MULTIPLE CHOICE:

1) When performing vertical analysis of an income statement, the base amount is ________.

A) total expenses

B) net sales

C) sales revenue

D) gross profit

2) When performing vertical analysis of a balance sheet, the base amount is ________.

A) total assets

B) total cash and cash equivalents

C) net income

D) gross profit

3) Common-size statements ________.

A) allow the users to compare numbers in relative terms rather than absolute amounts

B) report dollar amounts and percentages

C) create a dollar value bias

D) show the same percentages that appear in a horizontal analysis

4) Which of the following statements is true for leverage?

A) asset turnover ratio measures financial leverage

B) leverage always increases profitability

C) leverage is shown in proportion of total assets relative to total equity

D) the higher the debt to equity ratio, the higher the leverage

5) Ratio analysis ________.

A) provides a year-to year comparison of a company's performance in different periods

B) is used most effectively to measure a company against other companies in the same industry and to denote trends within the company

C) cannot be used to measure a company against other companies in the same industry because the necessary information is not available

D) provides a way to compare different companies

6) The income statement is also known as the ________.

A) statement of operations

B) statement of cash flows

C) statement of stockholders' equity

D) statement of financial position

7) The auditor's report ________.

A) attests that the financial statements are error-free

B) is prepared by the internal auditors

C) states whether the financial statements are presented in accordance with GAAP

D) does not include an assessment of the effectiveness of the company's internal controls

8) Annual reports ________.

A) are required to be prepared by every corporation

B) discuss the company's competitors and the risks related to the company's business

C) are also called a Form 10-Q

D) only include the company's financial statements

9) The following is summary of information presented on the financial statements of a company on December 31, 2017.

Account	2017	2016
Net Sales Revenue	$606,000	$504,000
Cost of Goods Sold	450,000	400,000
Gross Profit	$156,000	$104,000
Selling Expenses	52,000	56,000
Net Income Before Income Tax Expense	$104,000	$48,000
Income Tax Expense	37,000	23,000
Net Income	$67,000	$25,000

With respect to net income, a horizontal analysis reveals ________. (Round your answer to two decimal places.)

A) that net income is 168.00% of net sales revenue

B) a $25,000 increase in net income

C) a 168.00% decrease in net income

D) a 168.00% increase in net income