Which of the following best describes the primary purpose of presenting a comparative balance sheet and income statement for Cruz, Incorporated?

• A. To present only the most recent year's financial data.
• B. To comply with tax reporting requirements only.
• C. To analyze changes in financial position and performance over multiple periods.
• D. To eliminate the need for footnote disclosures.

Answer: (C)

Verified step by step guidance

1. Understand the concept of a comparative balance sheet and income statement: These financial statements present data for multiple periods, allowing users to compare financial performance and position over time.
2. Recognize the primary purpose of comparative financial statements: They are used to analyze changes in financial position and performance across different periods, providing insights into trends and patterns.
3. Eliminate incorrect options: For example, presenting only the most recent year's financial data does not align with the comparative nature of these statements. Similarly, compliance with tax reporting requirements is not the primary purpose, and eliminating footnote disclosures is not a valid reason.
4. Focus on the correct purpose: Comparative financial statements are designed to help stakeholders, such as investors and management, understand how the company's financial health and operations have evolved over time.
5. Conclude that the correct answer is: 'To analyze changes in financial position and performance over multiple periods,' as this aligns with the purpose of comparative financial statements.