Test Bank for Managerial Accounting The Cornerstone of Business Decision Making 8th Edition By Maryanne Mowen, Don Hansen, Dan Heitger

Name Clas Dat
: s: e:

Ch15: Financial Statement Analysis
1. In the horizontal analysis of financial statements, the base year can be the immediately preceding period, or it can be a
period further in the past.
a. True
b. Fals
e
ANSWER: True

2. A primary purpose of the vertical analysis of financial statements is to observe and assess trends over a three-year
period.
a. True
b. Fals
e
ANSWER: Fals
e

3. Common-size analysis expresses each item in a financial statement as a percent of a base amount.
a. True
b. Fals
e
ANSWER: True

4. In the vertical analysis of an income statement, cost of goods sold is represented by 100%.
a. True
b. Fals
e
ANSWER: Fals
e

5. In the vertical analysis of a balance sheet, total liabilities are represented by 100%.
a. True
b. Fals
e
ANSWER: Fals
e

6. In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.
a. True
b. Fals
e
ANSWER: Fals
e

7. The use of the common-size analysis of financial statements makes the comparison of different-sized firms meaningful
because percentages eliminate the effects of size.
a. True
b. Fals
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,Name Clas Dat
: s: e:

Ch15: Financial Statement Analysis
e
ANSWER: True

8. Two major forms of common-size analysis are horizontal analysis and vertical analysis.
a. True
b. Fals
e
ANSWER: True

9. Horizontal analysis involves comparing two or more years of financial data for a single company.
a. True
b. Fals
e
ANSWER: True

10. Common-size analysis is used to assess and compare companies of similar size and operations.
a. True
b. Fals
e
ANSWER: Fals
e

11. The increase in the cost of goods sold by 25% from Year 1 to Year 2 is an example of horizontal analysis.
a. True
b. Fals
e
ANSWER: True

12. For meaningful analysis, ratios should be compared with a standard.
a. True
b. Fals
e
ANSWER: True

13. Companies in the same industry may use different accounting methods, diminishing the usefulness of some industrial
averages.
a. True
b. Fals
e
ANSWER: True

14. Small sample sizes for an industrial report rarely cause a comparability problem in using standards.
a. True
b. Fals
e
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,Name Clas Dat
: s: e:

Ch15: Financial Statement Analysis
ANSWER: Fals
e

15. Labor markets can impact industrial statistics and standards.
a. True
b. Fals
e
ANSWER: True

16. Industrial statistics should be taken as absolute norms as far as standards for comparability.
a. True
b. Fals
e
ANSWER: Fals
e

17. Terms of sale can produce statistical variations among companies within the same industry.
a. True
b. Fals
e
ANSWER: True

18. A number of online sources contain competitive information on individual company's ratios.
a. True
b. Fals
e
ANSWER: True

19. Industrial figures, standards, and statistics should be used with much care because they are not a good reference point
for comparing companies.
a. True
b. Fals
e
ANSWER: Fals
e

20. Liquidity ratios measure the ability of a company to meet its current obligations.
a. True
b. Fals
e
ANSWER: True

21. The current ratio is a measure of the ability of a company to pay its short-term liabilities out of short-term assets.
a. True
b. Fals
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, Name Clas Dat
: s: e:

Ch15: Financial Statement Analysis
e
ANSWER: True

22. The inventory turnover ratio measures the number of days the average accounts receivable balance is outstanding
before being converted into cash.
a. True
b. Fals
e
ANSWER: Fals
e

23. Inventory turnover is a measure of liquidity that assesses the speed at which a company converts its inventory into
cash.
a. True
b. Fals
e
ANSWER: True

24. The quick ratio should be larger than the current ratio.
a. True
b. Fals
e
ANSWER: Fals
e

25. All debt is considered in the computation of the quick ratio.
a. True
b. Fals
e
ANSWER: Fals
e

26. A short-term note receivable would be included when computing the quick ratio.
a. True
b. Fals
e
ANSWER: True

27. The inventory turnover ratio for Jill's Market is 120 times per year, and Scott's Market is 128 times per year.
Therefore, based on the given information, Scott's Market is more effective than Jill's Market in managing inventory.
a. True
b. Fals
e
ANSWER: True

28. Profitability ratios assess a company's ability to meet its long- and short-term obligations.
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