computation.

Question 68

The vertical analysis of the income statement of Bates, Inc. is as shown below: The figure 47.0% shown for gross profit in 2019 signifies that the gross profit is ________.

A) equal to 47.0% of net income
B) increased by 47.0% over the previous year
C) 47.0% of net sales revenue
D) 47.0% of cost of goods sold

Question 69

When performing vertical analysis of a balance sheet, the base amount is ________.

A) total assets
B) total cash and cash equivalents
C) net income
D) gross profit

Question 70

The vertical analysis of the income statement of Settler, Inc. is as shown below: The 20% shown for net income in 2019 signifies that net income ________.

A) is 20% of net sales revenues
B) increased by 20% over the previous year
C) is 20% of gross profit
D) equals 20 times of the income before income tax

Question 71

In a vertical analysis of the balance sheet, the base amount is total liabilities.

Question 72

For the vertical analysis of the balance sheet, the base amount is also the total of liabilities and stockholders' equity.

Question 73

Glasgow, Inc. provides the following:
Glasgow, Inc.
Comparative Balance Sheet
December 31,2019 and 2018

$\begin{array}{lrr}& \text { 2019 } &2018\\\end{array}$
Assets
$$\begin{array} { l l l } \text { Total Curent Assets } & \$ 200,000 & \$ 100,000 \\\text { Property, Ilant, and Equipment, Net } & 550,000 & 500,000 \\\text { Other Assets } & \underline { \$ 50,000 }& \underline { 50,000 }\\\text { Total Assets } &\underline { \$ 800,000} & \underline { \$ 650,000}\end{array}$$ Liabilities
$$\begin{array} { l l l } \text { Total Cument Liabilities } & \$ 150,000 & \$ 100,000 \\\text { Long-term Liabilities } & \underline { 350,000 }& \underline { 2 5 0 , 0 0 0 } \\\text { Total Liabilities } & 500,000 & 3 5 0 , 0 0 0 \end{array}$$ Stockholders' Equity
$\begin{array}{lrr} \text { Total Stockholders' Equity } &\underline{300,000}&\underline{300,000}\\ \text { Total Liabilities and Stockholders' Equity } &\underline{\$800,000}&\underline{\$650,000}\\\end{array}$
Perform a vertical analysis of Glasgow's balance sheet for each year. (Round to one decimal place.)

Question 74

In 2018, Spirit Company's net income was 10% of net sales revenue. In 2019, the net income was 5% of net sales revenue. There is no need for investors to be alarmed because a drop from 10% to 5% is not significant.

Question 75

When performing vertical analysis of an income statement, the base amount is ________.

A) total expenses
B) net sales revenue
C) sales revenue
D) gross profit

Question 76

A common-size statement reports the same percentages that appear in a vertical analysis.

Question 77

Allstate Moving Company reported the following amounts on its balance sheet as of December 31, 2019 and December 31, 2018: $$\begin{array} { | l | r | r | } \hline & { 2019 } & { 2018 } \\\hline \text { Cash and Receivables } & \$ 75,000 & \$ 145,000 \\\hline \text { Merchandise Inventory } & 175,000 & 250,000 \\\hline \text { Property, Plant and Equipment, net } & 820,000 & 710,000 \\\hline \text { Total Assets } & \$ 1,070,000 & \$ 1,105,000 \\\hline \text { Total Liabilities } & \$ 455,000 & \$ 405,000 \\\hline\end{array}$$ For the vertical analysis, what is the percentage of current assets as of December 31, 2019? (Round your answer to two decimal places.)

A) 23.36%
B) 35.75%
C) 55.63%
D) 30.49%

Question 78

Prepare a vertical analysis of the income statement shown below. (Round to two decimal places.)
Buckner, Inc.
Income Statement
For the Year Ended December 31, 2019 $$\begin{array} { l l } \text { Net Sales } & \$ 7,000 \\\text { Cost of Goods Sold } & 3 , 8 0 0 \\\text { Gros Profit } & 3 , 2 0 0 \end{array}$$ Operating Expenses:
$$\begin{array} { l l } \text { Selling Expenses } &&950 \\\text { Administrative Expenses } & \underline { 670 } \\\text { Total Operating Expenses } & \underline { 1,620 } \\\text { Operating Income } & 1,580\end{array}$$ Other Income and (Expenses):
$\begin{array}{lll}\text { Interest Expense } & \underline{750)} \\\text { Total Other Income and (Expenses) } & && \underline{750)}\\\text { Income Before Income Taxes } & &830 \\\text { Income Tax Expense } & \underline{150} & \\\text { Net Income } & \underline{\underline{\$ 680}} &\end{array}$

Question 79

In a vertical analysis of the income statement, each line item is shown as a percentage of net income.

Question 80

Which of the following is used to see how a company's operating expenses, as a percentage of net sales, have changed from one year to the next?

A) vertical analysis
B) horizontal analysis
C) ratio analysis
D) analysis of internal control system