会原19版练习答案 Chapter_17_SM.docVIP

Chapter 17 Analysis of Financial Statements QUESTIONS 1. With comparative statements, financial statement items for two or more successive accounting periods are placed side by side on a single statement, with the change in each item expressed as both a dollar amount and a percent. Common-size comparative statements express each financial statement item as a percent of some base amount that is assigned a value of 100%. 2. Total assets (or equivalently, the total of liabilities plus equity) are assigned a value of 100% on a common-size balance sheet. Net sales (revenues) are assigned a value of 100% on a common-size income statement. 3. Financial reporting includes the entire process of preparing and issuing financial information about a company. Financial statements are an important part of financial reporting but they are less than the whole. 4. The nature of a companys business, the composition of its current assets, and the turnover of its current assets are three important factors that should be considered in deciding whether a current ratio is good or bad. 5. A 2-to-1 current ratio may not be adequate if the companys current assets consist of a large proportion of slow-turning accounts, notes, and merchandise inventory. The general nature of the business also may make the 2-to-1 rule of thumb inadequate. 6. Adequate working capital enables a company to carry sufficient inventories, meet current debts, take advantage of cash discounts, and extend favorable terms to customers. Working capital is a major factor in determining the short-term liquidity position of a company. 7. When evaluated in light of a companys credit terms, the number of days sales uncollected indicates how quickly accounts receivable are converted into cash. This provides information about the relevance of accounts receivable balances in meeting the current obligations of the business. 8. A high accounts receivable turnover implies that accounts are collected quickly, thereby provi