Multiple Choice Questions
1. The base account for a vertical analysis of the income statement is:
a. net income.
b. income before taxes.
c. net sales.
d. operating profit.
2. A horizontal analysis of inventory yields 5.5%. This means that:
a. inventory was 5.5% of total assets.
b. inventory was 5.5% of net sales.
c. inventory increased 5.5% from the prior year to the current year.
d. inventory decreased 5.5% from the prior year to the current year.
3. A vertical analysis of depreciation expense yields 5.5%. This means that:
a. depreciation expense was 5.5% of total assets.
b. depreciation expense was 5.5% of net sales.
c. depreciation expense increased 5.5% from the prior year to the current year.
d. depreciation expense decreased 5.5% from the prior year to the current year.
4. Last year J&M had assets of $100,000. This year assets are $120,000. A horizontal analysis of assets would yield:
a. (20.0%).
b. 16.7%.
c. 20.0%.
d. 16.7%.
5. Miller Corporation has current assets of $15,000, total assets of $85,000, and net sales of $132,000. A vertical analysis of current assets would yield:
a. 17.6%.
b. 11.4%.
c. 64.4%.
d. 21.8%.
6. McGee Inc. has administrative expenses of $12,000, total assets of $76,000, and net sales of $90,000. A vertical analysis of administrative expenses would yield:
a. 10.6%.
b. 15.8%.
c. 25.1%.
d. 13.3%.
7. Jones Services generated $123,000 in net income in its first year and $115,000 in its second year. A horizontal analysis of net income would yield:
a. 7.0%.
b. (6.5%).
c. 8.7%.
d. (7.0%).
8. Which of the following would not be included on a statement of stockholders' equity?
a. Common stock
b. Treasury stock
c. Retained earnings
d. Investments in common stock
9. Notes to the financial statements do not include:
a. additional detail and explanation of financial statement account balances.
b. accounting methods used in the preparation of the financial statements.
c. information such as contingencies and future commitments.
d. discussion and analysis of the company's financial activities by the company's management.
10. The auditor's report states an opinion on whether a company's financial statements are:
a. completely error free.
b. presented fairly in accordance with GAAP.
c. better than competitor financial statements
d. none of the above.