The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2014. What would horizontal analysis report with respect to long-term liabilities?

Question

The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2014.  What would horizontal analysis report with respect to long-term liabilities?

Quizplus · Accepted Answer

To perform horizontal analysis, the change in the balance of an account is compared to a previous period. The question does not provide information on the previous period, but it does give the balance on December 31, 2014. Therefore, any answer indicating a decrease is possible. The decrease can be expressed in dollars or percentages. The long-term liabilities decreased by $30,000, according to option A, is not possible to determine. However, option B is possible because a decrease of 40% from a previous balance would result in a balance of $90,000 ($150,000 x 60%). Option C (decrease of 60%) and option D (decrease of 67%) are not possible because they would result in negative balances.

The Following Is a Summary of Information Presented on the Financial