Acct Test Bank #7 Financial Statements

The use of industry standards as a benchmark can provide a clearer view of a company's performance.

• True

• False

What is the act of comparing the amount of a balance sheet account in one year to the amount for the same account in a prior year?

• Common-size statement

• Vertical analysis

• Horizontal analysis

• Industry analysis

In a vertical analysis, items on the balance sheet are typically expressed as a percentage of total liabilities.

• True

• False

A common-size financial statement may exclude actual financial data, displaying only the percentages yielded in a vertical analysis.

• True

• False

A common-size financial statement is NOT used to compare two companies of different sizes.

• True

• False

Vertical analysis of income statement data most often involves comparing each income statement account to _____.

• total revenue

• total expenses

• net income before taxes

• net income

Match each financial analysis method with its appropriate description.

• Horizontal analysis

• Compares account balances across time to determine dollar and percentage differences

• Common-size financial statement

• Compares account balances in the same period

• Benchmark

• May consist of percentages without the corresponding financial data

• Vertical analysis

• Involves competitor and industry-standard comparisons

Rivkin Company is examining its financial performance by comparing its current year financial statements to those for the prior year, then by comparing current year performance to that of a competitor ten times larger in terms of revenue and assets, and then by examining on a percentage basis how its current year results compare to one another. Place these analyses in order of completion.

• Compare current year to prior year, compare to competitor, examine percentage basis

• Examine percentage basis, compare current year to prior year, compare to competitor

• Compare to competitor, compare current year to prior year, examine percentage basis

• Compare current year to prior year, examine percentage basis, compare to competitor

Quick assets include cash, receivables, and short-term investments.

• True

• False

• A. 2.1

• B. 0.714

• C. 1.4

• D. 3.0