Question 1

Yeats Corporation's sales in Year 1 were $396,000 and in Year 2 were $380,000.Using Year 1 as the base year,the percent change for Year 2 compared to the base year is:
A)−104%
B)100%
C)−4%
D)96%
E)4.2%

Accepted Answer

To calculate the percent change, we use the following formula:

Percent change = [(Year 2 - Year 1)/Year 1] x 100%

Plugging in the values, we get:

Percent change = [(380,000 - 396,000)/396,000] x 100%
Percent change = [-16,000/396,000] x 100%
Percent change = -0.0404 x 100%
Percent change = -4.04%

Therefore, the percent change for Year 2 compared to the base year is -4%. The answer is option C.

Question 2

Horizontal analysis:
A)Is a method used to evaluate changes in financial data across time.
B)Is also called vertical analysis.
C)Is the presentation of financial ratios.
D)Is a tool used to evaluate financial statement items relative to industry statistics.
E)Evaluates financial data across industries.

Accepted Answer

Horizontal analysis compares financial data from different periods to identify changes over time. This is a useful method for evaluating trends and performance over time. Vertical analysis, on the other hand, compares different components of financial statements in a single period to evaluate the relative importance of each component. Financial ratios and industry comparisons are other tools that can be used to evaluate financial performance.

Question 3

The background on a company,its industry,and its economic setting is usually included in which of the following sections of a financial statement analysis report?
A)Executive summary.
B)Analysis overview.
C)Evidential conclusions.
D)Factor analysis.
E)Inferences.

Accepted Answer

The analysis overview section of a financial statement analysis report typically covers the background of the company, its industry, and its economic environment. This information is important for providing context to the financial analysis and helping to explain any trends or patterns identified in the financial statements. The executive summary provides a brief summary of the entire report, while evidential conclusions, factor analysis, and inferences typically focus on the specific financial data and ratios analyzed in the report.

Question 4

The dollar change for a comparative financial statement item is calculated by:
A)Subtracting the analysis period amount from the base period amount.
B)Subtracting the base period amount from the analysis period amount.
C)Subtracting the analysis period amount from the base period amount,dividing the result by the base period amount,then multiplying that amount by 100.
D)Subtracting the base period amount from the analysis period amount,dividing the result by the base period amount,then multiplying that amount by 100.
E)Subtracting the base period amount from the analysis amount,then dividing the result by the base amount.

Accepted Answer

The dollar change for a comparative financial statement item is calculated by subtracting the base period amount from the analysis period amount. This will give the difference, or dollar change, between the two periods.

Question 5

Gains and losses that are normal and frequent are reported as:
A)Part of continuing operations in after-tax dollars.
B)A prior period adjustment on the statement of retained earnings.
C)A gain or loss from disposing of the discontinued segment's net assets.
D)A gain or loss from operation of a discontinued segment.
E)Part of continuing operations in before tax dollars.

Accepted Answer

Normal and frequent gains and losses are considered part of continuing operations and are reported in the income statement in before tax dollars. This is because they are not related to any extraordinary events or transactions that are outside of the company's normal operations.

Question 6

A corporation reported cash of $14,000 and total assets of $178,300 on its balance sheet.Its common-size percent for cash equals:
A)0.0785%.
B)7.85%.
C)12.73%.
D)1273%.
E)7850%.

Accepted Answer

To calculate the common-size percentage for cash, we need to divide the amount of cash by the total assets and then multiply by 100:

Cash/Common-Size Total Assets = $14,000/$178,300 = 0.0785 or 7.85%

Therefore, the common-size percent for cash is 7.85%. The correct answer is B).

Question 7

Financial statements with data for two or more successive accounting periods placed in columns side by side,sometimes with changes shown in both dollar amounts and percentages,are referred to as:
A)Period-to-period statements.
B)Controlling statements.
C)Successive statements.
D)Comparative statements.
E)Serial statements.

Accepted Answer

Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in both dollar amounts and percentages, are referred to as comparative statements.

Question 8

Which of the following items is typically not included as a separate item after normal revenues and expenses?
A)Write down of inventories.
B)Condemnation of property by the city government.
C)Loss of use of property due to a new and unexpected environmental regulation.
D)Loss due to an unusual and infrequent calamity.
E)Loss of property taken by a foreign government.

Accepted Answer

Write down of inventories is typically included in the cost of goods sold or as part of the operating expenses, not as a separate item after normal revenues and expenses. The other options represent events that are unusual or infrequent, and their financial impacts are often reported separately to highlight their nature and effect on the financial statements.

Question 9

In horizontal analysis the percent change is computed by:
A)Subtracting the analysis period amount from the base period amount.
B)Subtracting the base period amount from the analysis period amount.
C)Subtracting the analysis period amount from the base period amount,dividing the result by the base period amount,then multiplying that amount by 100.
D)Subtracting the base period amount from the analysis period amount,dividing the result by the base period amount,then multiplying that amount by 100.
E)Subtracting the base period amount from the analysis amount,then dividing the result by the analysis period amount.

Accepted Answer

In horizontal analysis, the percent change is calculated by subtracting the base period amount from the analysis period amount, then dividing the result by the base period amount, and finally multiplying that amount by 100. This formula gives the percentage change from the base period to the analysis period. The option (D) Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100 is the correct choice.

Question 10

A brief focus on important analysis results and conclusions is usually included in which of the following sections of a financial statement analysis report:
A)Executive summary.
B)Analysis overview.
C)Evidential conclusions.
D)Factor analysis.
E)Inferences.

Accepted Answer

The brief focus on important analysis results and conclusions is usually included in the Executive summary of a financial statement analysis report. This section provides a summary of the key findings and recommendations of the analysis, allowing busy executives to quickly understand the report's main points.

Question 11

A corporation reported cash of $27,000 and total assets of $461,000 on its balance sheet.Its common-size percent for cash equals:
A)17.1%.
B)58.6%.
C)100%.
D)5.86%.
E)1707%.

Accepted Answer

To find the common-size percent for cash, we need to divide the cash balance by the total assets and multiply by 100.

Cash/Common-Size Total Assets= $27,000/$461,000 = 0.0586

Multiplying by 100, we get 5.86%. Therefore, the answer is D.

Question 12

The common-size percent is computed by:
A)Dividing the analysis amount by the base amount.
B)Dividing the base amount by the analysis amount.
C)Dividing the analysis amount by the base amount and multiplying the result by 100.
D)Dividing the base amount by the analysis amount and multiplying the result by 1,000.
E)Subtracting the base amount from the analysis amount and multiplying the result by 100.

Accepted Answer

The common-size percent is computed by dividing the analysis amount by the base amount and multiplying the result by 100. This will result in a percentage representation of the analysis amount in relation to the base amount.

Question 13

Comparative financial statements in which each individual financial statement amount is expressed as a percentage of a base amount are called:
A)Asset comparative statements.
B)Percentage comparative statements.
C)Common-size comparative statements.
D)Sales comparative statements.
E)General-purpose financial statements.

Accepted Answer

Common-size comparative statements express each item as a percentage of a base amount (usually total assets or total sales) in order to facilitate comparison and analysis across time periods or between companies.

Question 14

Current assets minus current liabilities is:
A)Profit margin.
B)Financial leverage.
C)Current ratio.
D)Working capital.
E)Quick assets.

Accepted Answer

Working capital is defined as the difference between current assets and current liabilities. It represents the amount of operating liquidity a company has available to fund its day-to-day operations.

Question 15

A company's sales in Year 1 were $250,000 and in Year 2 were $287,500.Using Year 1 as the base year,the percent change for Year 2 compared to the base year is:
A)87%.
B)100%.
C)115%.
D)15%.
E)13%.

Accepted Answer

The percent change is calculated as ((Year 2 - Year 1) / Year 1) * 100 = (($287,500 - $250,000) / $250,000) * 100 = 15%.

Question 16

All of the following are true of a financial statement analysis report,except:
A)Contains ambiguities and qualifications.
B)Forces preparers to organize their reasoning and to verify the logic of analysis.
C)Serves as a method of communication to users.
D)Helps users and preparers to refine conclusions based on evidence from key building blocks.
E)Enables readers to see the process and rationale of analysis.

Accepted Answer

The statement "Contains ambiguities and qualifications" is not true of a financial statement analysis report. An effective financial statement analysis report should be clear, concise, and free of ambiguities or qualifications.

Question 17

Ash Company reported sales of $400,000 for Year 1,$450,000 for Year 2,and $500,000 for Year 3.Using Year 1 as the base year,what is the revenue trend percent for Years 2 and 3?
A)80% for Year 2 and 90% for Year 3.
B)88% for Year 2 and 80% for Year 3.
C)88% for Year 2 and 90% for Year 3.
D)112.5% for Year 2 and 125% for Year 3.
E)125% for Year 2 and 112.5% for Year 3.

Accepted Answer

To calculate the revenue trend percent, divide the revenue of the target year by the revenue of the base year (Year 1) and multiply by 100. For Year 2: ($450,000 / $400,000) * 100 = 112.5%. For Year 3: ($500,000 / $400,000) * 100 = 125%.

Question 18

To compute trend percentages the analyst should:
A)Select a base period,assign each item in the base period statement a weight of 100%,and then express financial numbers from other periods as a percent of their base period number.
B)Subtract the analysis period number from the base period number.
C)Subtract the base period amount from the analysis period amount,divide the result by the analysis period amount,then multiply that amount by 100.
D)Compare amounts across industries using Dun and Bradstreet.
E)Compare amounts to a competitor.

Accepted Answer

To compute trend percentages, the analyst should select a base period, assign each item in the base period statement a weight of 100%, and then express financial numbers from other periods as a percent of their base period number. This method helps to easily identify the percentage increase or decrease in financial numbers over time.

Question 19

Common-size statements:
A)Reveal changes in the relative importance of each financial statement item to a base amount.
B)Do not emphasize the relative importance of each item.
C)Compare financial statements over time.
D)Show the dollar amount of change for financial statement items.
E)Reveal patterns in data across successive periods.

Accepted Answer

Common-size statements express all items on a financial statement as a percentage of a base amount, allowing for comparison of the relative importance of each item over time.

Question 20

A financial statement analysis report does not include:
A)An auditor statement.
B)An analysis overview.
C)Evidential matter.
D)Qualitative and quantitative key factors.
E)Inferences such as forecasts.

Accepted Answer

A financial statement analysis report typically does not include an auditor statement. This statement would be included in an audit report, which is separate from a financial statement analysis report.

Quiz 13: Analyzing and Interpreting Financial Statements

Yeats Corporation's sales in Year 1 were $396,000 and in Year 2 were $380,000.Using Year 1 as the base year,the percent change for Year 2 compared to the base year is:

Horizontal analysis:

The background on a company,its industry,and its economic setting is usually included in which of the following sections of a financial statement analysis report?

The dollar change for a comparative financial statement item is calculated by:

Gains and losses that are normal and frequent are reported as:

A corporation reported cash of $14,000 and total assets of $178,300 on its balance sheet.Its common-size percent for cash equals:

Financial statements with data for two or more successive accounting periods placed in columns side by side,sometimes with changes shown in both dollar amounts and percentages,are referred to as:

Which of the following items is typically not included as a separate item after normal revenues and expenses?

In horizontal analysis the percent change is computed by:

A brief focus on important analysis results and conclusions is usually included in which of the following sections of a financial statement analysis report:

A corporation reported cash of $27,000 and total assets of $461,000 on its balance sheet.Its common-size percent for cash equals:

The common-size percent is computed by:

Comparative financial statements in which each individual financial statement amount is expressed as a percentage of a base amount are called:

Current assets minus current liabilities is:

A company's sales in Year 1 were $250,000 and in Year 2 were $287,500.Using Year 1 as the base year,the percent change for Year 2 compared to the base year is:

All of the following are true of a financial statement analysis report,except:

Ash Company reported sales of $400,000 for Year 1,$450,000 for Year 2,and $500,000 for Year 3.Using Year 1 as the base year,what is the revenue trend percent for Years 2 and 3?

To compute trend percentages the analyst should:

Common-size statements:

A financial statement analysis report does not include: