Answered: Using common-size balance sheet…

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle

Section: Chapter Questions

Problem 7CYBK

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Using common-size balance sheet percentages to project individual assets, liabilities, or shareholders' equity has all of the following shortcomings except:

a. Individual assets, liabilities, and shareholders' equity are independent of each other.

b. The common-size percentages do not permit the analyst to easily change the assumptions about the future behavior of an individual asset or liability.

c. Individual assets, liabilities, and shareholders' equity are not independent of each other.

d. If a company experiences changing proportions for investments in securities among its assets, other asset categories may show decreasing percentages in some years even though their dollar amounts are increasing.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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