TEST BANK FOR Financial Statement Analysis CHAPTER 13 LATEST EXAM UPDATED VERSION 2026 WITH A CORREC ANSWERS

TEST BANK FOR Financial Statement Analysis CHAPTER 13 LATEST
EXAM UPDATED VERSION 2026 WITH A CORREC ANSWERS
True / False

1. If two companies in the same industry use different methods to value inventory, this makes comparisons more difficult
but not impossible.
a. True
b. False

ANSWER: True
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-01 - LO: 13-01
KEYWORDS: Bloom's: Remembering

2. Comparing one company with another in the same industry should cause no problems since companies in the same
industry are required to use the same GAAP.
a. True
b. False

ANSWER: False
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-01 - LO: 13-01
KEYWORDS: Bloom's: Understanding

3. The FASB requires a separate note in the financial statements to show the effects of inflation so that investors are able
to compare statements more accurately.
a. True
b. False

ANSWER: False
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FACC.PONO.13.13-01 - LO: 13-01
KEYWORDS: Bloom's: Remembering

4. The analysis of common-size statements is called horizontal analysis.
a. True
b. False

ANSWER: False
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-02 - LO: 13-02
KEYWORDS: Bloom's: Remembering

5. An example of horizontal analysis is the increase in cost of goods sold by 29% from 2016 to 2017.
a. True
b. False

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

,Chapter 13: Financial Statement Analysis


ANSWER: True
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-02 - LO: 13-02
KEYWORDS: Bloom's: Remembering

6. Vertical analysis is a comparison of financial statement items for a single company over a period of time.
a. True
b. False

ANSWER: False
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-02 - LO: 13-02
KEYWORDS: Bloom's: Remembering

7. An increase in a company's revenue and expense accounts will automatically cause an increase in net income for the
period.
a. True
b. False

ANSWER: False
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-02 - LO: 13-02
KEYWORDS: Bloom's: Remembering

8. Common-size financial statements exclude the dollar amount as a relevant variable in the analysis, which makes
comparison of one period with the next more meaningful.
a. True
b. False

ANSWER: True
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-03 - LO: 13-03
KEYWORDS: Bloom's: Remembering

9. The base, or benchmark, on which all items on the income statement are compared is net sales.
a. True
b. False

ANSWER: True
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-03 - LO: 13-03
KEYWORDS: Bloom's: Remembering

10. The profit margin ratio reflects the amount of income for each dollar of sales.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

,Chapter 13: Financial Statement Analysis
a. True
b. False

ANSWER: True
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-03 - LO: 13-03
KEYWORDS: Bloom's: Remembering




© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

, Chapter 13: Financial Statement Analysis
11. All line items in common-size comparative income statements are stated as a percentage of net income.
a. True
b. False

ANSWER: False
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-03 - LO: 13-03
KEYWORDS: Bloom's: Remembering

12. Inventories and prepaid assets are excluded from the numerator used to compute the quick ratio.
a. True
b. False

ANSWER: True
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-04 - LO: 13-04
KEYWORDS: Bloom's: Remembering

13. Three measures of liquidity are: working capital, the acid-test ratio, and the debt-to-equity ratio.
a. True
b. False

ANSWER: False
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-04 - LO: 13-04
KEYWORDS: Bloom's: Remembering

14. Inventory is more liquid than accounts receivable because receivables must be collected and some customers may not
be willing to pay, while inventory need only be sold in a retail store.
a. True
b. False

ANSWER: False
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FACC.PONO.13.13-04 - LO: 13-04
KEYWORDS: Bloom's: Remembering

15. The most liquid of all assets is cash.
a. True
b. False

ANSWER: True
DIFFICULTY: Easy
LEARNING OBJECTIVES: FACC.PONO.13.13-04 - LO: 13-04
KEYWORDS: Bloom's: Remembering

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.