Chapter 17—Financial Statement Analysis

TRUE/FALSE

10. In the vertical analysis of a balance sheet, the base for current liabilities is
total liabilities.

ANS: F PTS: 1 DIF: Easy OBJ: 17-01

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-
23-Financial Statement Analysis

11. Using vertical analysis of the income statement, a company's net income
as a percentage of net sales is 15%; therefore, the cost of goods sold as a
percentage of sales must be 85%.

ANS: F PTS: 1 DIF: Easy OBJ: 17-01

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-
23-Financial Statement Analysis

12. In the vertical analysis of an income statement, each item is generally

stated as a percentage of total assets.

ANS: F PTS: 1 DIF: Easy OBJ: 17-01

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-
23-Financial Statement Analysis

13. Factors which reflect the ability of a business to pay its debts and earn a
reasonable amount of income are referred to as solvency and profitability.

ANS: T PTS: 1 DIF: Easy OBJ: 17-02

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-
23-Financial Statement Analysis

14. The excess of current assets over current liabilities is referred to as working
capital.

ANS: T PTS: 1 DIF: Easy OBJ: 17-02

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-
23-Financial Statement Analysis
15. Dollar amounts of working capital are difficult to assess when comparing
companies of different sizes or in comparing such amounts with industry
figures.

ANS: T PTS: 1 DIF: Easy OBJ: 17-02

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-
23-Financial Statement Analysis