Chapter 17, Problem 3QC

To determine

Vertical Analysis: The financial analysis tool that shows each amount as the proportion of base amount is called vertical analysis. Revenue and total assets are considered as the base amount and presented as 100% figure in the income statement and balance sheet respectively. It is useful to compare the financials of different companies in the same industry.

Balance Sheet: It is a part of financial statements that list company’s assets, liabilities and shareholders’ fund. It is prepared at the end of the accounting period and informs about company’s financial position on that day.

Income Statement: A part of financial statements that lists the income and expenses of the business for an accounting year is called income statement. It is prepared at the end of the accounting period to know the profitability of a business. All the expenses are listed on the debit side and the income or revenues are listed on the credit side. The difference between both sides is called net profit or net loss.

To Identify: The item that would be reported as per a vertical analysis of L Company’s balance sheet.