Question

1) Which of the following applies to vertical analysis?

	a.	also called financial analysis
	b.	financial statement data for the same year is compared to different accounts
	c.	also referred to as trend analysis
	d.	financial statement data for the same accounts are compared to different years

2) Which of the following would be a characteristic of discontinued operations?

	a.	is shown net of taxes on the income statement
	b.	are shown on the income statement after income from operations but before extraordinary items
	c.	have 2 components: the gain or loss on disposal and the income or loss while still in operations
	d.	all are correct

3) A company reports sales of $1,200,000 and $1,322,000 for the years 2011 and 2012 respectively. What is the amount of the change in sales? (Be careful with this one. Take a second look at what the question is asking)

	a.	$122,000 increase
	b.	10.2% increase
	c.	9% decrease
	d.	$122,000 decrease

4) Days payable is

	a.	all are correct
	b.	a liquidity ratio
	c.	is the number of days, on average, it takes us to pay our accounts payables
	d.	calculated: 365 / payables turnover

Answer 1

Part 1

Answer is option B

b. financial statement data for the same year is compared to different accounts

vertical analysis widely known as common-size analysis in which all accounts in the financial statements are compared to the total (base) amount of the financial statement of the same year.

Part 2

Answer is option D

d. all are correct

All amounts related to discounted operations are shown net of taxes on the income statement. It is placed between income from continuing operations and extraordinary gain/loss. Both income or loss while still in operations and gain or loss on disposal are included on the income statement.

Part 3

Answer is option B

b. 10.2% increase

Change in sales = (1322000-1200000)/1200000 = 10.2%

Part 4

Answer is option A

a. all are correct

Days payable is used to determine the liquidity position of the business and defines the number of days taken to clear accounts payable. It is calculated in the following manner:

Days payable = 365*cost of goods sold/average accounts payable