Indicate Whether Each of the Following Statements About Financial Statement

question 45

Short Answer

Indicate whether each of the following statements about financial statement analysis is true or false.
_____ a) Ratio analysis may involve studying relationships between an item reported on the balance sheet and another reported on the income statement.
_____ b) Comparing sales in 2012 with sales for 2011 is a form of vertical analysis.
_____ c) Comparing net income in 2012 with sales for 2012 is a form of horizontal analysis.
_____ d) Liquidity ratios measure a company's ability to generate profits in the short term.
_____ e) Working capital is calculated by using the following formula: quick assets - current liabilities.

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Definitions:

One-Line Method

An accounting technique used in the consolidation of financial statements where a parent company reports the net assets and results of a subsidiary in a single line.

Joint Venture Liabilities

The financial obligations that are incurred jointly by partners in a venture, which must be settled together.

Line-by-Line Method

A consolidation technique where the parent company combines its subsidiary's assets, liabilities, income, and expenses line by line into its own financial statements.

One-Line Method

An accounting technique used for combining the financial statement of a parent company and its subsidiary by reporting the investment in a single line.