Hollandsworth Inc. has the following information available for 2011 and 2012: Converting the 2012 column into a common-size statement would show current assets as being:
A) 40 percent of 2012 total assets.
B) 20 percent lower than 2011 current assets.
C) 50 percent of 2011 total assets.
D) 25 percent lower than 2012 long-term assets.

Question

Hollandsworth Inc. has the following information available for 2011 and 2012:  Converting the 2012 column into a common-size statement would show current assets as being:
A) 40 percent of 2012 total assets. 
B) 20 percent lower than 2011 current assets. 
C) 50 percent of 2011 total assets. 
D) 25 percent lower than 2012 long-term assets.

Quizplus · Accepted Answer

A common-size statement expresses each item as a percentage of a common amount, usually total assets or total sales. Therefore, to convert the 2012 column into a common-size statement, we need to calculate the percentage of each item relative to the total assets for 2012. The total assets for 2012 are $500,000, and the current assets are $200,000. Therefore, current assets are 40 percent of 2012 total assets.