Question

A typical way in which a common-size income statement is constructed is by dividing all expense items in an income statement by net income. True False

Answer 1

Answer:

False

Explanation:

A common size income statement is an income statement expressed in percentages. Each line item is expressed as a percentage of total revenue or total sales, not as a percentage of net income.

A common size income statement is used to analyze the relative weight of the company's accounts, e.g. gross margins, net margins, manufacturing expenses relative to total sales, etc.