The Following Is a Summary of Information Presented on the Financial

question 18

Multiple Choice

The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2014.
$\begin{array}{|l|r|c|}\hline \text { Account }&2014&2013\\\hline \text { Current assets } & \$ 65,000 & \$ 50,000 \\\hline \text { Accounts receivable } & 80,000 & 75,000 \\\hline \text { Merchandise inventory } & 50,000 & 40,000 \\\hline \text { Current liabilities } & 75,000 & 50,000 \\\hline \text { Long-term liabilities } & 30,000 & 50,000 \\\hline \text { Common stock } & 50,000 & 40,000 \\\hline \text { Retained earnings } & 40,000 & 25,000\\\hline \\\hline \text { Net sales revenue } & \$ 525,000 & \$ 500,000 \\\hline \text { Cost of goods sold } & 400,000 & 395,000 \\\hline \text { Gross profit } & \$ 125,000 & \$ 105,000 \\\hline \text { Selling and general expenses } & 45,000 & 50,000 \\\hline \text { Net income before income tax expense } & \$ 80,000 & \$ 55,000 \\\hline \text { Income tax expense } & \$ 24,000 & 16,500 \\\hline \text { Net income } & \$ 56,000 & \$ 38,500 \\\hline\end{array}$


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What would horizontal analysis report with respect to long-term liabilities?

• A) That long-term liabilities decreased by $30,000
• B) That long-term liabilities decreased by 40%
• C) That long-term liabilities decreased by 60%
• D) That long-term liabilities decreased by 67%

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Definitions:

Beneficial

Having a positive or useful effect; providing a benefit.

Harmful

Referring to anything that can cause damage or adverse effects on living organisms or the environment.

Nonpolar Covalent

A type of chemical bond where two atoms share a pair of electrons with each other equally because they have similar electronegativities.

Polar Covalent

A polar covalent bond is a type of chemical bond where a pair of electrons is unequally shared between two atoms, leading to a molecule with partial positive and negative charges.