CHAPTER 17: FINANCIAL STATEMENT ANALYSIS
1. Comparable financial statements are designed to compare the financial statements of two or more corporations.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
2. In horizontal analysis, the current year is the base year.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
3. On a common-sized income statement, all items are stated as a percent of total assets or equities at year-end.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 17: Financial Statement Analysis
4. The analysis of increases and decreases in the amount and percentage of comparative financial statement items is
referred to as horizontal analysis.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
5. A 15% change in sales will result in a 15% change in net income.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
6. A financial statement showing each item on the statement as a percentage of one key item on the statement is
called a common-sized financial statement.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 17: Financial Statement Analysis
7. The relationship of each asset item as a percent of total assets is an example of vertical analysis.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
8. Vertical analysis refers to comparing the financial statements of a single company over several years.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
9. In a common-sized income statement, each item is expressed as a percentage of net income.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
10. In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter 17: Financial Statement Analysis
11. Using vertical analysis of the income statement, a company's net income as a percentage of sales is
15%; therefore, the cost of goods sold as a percentage of sales must be 85%.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
12. In the vertical analysis of an income statement, each item is generally stated as a percentage of total assets.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
13. Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred
to as solvency and profitability.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-02 - 17-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1. Comparable financial statements are designed to compare the financial statements of two or more corporations.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
2. In horizontal analysis, the current year is the base year.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
3. On a common-sized income statement, all items are stated as a percent of total assets or equities at year-end.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 17: Financial Statement Analysis
4. The analysis of increases and decreases in the amount and percentage of comparative financial statement items is
referred to as horizontal analysis.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
5. A 15% change in sales will result in a 15% change in net income.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
6. A financial statement showing each item on the statement as a percentage of one key item on the statement is
called a common-sized financial statement.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 17: Financial Statement Analysis
7. The relationship of each asset item as a percent of total assets is an example of vertical analysis.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
8. Vertical analysis refers to comparing the financial statements of a single company over several years.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
9. In a common-sized income statement, each item is expressed as a percentage of net income.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
10. In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter 17: Financial Statement Analysis
11. Using vertical analysis of the income statement, a company's net income as a percentage of sales is
15%; therefore, the cost of goods sold as a percentage of sales must be 85%.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
12. In the vertical analysis of an income statement, each item is generally stated as a percentage of total assets.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-01 - 17-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
13. Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred
to as solvency and profitability.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.17-02 - 17-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
