Page 726 - Accounting Principles (A Business Perspective)

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False. Horizontal analysis provides useful information about the changes in a company's performance over
several periods by analyzing comparative financial statements of the same company for two or more successive
periods.

False. Common-size statements show only percentage figures, such as percentages of total assets and
percentages of net sales.
True. Liquidity ratios such as the current ratio and acid-test ratio indicate a company's short-term debt-paying
ability.
True. The accrual net income shown on the income statement is not cash basis income and does not indicate
cash flows.
True. Analysts must use comparable data when making comparisons of items for different periods or different

companies.
Multiple-choice
b. Current assets: USD 136,000 + USD 64,000 + USD 184,000 + USD 244,000 + USD 12,000 = USD 640,000
Current liabilities: USD 256,000 + USD 64,000 = USD 320,000
USD640,000
Current ratio: =2:1
USD320,000
c. Quick assets:
USD 136,000 + USD 64,000 + USD 184,000 = USD 384,000
Current liabilities:
256,000 + USD 64,000 = USD 320,000
USD384,000
Acid-test ratio: =1.2:1
USD320,000
a. Net sales:
USD 4,620,000
USD 720,000USD960,000
Average accounts receivable: =USD840,000
2
USD4,620,000
Accounts receivable turnover: =5.5
USD840,000
c. Cost of goods sold:

USD 3,360,000
Average inventory:
USD900,000USD 1,020,000 =USD960,000
2

USD3,360,000
Inventory turnover: =3.5
USD960,000
b. Income before interest and taxes, USD 720,000
Interest on bonds, 192,000
Times interest earned ratio: USD 720,000/USD 192,000 = 3.75 times

Accounting Principles: A Business Perspective 727 A Global Text