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Practice CPA®CPA BAR Practice Exam 3Question 20

Easy1 markMultiple Choice

Area I: Business AnalysisBusiness AnalysisFinancial Analysis

CPA · Question 20 · Area I: Business Analysis

In performing a vertical analysis of a company's Income Statement, which of the following is the correct base for calculation?

Answer options:

A.

Total Assets

B.

Net Sales (Revenue)

C.

Net Income

D.

Gross Profit

How to approach this question

Recall the base for Vertical Analysis (Common Size). Balance Sheet base = Total Assets. Income Statement base = Net Sales.

Full Answer

B.Net Sales (Revenue)✓ Correct

Vertical analysis (common-size statements) expresses each line item on the income statement as a percentage of Net Sales (Revenue).

Common mistakes

Confusing with Balance Sheet base (Total Assets).

Question 19 All questions Question 21

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