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CHAPTER 13 Financial Analysis: The Big Picture Study Objectives 1. Understand the concept of sustainable income. 2. Indicate how irregular items are presented. 3. Explain the concept of comprehensive income. 4. Describe and apply horizontal analysis. 5. Describe and apply vertical analysis. 6. Identify and compute ratios used in analyzing a companys liquidity, solvency, and profitability. 7. Understand the concept of quality of earnings. Summary of Questions by Study Objectives and Blooms Taxonomy Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT Questions 1. 1 C 6. 6 C 11. 6 C 16. 6 C 20. 6 C 2. 2 C 7. 4, 5 C 12. 6 K 17. 6 C 21. 6 AP 3. 1 C 8. 4, 5 C 13. 6 C 18. 6 C 22. 7 C 4. 2 C 9. 4, 5 AP 14. 6 C 19. 6 C 23. 7 AN 5. 3 AP 10. 6 K 15. 6 C Brief Exercises 1. 2 AP 4. 4 AP 7. 4 AP 10. 6 AP 13. 6 AN 2. 2 AP 5. 5 AP 8. 5 AP 11. 6 AN 14. 6 AN 3. 2 C 6. 4 AP 9. 4 AP 12. 6 AN 15. 6 AN Do It! Review Exercises 1. 2 AP 2. 3 AP 3. 5 AP 4. 37 K Exercises 1. 2 AP 3. 4 AP 6. 4, 5 AP 9. 6 AP 11. 6 AP 2. 1, 2, 6 C 4. 5 AP 7. 6 AP 10. 6 AP 12. 6 AP 5. 4, 5 AP 8. 6 AP Problems: Set A 1. 5, 6 AN 2. 6 AP 3. 6 AN 4. 6 AN 5. 6 E Problems: Set B 1. 5, 6 AN 2. 6 AP 3. 6 AN 4. 6 AN 5. 6 E Copyright 2009 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 13-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Prepare vertical analysis and comment on profitability. Simple 2030 2A Compute ratios from balance sheet and income statement. Simple 2030 3A Perform ratio analysis, and discuss change in financial position and operating results. Simple 2030 4A Compute ratios; comment on overall liquidity and profitability. Moderate 3040 5A Compute selected ratios, and compare liquidity, profitability, and solvency for two companies. Moderate 5060 1B Prepare vertical analysis and comment on profitability. Simple 2030 2B Compute ratios from balance sheet and income statement. Simple 2030 3B Perform ratio analysis, and discuss change in financial position and operating results. Simple 2030 4B Compute ratios; comment on overall liquidity and profitability. Moderate 3040 5B Compute selected ratios, and compare liquidity, profitability, and solvency for two companies. Moderate 5060 13-2 Copyright 2009 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) ANSWERS TO QUESTIONS 1. Sustainable income is defined as the most likely level of income to be obtained in the future. It is the amount of regular income that a company can expect to earn from its normal operations. In order to distinguish a companys net income from its sustainable income, irregular items, such as a once-in-a lifetime gain or discontinued operations, are reported separately on the income statement.... View Full Document