ACTIVITY 8

HORIZONTAL AND VERTIVCAL ANALYSIS

Multiple Choice Problems: (For numbers 1 to 5) The financial statements of ABM Trading are given
below:
2014 2013
Cash and Cash Equivalents 12,250 10,470
Receivables 9,065 8,055
Inventory 6,620 5,300
Prepaid Expenses 8,545 10,600
Total Current Assets 36,480 34,425
Other Assets 92,500 78,685

Total Assets 128,980 113,110

Total current liabilities 36,150 42,335

Long-term Liabilities 23,990 18,960

Mercedes Aldana, Capital 68,840 51,815

Total Liabilities and Equity 128,980 113,110

2014

Sales 104,705
Cost of Sales 32,275
Gross Profit 69,430
Selling Expenses 35,325
Administrative Expenses 12,815
Operating Income 21,290
Interest Expense 1,050
Net Income 20,240
1. Horizontal analysis of 2014 ABM’s balance sheet would report
a. Cash as 9.50% of total assets.

b. 17% increase in Prepaid Expenses.

c. 19% increase in Cash.

d. All of the above

2. Vertical analysis of 2014 ABM’s balance sheet would report

a. Cash as 9.50% of total assets.

b. 17% increase in Prepaid Expenses.

c. 19% increase in Cash.

d. All of the above

3. A common-size income statement for ABM would report (amounts rounded) a. Net

income of 19%.

b. Sales of 100%.

c. Cost of sales at 34%.

d. All of the above

4. A common-size balance sheet for ABM would report (amounts rounded)

a. Current liabilities as 28% of total assets.

b. Owner’s capital is 53% of total liabilities and equity

c. Receivables is 7% of total liabilities and equity

d. All of the above

5. Trend analysis will show which of the following?

a. 15% increase in Current Liabilities.

b. 33% increase in Owner’s Capital.

c. 19% increase in Long Term Liabilities

d. All of the above

6. If current assets are ₱270,000 and total assets are ₱810,000, what percentage of total assets are
current assets? a. 3.5 percent

b. 30 percent
c. 25 percent

d. 33 percent

7. Comparing the amount of a balance sheet item in one year to the amount for the same item in a prior
year is called
a. common-size analysis.

b. vertical analysis.

c. horizontal analysis.

d. ratio analysis.

8. A firm has liabilities of ₱30,000 and owner’s capital of ₱90,000. The percentage of total liabilities to
total assets is
a. 25 percent.

b. 20 percent.

c. 50 percent.

d. 75 percent.

9. A firm had owner’s capital of ₱150,000 in 2013 and ₱187,500 in 2013. The increase in owner’s
capital from 2013 to 2014 is a. 12.5 percent.

b. 20 percent.

c. 25 percent.

d. 125 percent.

10. If long-term liabilities are ₱300,000 and total assets are ₱2,100,000, what percentage of total
assets are long-term liabilities? a. 7 percent

b. 16.7 percent

c. 12.5 percent

d. 14.3 percent