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**preview**has**blurred**sections. Sign up to view the full version! View Full DocumentCHAPTER 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 company’s liquidity, solvency, and profitability.
7.
Understand the concept of quality of earnings.
Summary of Questions by Study Objectives and Bloom’s 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.
3–7
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
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
20–30
2A
Compute ratios from balance sheet and income
statement.
Simple
20–30
3A
Perform ratio analysis, and discuss change in
financial position and operating results.
Simple
20–30
4A
Compute ratios; comment on overall liquidity and
profitability.
Moderate
30–40
5A
Compute selected ratios, and compare liquidity,
profitability, and solvency for two companies.
Moderate
50–60
1B
Prepare vertical analysis and comment on profitability.
Simple
20–30
2B
Compute ratios from balance sheet and income
statement.
Simple
20–30
3B
Perform ratio analysis, and discuss change in
financial position and operating results.
Simple
20–30
4B
Compute ratios; comment on overall liquidity and
profitability.
Moderate
30–40
5B
Compute selected ratios, and compare liquidity,
profitability, and solvency for two companies.
Moderate
50–60
13-2
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 company’s 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.
2.
Items (a), (d), and (g) are extraordinary items; item (h) is debatable.

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