Vertical Analysis Looks At

question 46

Multiple Choice

Vertical analysis looks at:

• A) percentage changes in the balances shown in comparative financial statements
• B) individual financial statement items expressed as a percentage of a base (which represents 100%)
• C) the dollar amount of the change in various financial statement amounts from year to year
• D) the change in key financial statement ratios over a specified period of time

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Definitions:

Capital Lease

A lease classified by the lessee as an asset and liability on the balance sheet because it effectively transfers substantially all risks and rewards of ownership to the lessee.

Executory Costs

These are costs associated with fulfilling the terms of a contract, excluding the direct material and direct labor costs, such as utilities, insurance, and property taxes involved in leasing.

Bargain Purchase Option

A lease provision allowing the lessee to purchase the leased asset at the end of the lease term at a price significantly lower than the expected fair market value.

Minimum Periodic Rental

In leasing agreements, it refers to the lowest amount that the lessee must pay over a specified period.