Question

Suppose that two hospitals are identical in all ways except that Hospital N is relatively new while Hospital O is relatively old. Which of the following statements about a comparative financial statement analysis is most correct? (Hint: Think about the differences in the amount of net fixed assets carried on the balance sheet and the amount of depreciation expense reported on the income statement.)

A	Hospital N will report the higher net income.

B	Hospital N will have the higher total asset turnover.

C	Hospital N will have the higher fixed asset turnover.

D	Hospital N will have the lower gross fixed assets.

E	None of the above statements is correct.

Answer 1

Suppose that two hospitals are identical in all ways except that Hospital N is relatively new while Hospital O is relatively old.

Answer : E : none of the above statements is correct

If hospital N is new, it will have higher amount of net fixed assets compared to Hospital O, because Hospital O has already use large part of asset in depreciation.

secondly, the asset turnover will look higher for Hospital O as it has lower net asset base

thirdly, as depreciation is higher for New hospital, it will have lower net income