Financial accounting 9e harrison chapter 13 test bank

Financial Accounting, 9e (Harrison/Horngren/Thomas)
Chapter 13 Financial Statement Analysis
13.1 Learning Objective 13-1
1) Vertical analysis highlights changes in financial statement balances from period to period.
Answer: FALSE
Diff: 1
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
2) The best way to analyze a company is by examining the financial data for several years.
Answer: TRUE
Diff: 1
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
3) Trend percentages are computed only for balance sheet items.
Answer: FALSE
Diff: 1
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
4) It is generally considered more useful to know the percentage change in financial statement amounts
from year to year than to know the absolute dollar amount.
Answer: TRUE
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
5) Trend analysis using income statement data is widely used for predicting the future.
Answer: TRUE
Diff: 2

LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

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6) Horizontal analysis compares financial statement items in the current period with other items in the
current period.
Answer: FALSE
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
7) The percentage change in financial statement balances is computed by dividing the dollar amount of
the most recent period by the base period dollar amount.
Answer: FALSE
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
8) Horizontal analysis and trend analysis are synonymous.
Answer: TRUE
Diff: 1
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
9) If a company has sales of $250 in 2010 and $225 in 2011, the percentage increase from 2010 to 2011 is
10%.

Answer: TRUE
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
10) If a company has sales of $150 in 2010 and $225 in 2011, the percentage change from 2010 to 2011 is
50%.
Answer: TRUE
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

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11) Period to period percentage change in comparative financial statements is often called:
A) benchmarking.
B) horizontal analysis.
C) vertical analysis.
D) common-size statements.
Answer: B
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
12) The primary focus of horizontal analysis is:
A) percentage changes in comparative financial statements.
B) the balance sheet only.

C) the changes in individual financial statement amounts as a percentage of some related total.
D) the change in key financial statement ratios over a certain time frame.
Answer: A
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
13) The percentage change in any individual item shown on comparative financial statements is calculated
by dividing the dollar amount of the change from the base period to the current period by:
A) the amount shown for the current period.
B) the base-period amount.
C) the average of the amounts shown for the base and the current periods.
D) the amount estimated for the future period.
Answer: B
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
14) The analysis of percentage changes in comparative statements is known as:
A) economic value added analysis.
B) vertical analysis.
C) horizontal analysis.
D) benchmarking analysis.
Answer: C
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

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15) Horizontal analysis is most closely related to:
A) trend analysis.
B) economic value added analysis.
C) vertical analysis.
D) benchmarking.
Answer: A
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
16) A form of horizontal analysis that indicates the direction a business is taking is:
A) benchmarking.
B) economic value added analysis.
C) vertical analysis.
D) trend percentages.
Answer: D
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
17) The horizontal analysis formula is the current year amount:
A) divided by the base year amount.
B) minus the base year amount divided by the base year amount.
C) minus the base year amount divided by current year amount.
D) added to the base year amount divided by the base year amount.
Answer: B
Diff: 2

LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
18) Horizontal analysis of financial statements is an:
A) analysis tool.
B) analysis theory
C) analysis principle.
D) analysis requirement.
Answer: A
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

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19) When computing trend percentages:
A) the current year is always equal to 100%.
B) the base year is always the latest year.
C) the base year is always equal to 100%.
D) the base year is equal to the current year plus the previous year divided by two.
Answer: C
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
20) Horizontal analysis is performed on:
A) only the income statement.

B) only the balance sheet.
C) only the statement of retained earnings
D) the income statement, the balance sheet, and the statement of retained earnings.
Answer: D
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
21) When performing a horizontal analysis on a statement of retained earnings, which would NOT show
a percentage change value?
A) Dividends paid
B) Net income
C) Expenses
D) Beginning balance of retained earnings
Answer: C
Diff: 2
LO: 13-1
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

13.2 Learning Objective 13-2
1) When comparing companies of different sizes, vertical analysis would be a useful tool.
Answer: TRUE
Diff: 1
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

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2) When performing vertical analysis of an income statement, net income is usually used as the base.
Answer: FALSE
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
3) The relationship of each individual asset as a percentage of total assets is an example of vertical
analysis.
Answer: TRUE
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
4) Vertical analysis compares an item on the financial statement to the same item in a prior period.
Answer: FALSE
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
5) When performing a vertical analysis of the income statement, each item is stated as a percentage of net
income.
Answer: FALSE
Diff: 1
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
6) Vertical analysis is concerned with the format used to prepare financial statements.
Answer: FALSE

Diff: 1
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
7) A company's net income as a percentage of sales is 15%. Using vertical analysis, the cost of goods sold
as a percentage of sales must be 85%.
Answer: FALSE
Diff: 1
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

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8) Vertical analysis is a less sophisticated analysis tool than horizontal analysis.
Answer: FALSE
Diff: 1
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
9) Matrix analysis expresses each item on a financial statement in terms of a percent of a base amount.
Answer: FALSE
Diff: 1
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
10) A thorough analysis of financial statements will include either horizontal or vertical analysis, but not
both.

Answer: FALSE
Diff: 1
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
11) Which of the following is typically used as the base in a vertical analysis of an income statement?
A) Cash
B) Inventory
C) Net income
D) Net sales
Answer: D
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
12) Which of the following is typically used as the base in a vertical analysis of a balance sheet?
A) Total liabilities
B) Cash
C) Total assets
D) Gross sales
Answer: C
Diff: 1
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

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13) Expressing cash and cash equivalents as a percentage of total assets is an example of:
A) horizontal analysis.
B) economic value added.
C) ratio analysis.
D) vertical analysis.
Answer: D
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
14) A vertical analysis is primarily concerned with:
A) the dollar amount of the change in various financial statement amounts from year to year.
B) individual financial statement items expressed as a percentage of a base (which represents 100%).
C) percentage changes in the balances shown in comparative financial statements.
D) the change in key financial statement ratios over a specified period of time.
Answer: B
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
15) Tech Support Corporation reports the following data:
Net sales
Cost of goods sold
Gross profit

$275,000
175,000
$100,000

In a vertical analysis, the gross profit percentage is closest to:

A) 63%.
B) 57%.
C) 157%.
D) 36%.
Answer: D
Explanation: D) 100,000/275,000 = 36.3636% rounded to 36%
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

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16) Common-size analysis is also known as:
A) Trend analysis.
B) Ratio analysis.
C) Vertical analysis.
D) Matrix analysis.
Answer: C
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
17) In vertical analysis:
A) a base amount is optional.
B) a base amount is required.
C) comparative statements are optional.
D) comparative statements are required.

Answer: B
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
18) A financial statement item expressed as a percentage of a base amount is a result of:
A) horizontal analysis.
B) ratio analysis.
C) vertical analysis.
D) comparative analysis.
Answer: C
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
19) In performing a vertical analysis, the base for cash is:
A) total liabilities and stockholders' equity.
B) total assets.
C) total cash and cash equivalents.
D) total current assets.
Answer: B
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

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20) In performing a vertical analysis, the base for interest expense is:
A) net sales.
B) total operating expenses.
C) net income.
D) interest income.
Answer: A
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
21) Given the following data:
Current liabilities
Noncurrent liabilities
Stockholders' equity

$450,000
650,000
500,000

In vertical analysis, current liabilities would be expressed as:
A) 356%.
B) 90%.
C) 111%.
D) 28%.
Answer: D
Explanation: D) 450,000/(450,000 + 650,000 + 500,000) = 450,000/1,600,000 = 28%
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

22) In performing a vertical analysis, the base for sales returns and allowances is:
A) sales discounts.
B) sales.
C) gross profit.
D) net sales.
Answer: D
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Reporting

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23) In performing a vertical analysis, the base for cost of goods sold is:
A) net sales.
B) total revenues.
C) total expenses.
D) gross profit.
Answer: A
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Reporting
24) Given the following data:
Cash
Current assets
Total assets

$225,000
970,000
2,105,000

In a vertical analysis, cash would be expressed as:
A) 935%.
B) 217%.
C) 46%.
D) 11%.
Answer: D
Explanation: D) 225,000/2,105,000 = 10.7% rounded to 11%
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Reporting
25) If a balance sheet is subjected to vertical analysis which shows that current assets (using total assets as
the base) have increased from 42% to 56%, this would always mean that:
A) current assets have increased as a percentage of total assets.
B) the dollar amount of total assets has increased.
C) the dollar amount of total assets has decreased.
D) the dollar amount of current assets has increased.
Answer: A
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

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26) Given the following data:
Net sales
Cost of goods sold
Gross profit

200,000
120,000
80,000

In a vertical analysis, cost of goods sold would be expressed as:
A) 166%.
B) 40%.
C) 60%.
D) 250%.
Answer: C
Explanation: C) 120,000/200,000 = 60%
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
27) Given the following data:
Net sales
Cost of goods sold
Gross profit
Operating expenses
Net income

200,000
120,000

$80,000
44,000
36,000

In a vertical analysis, net income would be expressed as:
A) 18%.
B) 45%.
C) 30%.
D) 82%.
Answer: A
Explanation: A) 36,000/200,000 = 18%
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

12
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28) If the assets shown on a balance sheet are subjected to vertical analysis (using total assets as the base),
an increase in the figure for current assets from 56% to 60% would always mean that:
A) the dollar amount of noncurrent assets has increased.
B) the dollar amount of total assets has increased.
C) total current assets have increased as a percentage of total assets.
D) the dollar amount of current assets has increased.
Answer: C
Diff: 2
LO: 13-2
AICPA Bus Persp: Strategic/Critical Thinking

AICPA Functional: Measurement
29) Prepare a vertical analysis for Winkler Corporation using the information shown below (round
percentages to the nearest one-tenth percent):

Sales
Cost of goods sold
Gross profit
Operating expenses
Net income

2012
$450,000
200,000
250,000
118,000
132,000

Answer:
Sales
Cost of goods sold
Gross profit
Operating expenses
Net income

2012
$450,000
200,000
250,000
118,000
132,000

Percent
100%
44.4%
55.6%
26.2%
29.3%

Diff: 2
LO: 13-2
AICPA Bus Persp: Legal/Regulatory
AICPA Functional: Reporting

13
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30) Prepare a vertical analysis for Crestwood Corporation's balance sheet to determine the component
percentages of its assets, liabilities, and stockholders' equity. Round percentages to the nearest one-tenth
percent.

Answer:

Diff: 2
LO: 13-2
AICPA Bus Persp: Legal/Regulatory
AICPA Functional: Reporting

14
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31) Prepare a vertical analysis for Westwood Corporation by completing the right column of the following
balance sheet with the appropriate percentages. Round percentages to the nearest one-tenth percent.

15
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Answer:

Diff: 2
LO: 13-2
AICPA Bus Persp: Legal/Regulatory
AICPA Functional: Reporting

13.3 Learning Objective 13-3
1) Common-size financial statements report only dollar amounts.
Answer: FALSE
Diff: 2
LO: 13-3
AICPA Bus Persp: Legal/Regulatory
AICPA Functional: Reporting

16
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2) Benchmarking is the process of comparing a company to standards set by the leading company in the
industry.

Answer: FALSE
Diff: 2
LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
3) A common-size statement is less effective than a horizontal analysis when comparing companies.
Answer: FALSE
Diff: 2
LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
4) Common-size financial statements are particularly valuable for identifying areas for improvements.
Answer: TRUE
Diff: 2
LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
5) To perform vertical analysis, financial statements must first be converted to common-size format.
Answer: TRUE
Diff: 2
LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
6) Which of the following would be most helpful in the comparison of different size companies?
A) Horizontal analysis
B) Comparison of their net incomes
C) Comparison of their working capital balances
D) Preparation of common-size financial statements
Answer: D
Diff: 2

LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

17
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7) A financial statement that shows each item as a percentage of one key item on the statement is referred
to as:
A) benchmarking.
B) common-size statement.
C) horizontal analysis.
D) statement of cash flows.
Answer: B
Diff: 2
LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
8) On a common-size balance sheet each item is expressed as a percentage of:
A) current assets.
B) operating income.
C) total assets.
D) net income.
Answer: C
Diff: 2
LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
9) On a common-size balance sheet, income taxes payable is expressed as a percentage of:

A) Current liabilities.
B) Stockholders' equity.
C) Total assets.
D) Total liabilities.
Answer: C
Diff: 2
LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
10) Benchmarking financial statements represents a form of:
A) horizontal analysis.
B) vertical analysis.
C) gross profit analysis.
D) trend analysis.
Answer: B
Diff: 2
LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

18
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11) When benchmarking financial statements of two key competitors, the gross margin of Company A is
expressed as a percentage of:
A) the total gross margins of Companies A and B.
B) Company B's gross margin.
C) a common standard for both Company A and Company B.
D) Company A's sales.

Answer: D
Diff: 2
LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
12) Walton Company's return on sales for the most recent year was 5%. The industry leader reports a
return on sales of 7%. The comparison of each company's return on sales is an example of:
A) benchmarking.
B) gross margin analysis.
C) detail analysis.
D) intercompany analysis.
Answer: A
Diff: 3
LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

19
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13) Computer City, Inc.'s comparative income statement is shown below:

Required:
Prepare a common-size income statement for 2012 and 2011 showing the percentages for each item listed
above. Round percentages to one-tenth percent.
Answer:

Calculations:

Diff: 2
LO: 13-3
AICPA Bus Persp: Strategic/Critical Thinking

20
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AICPA Functional: Measurement

13.4 Learning Objective 13-4
1) As another analytical tool, analysts rely on the statement of cash flows as a predictor of eventual
success for a given company.
Answer: TRUE
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
2) The statement of cash flows is helpful for spotting weaknesses as well as gauging success.
Answer: TRUE
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
3) On the statement of cash flows of a healthy company, net cash from operating activities is generally less
than net income.
Answer: FALSE
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking

AICPA Functional: Measurement
4) If the sale of plant assets is a company's major source of cash, it may be a sign of financial difficulty.
Answer: TRUE
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
5) On the statement of cash flows of a healthy company, net cash from operating activities generally
exceeds net income because of the reduction for depreciation.
Answer: FALSE
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
6) In the statement of cash flows, depreciation and amortization are considered a use of funds.
Answer: FALSE
Diff: 2
LO: 13-4

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AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Reporting

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7) In the statement of cash flows, sales of marketable securities are considered an operating activity.
Answer: FALSE
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Reporting
8) In the statement of cash flows, purchases of fixed assets are considered to be investing activities.
Answer: TRUE
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Reporting
9) In the statement of cash flows, more purchases of long-term assets than sales of long-term assets are
considered a sign of a healthy company.
Answer: TRUE
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
10) In the statement of cash flows, an increase in new borrowing, exceeding the payoff of long-term debt,
is a sign of weakness.
Answer: TRUE
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Reporting
11) When analyzing the statement of cash flows, which of the following statement are true?
A) Cash has no effect on the success of the company.
B) Cash is ignored when analyzing a company.
C) An excess of cash is the sign of a healthy company.

D) A company with a large cash balance is ensured success.
Answer: C
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

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12) Analyzing the statement of cash flows may help analysts determine the financial health of a company.
Which of the following signs below is a NOT indicator of a financially healthy company?
A) The company's operations are a major source (not a use) of cash.
B) The company's operations are a major use (not a source) of cash.
C) The company's investing activities include more purchases than sales of long-term assets.
D) The company's financing activities are not dominated by borrowing.
Answer: B
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
13) On a statement of cash flows of a struggling company, net income would ordinarily be:
A) less than depreciation expense.
B) more than depreciation expense.
C) greater than cash provided by operating activities.
D) more than cash provided by operating activities.
Answer: C
Diff: 2
LO: 13-4

AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
14) On a statement of cash flows, which is considered an operating activity?
A) Sale of securities
B) Purchase of fixed assets
C) Purchase of securities
D) Depreciation
Answer: D
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
15) On a statement of cash flows, which is considered an investing activity?
A) Depreciation
B) Increase in inventory
C) Sale of securities
D) Repayment of debt
Answer: C
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

24
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16) Purchases of fixed assets is a sign of:
A) a struggling company.
B) reinvestment in the company.

C) a shortage of cash.
D) a decrease in inventory.
Answer: B
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
17) On a statement of cash flows, an increase or decrease in inventory is considered:
A) an operating activity.
B) an investing activity.
C) a financing activity.
D) an investing or financing activity.
Answer: A
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
18) On a statement of cash flows, repayment of long-term debt is considered:
A) an operating activity.
B) an investing activity.
C) a financing activity.
D) a change in operating assets and liabilities.
Answer: C
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement
19) On a statement of cash flows, which of the following are signs of a healthy company?
A) Investing activities include more sales of long-term assets than purchases.
B) Financing activities are dominated by borrowing.

C) Operating activities are the major source of cash.
D) Operating activities provide less cash than net income.
Answer: C
Diff: 2
LO: 13-4
AICPA Bus Persp: Strategic/Critical Thinking
AICPA Functional: Measurement

25
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