Part 2 Financial Statement In General FS Analysis

Question 1
When preparing common-size statements, items on the Balance Sheet are generally stated as a
percentage of __________ and items on the Income Statement are generally stated as a percentage of
__________.

A. total assets; net income

B. total shareholders' equity; net income.
C. total shareholders' equity; net sales
D. total assets; net sales.

Question 2
Which of the following is an example of a base level for assets on a company's balance sheet?

A. Current liabilities
B. Total assets
C. Total liabilities
D. Common stock

Question 3
Charleston, Inc. had the following information:

Using vertical analysis for Year 1, what is the percentage of cost of goods sold and net income,
respectively?

A. 72.2% and 16.0%

B. 11.8% and 27.8%
C. 16.4% and 39.0%
D. 61.0% and 22.7%

Question 4
Chicago Trading Company reports the following results for the past four years (all amounts in millions):
 Part 2 Financial Statement In General FS Analysis

If Year 1 is the base year, what is the percentage increase in sales revenue from Year 1 to Year 4 (round
your answer to the nearest whole percentage)?

A. 13%
B. 10%
C. 14%
D. 9%

Question 5
Select information from a company's year-end balance sheet is shown below.

Based on the above information, a common-size balance sheet for the company will show

A. long-term debt at 74%

B. property, plant and equipment, net at 69%.
C. retained earnings at 17%.
D. accounts receivables at 24%.

Question 6
James Jeans Co. is evaluating the business performance for last year. They are assessing if inventory is
being properly managed. Which of the following vertical analysis approaches would be the most
effective way to summarize this activity?

A. Collect the balance sheet data for the last two years, obtain the values for inventory and total
assets, calculate the balance sheet percentage by dividing inventory by total assets for each
year, and summarize the observations for the relative size of inventory to total assets for each
year and the percentage change from year-to-year.D
B. Collect the balance sheet data for the last two years, obtain the values for inventory and
summarize the observations for the relative size of the inventory balance for each year.
C. Contact competitors to find out best practices about inventory management, summarize these
best practices and compare to James Jeans Co.’s processes, and provide a set of
recommendations on proposed changes.
 Part 2 Financial Statement In General FS Analysis

D. Engage an outside expert to review the methods James Jeans Co. uses to manage inventory,
provide ratios about inventory turnover and inventory carrying cost, and identify steps to
improve inventory management.

Question 7
If a company's gross profit as a percentage of net sales declines by 3%, it can be inferred that

A. its operating expenses as a percentage of net sales increased.

B. its operating expenses as a percentage of net sales decreased.
C. its cost of goods as a percentage of net sales increased.
D. its cost of goods as a percentage of net sales decreased.

Question 8

Because horizontal analysis compares the same amounts over a specified period of time, it is also
referred to as:

A. trend analysis.
B. static analysis.
C. ratio analysis.
D. income analysis.

Question 9

RL Enterprises’ had net sales of $1,958,000 and net income of $968,000 in 20x7 and it experienced a
25% increase in net income over 20x6. What was RL's 20x6 net income?

A. $1,210,000
B. $489,500
C. $774,400
D. $1,566,400

Question 10

The following table presents balance sheet data for Continental Manufacturing Co. for two years. All
data in thousands:
 Part 2 Financial Statement In General FS Analysis

Based on common size analysis, property, plant and equipment (PP&E) as a percent of total assets

A. increased by 3.1%.
B. decreased by 2.3%.
C. increased by 2.3%.
D. decreased by 3.1%.

Question 11

The following table presents balance sheet data for Continental Manufacturing Co. for two years. All
data in thousands:
 Part 2 Financial Statement In General FS Analysis

Based on common size analysis, long-term debt as a percent of total assets

A. increased by 1.54%.
B. decreased by 1.54%.
C. increased by 10.1%.
D. decreased by 10.1%

Question 12

An analyst performs a horizontal analysis on Acme Manufacturing and Processing Company's past
financial data. The results are presented as shown (all amounts in millions).

If Year 2 is the base year, what is the percentage increase in net income from Year 2 to Year 3 (round
your answer to the nearest whole percentage)?

A. 6%
B. 4%
C. 3%
D. 2%

Question 13

The dollar value of a company's ending inventory on its balance sheet was $500,000, $600,000, and
$400,000 for Years 1, 2, and 3, respectively. In preparing a horizontal analysis with Year 1 as the base
year, the percentage change shown for Year 3 would be

A. (25%).
B. (20%)
C. 20%.
D. 80%.

Question 14

Gordon has had the following financial results for the last four years.

Gordon has analyzed these results using vertical common-size analysis to determine trends. The
performance of Gordon can best be characterized by which one of these statements?

A. The common-size gross profit percentage has decreased as a result of an increasing common-
size trend in cost of goods sold.
 Part 2 Financial Statement In General FS Analysis

B. The increased trend in the common-size gross profit percentage is the result of both the
increasing trend in sales and the decreasing trend in cost of goods sold.
C. The common-size trend in cost of goods sold is decreasing which is resulting in an increasing
trend in the common-size gross profit percentage.
D. The common-size trend in sales is increasing and is resulting in an increasing trend in the
common-size gross profit margin.

Question 15

Which of the following is not a category on the statement of cash flows? Cash flow from:

A. sales.
B. financing.
C. Investing.
D. operations.

Question 16

A common-size statement is helpful:

A. for determining the next investment the company should make.

B. for considering whether to buy or sell assets.
C. in comparing companies of different sizes.
D. for figuring out how assets are allocated.

Question 17

Accountants at ABC Inc. obtain their values for inventory and total assets, calculate the balance sheet
percentage by dividing inventory by total assets for each year, and summarize the observations for the
relative size of inventory to total assets for each year and the percentage change from year-to-year. This
would allow them to effectively assess:

A. inventory control compared to competitors.

B. if there is an effective return on assets.
C. if inventory is being properly managed.
D. how they are managing their liabilities.

Question 18

Horizontal analysis is most likely to show:

A. changes in account balances over time.

B. changes in income per month.
C. daily changes in profit loss.
D. performance against competitors.

Question 19

Beaver Sports Inc. reported the following in its income statement for the most recent year.
 Part 2 Financial Statement In General FS Analysis

What is the common-size percentage for gross margin for Beaver?

A. 33.8%
B. 48.3%
C. 51.7%
D. 56.4%

Question 20

Chicago Trading Company reports the following results for the past four years (all amounts in millions):

If Year 1 is the base year, what is the percentage increase in net income from Year 2 to Year 4 (round
your answer to the nearest whole percentage)?

A. 10%
B. 5%
C. 7%
D. 8%

Question 21

The CFO of James Jeans Co. has asked you to prepare a vertical analysis of the recent year's financial
statements. You have identified the following: Gross profit as a percentage of net sales increased from
30.2% last year to 35% this year, net income increased from 9.4% to 10% of net sales, and James Jeans’
closest competitor had net income this year at 11.8% of sales. What would you propose as an
explanation for these results?

A. James Jeans is an overall profitable business and has improved its profitability; however, the
company is still less profitable than its closest competitor.
B. James Jeans was successful in growing the business and bottom line and should be able to
overtake its closest competitor to become more profitable.
C. James Jeans is doing a better job running its business and improving profitability than its closest
competitor.
D. James Jeans has done a successful job negotiating raw materials prices and compensating the
sales team to improve financial results, but its competitor may be doing this better.
 Part 2 Financial Statement In General FS Analysis

Question 22

Which of the following would not be included on a balance sheet?

A. Prepaid rent
B. Retained earnings
C. Cost of goods sold
D. Accumulated depreciation

Question 23

Accountants at XYZ Corp. calculate cost of goods sold, selling and administrative expenses, and net
income as a percentage of net sales for their company and the two largest competitors. This would
allow them to effectively assess:

A. costs relative to income and sales for their company over time.
B. the company's return on assets relative to its two largest competitors.
C. how the company is performing relative to its two largest competitors.
D. how the company generates return on stockholders’ equity.

Question 24

In assessing the financial prospects for a firm, financial analysts use various techniques. An example of
vertical, common-size analysis is:

A. a comparison in financial form between two or more firms in different industries.

B. a comparison in financial ratio form between two or more firms in the same industry.
C. advertising expense is 2 percent of sales.
D. an assessment of the relative stability of a firm's level of vertical integration.

Question 25

Quick Buy's balance sheet for the years ending December 31, 20x4 and 20x3 is shown as follows:
 Part 2 Financial Statement In General FS Analysis

What is the common-size analysis for long-term debt for 20x3 and 20x4?

A. 43.3%; 44.8%
B. 44.8%; 43.3%
C. 52.7%; 54.8%
D. 82.1%; 81.7%

Question 26

An analysis of financial statements of Gill Corporation revealed the following information for its
liabilities over the past four years.

Based on horizontal analysis, what is the percentage for accounts payable for Year 2 and by what
percentage did it decrease over Year 1?

A. 77.52% and 22.48%

B. 88.53% and 11.47%
C. 112.95% and 12.95%
D. 11.47% and 88.53%

Question 27

Savannah Co. had the following information:

 Part 2 Financial Statement In General FS Analysis

Using vertical analysis for Year 2, what is the percentage of cost of goods sold and net income,
respectively?

A. 16.4% and 39.0%

B. 16.4% and 39.0%
C. 61.0% and 22.7%
D. 72.2% and 16.0%

Question 28

The following table presents balance sheet data for Continental Manufacturing Co. for two years. All
data in thousands:

Based on common size analysis, total current assets as a percent of total assets

A. decreased by 1.35%.
B. increased by 1.35%.
C. decreased by 22.9%.
D. increased by 22.9%.

Question 29
 Part 2 Financial Statement In General FS Analysis

Seino Trading Company reported net sales of $900,000, $950,000, and $1,420,000 in the Years 20x5,
20x6, and 20x7, respectively. If 20x5 is the base year, what is the trend percentage for 20x7?

A. 63%
B. 106%
C. 149%
D. 158%

Question 30

The following table presents balance sheet data for Continental Manufacturing Co. for two years. All
data in thousands:

Based on common size analysis for 20x4, what is the common size percent for accounts receivable and
accounts payable, respectively?

A. 44.54% and 96.73%

B. 46.05% and 217.2%
C. 4.46% and 9.69%
D. 3.70% and 8.91%

Question 31

Chicago Trading Company reports the following results for the past four years (all amounts in millions):

If Year 1 is the base year, what is the percentage increase in net income from Year 2 to Year 4 (round
your answer to the nearest whole percentage)?
 Part 2 Financial Statement In General FS Analysis

A. 10%
B. 5%
C. 7%
D. 8%

Question 32

Which type of analysis shows the change in account balances over time?

A. Vertical
B. Ratio
C. Summary
D. Horizontal

Question 33

Atlas Airlines has reported the following quarter 1 (Q1) results for each of the past four years:

Under horizontal analysis, changes in net income for Q1 for Years 2, 3, and 4, respectively, will be shown
as

A. 3.26%, 5.58%, and (2.16%).

B. 3.37%, 5.91%, and (2.12%).
C. 3.37%, 9.47%, and 7.16%.
D. 38.07%, 10.33%, and 4.57%.

Question 34

The following table presents balance sheet data for Continental Manufacturing Co. for two years. All
data in thousands:
 Part 2 Financial Statement In General FS Analysis

Based on common size analysis, retained earnings as a percent of total assets

A. decreased by .23%.
B. increased by .23%.
C. decreased by 9.22%.
D. increased by 9.22%.

Question 35

You would like to determine if a greater proportion of assets are comprised of inventory compared to
last year. What is the best approach to analyze this?

A. Compare inventory in the current year as a percentage of total assets to last year.
B. Compare total inventory this year to last year.
C. Review whether FIFO or LIFO is the best inventory method.
D. Determine how much inventory was sold.

Question 36

The balance sheets of Delaware Drillers include the following current assets:
 Part 2 Financial Statement In General FS Analysis

Based on horizontal analysis, what is the percentage for accounts receivable for Year 3 and by what
percentage did it decrease over Year 2?

A. 89.12% and 10.88%

B. 98.79% and 1.21%
C. 110.88% and 10.88%
D. 112.21% and 12.21%

Question 37

The following table presents balance sheet data for Continental Manufacturing Co. for two years. All
data is in the thousands.
 Part 2 Financial Statement In General FS Analysis

Based on common-size analysis, other current liabilities as a percent of total assets:

A. increased by .20%.
B. decreased by 32.9%.
C. decreased by .20%.
D. increased by 32.9%.

Question 38

An analysis of financial statements of Maritime Containers Inc. revealed the following information for its
liabilities over the past four years:

Based on horizontal analysis, what is the percentage for accounts payable for Year 2 and by what
percentage did it decrease over Year 1?

A. 77.52% and 22.48%

B. 112.95% and 12.95%
C. 88.53% and 11.47%
D. 11.47% and 88.53%

Question 39

The following table presents balance sheet data for Continental Manufacturing Co. for two years. All
data is in the thousands.
 Part 2 Financial Statement In General FS Analysis

Based on common-size analysis for 20x3, what is the common-size percent for accounts receivable and
accounts payable, respectively?

A. 42.71% and 94.31%

B. 41.53% and 240.80%
C. 4.46% and 9.69%
D. 3.70% and 8.91%

Question 40

If Year 1 equals $1,000, Year 2 equals $1,920, and Year 3 equals $1,893, the percentage to be assigned
for Year 2 in a trend analysis, assuming that Year 1 is the base year, is ________ %.

A. 101
B. 189
C. 192
D. It cannot be calculated from the information given.

Question 41

Eastwood Corporation reported net sales of $300,000, $440,000, and $510,000 in Years 20x5, 20x6, and
20x7, respectively. If 20x5 is the base year, what percentage does 20x7 sales represent of the base?
 Part 2 Financial Statement In General FS Analysis

A. 70%
B. 59%
C. 116%
D. 170%

Question 42

An analysis of financial statements of Maritime Containers Inc. revealed the following information for its
liabilities over the past four years.

Based on horizontal analysis, what is the percentage for long-term liabilities for Year 2 and by what
percentage did it decrease over Year 1?

A. 22.48% and 77.52%

B. 77.52% and 22.48%
C. 88.53% and 11.47%
D. 129% and 29%

Question 43

Which amounts will show the same percentage increase or decrease when horizontal analysis is
performed?

A. Sales revenue and net income

B. Total assets and total liabilities
C. Total assets and total liabilities plus stockholders’ equity
D. Current assets and current liabilities

Question 44

Saunders Trading Company reported net sales of $100,000, $147,000, and $204,000 in the Years 20x5,
20x6, and 20x7, respectively. If 20x5 is the base year, what is the trend percentage for 20x7?

A. 204%
B. 147%
C. 139%
D. 72%

Question 45

The following information was reported for Flexon Industries in its income statement for the most
recent year:
 Part 2 Financial Statement In General FS Analysis

The common-size percentage for total operating expenses for Flexon Industries is

A. 10.4%.
B. 24.2%.
C. 38.8%.
D. 61.2%.

Question 46

The following table presents balance sheet data for Continental Manufacturing Co. for two years. All
data in thousands:

Based on common size analysis, long-term investments as a percent of total assets

A. increased by 1.7%.
B. decreased by 1.7%.
 Part 2 Financial Statement In General FS Analysis

C. increased by 22.9%.
D. decreased by 22.9%.

Question 47

JT Engineering had net sales of $890,000 and net income of $440,000 in 2017 and it experienced a 25%
increase in net income over 2016. What was JT's 2016 net income?

A. $352,000
B. $550,000
C. $222,500
D. $712,000

Question 48

Which type of analysis best facilitates observations of year-to-year trends within a company?

A. Ratio
B. Vertical
C. Horizontal
D. Intercompany

Question 49

The CFO of James Jeans Co. has asked you to perform an analysis to assess how the company is
performing relative to its two largest competitors. Which vertical analysis approach will provide the
most effective evaluation to the CFO?

A. Calculate cost of goods sold, selling and administrative expenses, and net income as a
percentage of net sales for James Jeans and the two largest competitors; draw conclusions from
these results and highlight similarities and differences.
B. Identify the structure of the sales and marketing team of each company, gather information
about customer product reviews, and review product warranty claims to understand the
comparative performance.
C. Review the stock price performance of the three companies over the last several years and the
Wall Street Analyst buy/sell recommendations; compare debt ratings; review messages on key
business websites and blogs to learn what is being said about the company and competitors.
D. Analyze the size of each company's balance sheet and income statement accounts by calculating
how much larger or smaller the competitors are compared to James Jeans Co.; summarize
observations about what might be the reasons for these size differences.

Question 50

In which scenario would a horizontal analysis be the best choice?

A. A bank wishes to compare progress among different companies.

B. A company wishes to market its growth to potential stockholders.
C. A vendor wishes to evaluate financial statement data in a given year.
D. An investor wishes to evaluate financial statement data by expressing each item in a financial
statement as a percentage of a base amount.
 Part 2 Financial Statement In General FS Analysis

Question 51

Because trend analysis evaluates financial data over time, it is also known as

A. horizontal analysis.
B. investment analysis.
C. revenue tracking.
D. forecasting.

Question 52

The controller of OmniCorp asked a financial analyst to calculate common size financial statements for
the past four years. The controller is most likely looking for which of the following?

A. How the company is earning its profits.

B. The growth rate for sales.
C. Trends in expenses as a percentage of sales.
D. How efficiently the company is using assets.

Question 53

An analyst performs a horizontal analysis on Acme Manufacturing and Processing Company's past
financial data. The results are presented as shown (all amounts in millions):

If Year 1 is the base year, what is the percentage increase in sales revenue from Year 1 to Year 3 (round
your answer to the nearest whole percentage)?

A. 10%
B. 8%
C. 7%
D. 12%

Question 54

Horizontal analysis is used to prepare which of the following?

A. Data on competitors
B. Reports on year-to-year trends
C. Industry averages
D. Financial statement percentages

Question 55

An analyst performs a horizontal analysis on Acme Manufacturing and Processing Company's past
financial data. The results are presented as shown here (all amounts in millions).
 Part 2 Financial Statement In General FS Analysis

If Year 1 is the base year, what is the percentage increase in net income from Year 1 to Year 3 (round
your answer to the nearest whole percentage)?

A. 8%
B. 10%
C. 12%
D. 7%

Question 56

Assume the following sales data for a company:

2018: $980,000

2017: 875,000

2016: 700,000

If 2016 is the base year, what is the percentage increase in sales from 2016 to 2017?

A. 140%
B. 125%
C. 40%
D. 25%

Question 57

If a company's gross profit as a percentage of net sales increases by 5%,

A. its cost of goods as a percentage of net sales decreased.

B. its cost of goods as a percentage of net sales increased.
C. its selling and administrative expenses as a percentage of net sales increased.
D. its net sales returns as a percentage of net sales increased.

Question 58

Which of the following statements is true regarding common-size statements?

A. Common-size statements indexed over two years for two companies, with both showing a 10%
increase in profits, show that both companies would make equally attractive investments.
B. All of the other three answers are correct.
C. Common-size statements can be used to compare companies of different sizes.
D. Horizontal common-size statements can be made only for companies with at least ten years of
operational data.