True or False (2 points each). sales. 1. In a vertical analysis of the income statement, each line item is shown as a percentage of net 2. In a vertical analysis of the balance sheet, each line item is shown as a percentage of stockholders' equity. 3. A high current ratio indicates that current liabilities are greater than current assets. 4. Days' sales in inventory measures how quickly a company can collect its receivables. 5. A high times-interest-earned ratio indicates difficulty in paying interest expense. 6. Financial accounting prepares reports for internal purposes, whereas managerial accounting provides information to external stakeholders. 7. Managerial accounting reporting by a public firm is required to follow the rules of GAAP and guidelines of the Securities and Exchange Commission. materials. 8. Manufacturing overhead includes all manufacturing costs, such as direct labor and direct 9. Manufacturing overhead includes indirect manufacturing costs, such as insurance and depreciation on the factory building. 10. Since there are few rules to restrict how an organization chooses to arrange its own internal data for decision making, managerial accounting provides ample opportunity for creativity and change. 11. Managerial accounting provides useful information to managers on product costs. 12. The cost of materials which go into and become a significant part of the company's product is classified as factory overhead cost. 13. The cost of wages paid to employees directly involved in converting materials to finished product is classified as direct labor cost. 14. For a construction contractor, the wages of carpenters would be classified as factory overhead cost. 15. Costs other than direct materials cost and direct labor cost incurred in the manufacturing process are classified as factory overhead cost.