Question 1

Define two types of comparative income statements and compare the information provided by them.

Accepted Answer

The answer of Define two types of comparative income statements...

Question 2

A form of analysis in which each item on a report is shown as a percent of net sales is called a horizontal analysis of the income statement.

Accepted Answer

The description given refers to vertical analysis, not horizontal analysis. In vertical analysis, each item on the income statement is expressed as a percentage of net sales, allowing for the assessment of relative size and proportion of each component. Horizontal analysis, on the other hand, involves comparing financial data over multiple periods to identify trends and growth patterns.

Question 3

Complete the following horizontal analysis comparative income statements of Webster Corporation. Round to one decimal place.

Accepted Answer

The answer of Complete the following horizontal analysis comparative income...

Question 4

The ratios that measures a company's mix of debt and equity financing are known as:
A) Liquidity Ratios.
B) Debt Management Ratios.
C) Profitability Ratios.
D) None of the above

Accepted Answer

Debt Management Ratios, also known as leverage ratios, measure a company's mix of debt and equity financing, indicating the extent to which a company is using borrowed money.

Question 5

If Rick's sales increased from $49,000 to $81,000 and its cost of goods sold increased from $25,000 to $66,000, then vertical analysis based on sales would show the following for cost of goods sold for the two periods:
A) 81.48% and 51.02%.
B) 51.02% and 81.48%.
C) 122.73% and 196.00%.
D) 196.00% and 122.73%.

Accepted Answer

Vertical analysis for cost of goods sold is calculated as (Cost of Goods Sold / Sales) * 100. For the first period, it's ($25,000 / $49,000) * 100 = 51.02%. For the second period, it's ($66,000 / $81,000) * 100 = 81.48%.

Question 6

Meranda Flower Corporation needs to develop a trend analysis for its sales and gross profit for the past three years to make decisions for the future. Compute the trend percentages with the information below and place your answers in the spaces provided.

Accepted Answer

The answer of Meranda Flower Corporation needs to develop a...

Question 7

If Cara's Piano sales increased from $46,000 to $68,000 and its cost of goods sold decreased from $29,000 to $16,000, then vertical analysis based on sales would show the following for cost of goods sold (rounded to the nearest percent):
A) 63% and 24%.
B) 43% and 35%.
C) 55% and 68%.
D) 68% and 43%.

Accepted Answer

Vertical analysis for cost of goods sold as a percentage of sales for the initial and final figures are 63% ($29,000/$46,000) and 24% ($16,000/$68,000), respectively.

Question 8

An expression of the amount of each item in a statement shown as a percentage of some designated total for purposes of comparison is called:
A) horizontal analysis.
B) earnings per share analysis.
C) return on total assets.
D) vertical analysis.

Accepted Answer

Vertical analysis is the method of presenting each item in a financial statement as a percentage of a base figure, allowing for comparison across different periods or among different components of financial statements.

Question 9

The current ratio for a company with current assets of $129,000, current liabilities of $51,000, total assets of $152,000, and net sales of $84,000, would be: (Round your answers two decimal places, X.XX%.)
A) 2.98.
B) 0.40.
C) 2.53.
D) 0.34.

Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. Therefore, the current ratio for this company is $129,000 / $51,000 = 2.53.

Question 10

Common-size statements deal with the percentage of change in a certain item over several years.

Accepted Answer

Common-size statements express all items in percentage terms relative to a common base figure, not the percentage of change over time. This technique is often used in financial analysis to compare companies of different sizes or to analyze changes in financial statements of a company over time.

Question 11

The current ratio is:
A) quick assets divided by current liabilities.
B) assets divided by liabilities.
C) current assets divided by current liabilities.
D) net sales divided by current liabilities.

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities, which is a measure of a company's ability to pay off its short-term liabilities with its short-term assets.

Question 12

From the following, complete the common-size income statement for Isaiah's Sporting Goods using net sales as the base. (Round to nearest tenth of a percent.)

Accepted Answer

The answer of From the following, complete the common-size income...

Question 13

The current ratio determines the ability of a company to:
A) pay off all payables.
B) pay off current payables.
C) manage its ability to earn profit.
D) use its equity.

Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to pay off its current liabilities (payables due within one year) with its current assets.

Question 14

The ratios that measure a company's ability to earn profits are known as.
A) Liquidity Ratios.
B) Debt Management Ratios.
C) Profitability Ratios.
D) None of the above

Accepted Answer

Profitability ratios are specifically designed to measure a company's ability to generate earnings relative to its revenue, assets, equity, and other financial metrics.

Question 15

A vertical analysis of an income statement compares net income (loss) to net sales within the same year.

Accepted Answer

A vertical analysis of an income statement involves comparing each line item to a base figure within the same period, such as net sales, to determine what percentage each item represents of the total, including comparing net income (loss) to net sales.

Question 16

Net income was $24,000 in Year 1 and $40,000 in Year 2. The percentage increase or decrease in net income was:
A) (66.67%).
B) (33.33%).
C) 33.33%.
D) 66.67%.

Accepted Answer

The percentage increase in net income is calculated as ((40,000 - 24,000) / 24,000) * 100 = 66.67%.

Question 17

The ratios that measure a company's ability to pay off short-term debt are known as:
A) Liquidity Ratios.
B) Debt Management Ratios.
C) Profitability Ratios.
D) None of the above

Accepted Answer

Liquidity ratios measure a company's ability to meet its short-term obligations and debts by comparing its most liquid assets (such as cash, marketable securities, and current receivables) to its short-term liabilities. This makes them crucial for assessing a company's short-term financial health.

Question 18

A trend analysis is a type of horizontal analysis.

Accepted Answer

Trend analysis is a form of horizontal analysis where financial statements are compared over a series of periods to identify patterns or trends in financial performance.

Question 19

A horizontal analysis for an income statement compares Cost of Goods Sold within the same year.

Accepted Answer

Horizontal analysis compares financial data over different periods, not within the same period. It looks at changes in financial statement items over time.

Question 20

An accountant is completing a trend analysis for a company by comparing sales for years 2013 through 2023. The base year for the calculations is 2023.

Accepted Answer

In a trend analysis, the base year is typically the earliest year in the series, not the latest. Therefore, if comparing sales from 2013 through 2023, 2013 would more likely be the base year, not 2023.

Quiz 22: Analyzing Financial Statements

Define two types of comparative income statements and compare the information provided by them.

A form of analysis in which each item on a report is shown as a percent of net sales is called a horizontal analysis of the income statement.

Complete the following horizontal analysis comparative income statements of Webster Corporation. Round to one decimal place.

The ratios that measures a company's mix of debt and equity financing are known as:

If Rick's sales increased from $49,000 to $81,000 and its cost of goods sold increased from $25,000 to $66,000, then vertical analysis based on sales would show the following for cost of goods sold for the two periods:

Meranda Flower Corporation needs to develop a trend analysis for its sales and gross profit for the past three years to make decisions for the future. Compute the trend percentages with the information below and place your answers in the spaces provided.

If Cara's Piano sales increased from $46,000 to $68,000 and its cost of goods sold decreased from $29,000 to $16,000, then vertical analysis based on sales would show the following for cost of goods sold (rounded to the nearest percent) :

An expression of the amount of each item in a statement shown as a percentage of some designated total for purposes of comparison is called:

The current ratio for a company with current assets of $129,000, current liabilities of $51,000, total assets of $152,000, and net sales of $84,000, would be: (Round your answers two decimal places, X.XX%.)

Common-size statements deal with the percentage of change in a certain item over several years.

The current ratio is:

From the following, complete the common-size income statement for Isaiah's Sporting Goods using net sales as the base. (Round to nearest tenth of a percent.)

The current ratio determines the ability of a company to:

The ratios that measure a company's ability to earn profits are known as.

A vertical analysis of an income statement compares net income (loss) to net sales within the same year.

Net income was $24,000 in Year 1 and $40,000 in Year 2. The percentage increase or decrease in net income was:

The ratios that measure a company's ability to pay off short-term debt are known as:

A trend analysis is a type of horizontal analysis.

A horizontal analysis for an income statement compares Cost of Goods Sold within the same year.

An accountant is completing a trend analysis for a company by comparing sales for years 2013 through 2023. The base year for the calculations is 2023.