If the assets shown on a balance sheet are subjected to vertical analysis (using total assets as the base), an increase in the figure for current assets from 56% to 60% would always mean that:
A) the dollar amount of noncurrent assets has increased.
B) the dollar amount of total assets has increased.
C) total current assets have increased as a percentage of total assets.
D) the dollar amount of current assets has increased.

Question

Quizplus · Accepted Answer

Vertical analysis compares items on a financial statement as a percentage of a base. In this case, the base is total assets. An increase from 56% to 60% for current assets means that they now represent a larger portion of the total assets. This does not necessarily mean that the dollar amount of noncurrent assets has increased or that the dollar amount of total assets has increased. The only thing we can be sure of is that total current assets have increased as a percentage of total assets, which is represented by the change in the percentage. Therefore, C is the correct answer.

If the Assets Shown on a Balance Sheet Are Subjected