In financial statement analysis, a balance sheet that reports each line item as a percentage of total assets (showing only component percentages) is called a(n):

• A. Classified balance sheet
• B. Common-size balance sheet
• C. Comparative balance sheet
• D. Consolidated balance sheet

Answer: (B)

Verified step by step guidance

1. Understand the purpose of a balance sheet: it provides a snapshot of a company's financial position at a specific point in time, listing assets, liabilities, and equity.
2. Recognize that a 'Common-size balance sheet' expresses each line item as a percentage of total assets, allowing for easy comparison across companies or time periods by standardizing the figures.
3. Differentiate it from other types of balance sheets: a 'Classified balance sheet' organizes assets and liabilities into current and long-term categories; a 'Comparative balance sheet' shows side-by-side data for multiple periods; a 'Consolidated balance sheet' combines the financials of a parent company and its subsidiaries.
4. Identify that the key characteristic of the balance sheet in the problem is reporting each line item as a percentage of total assets, which matches the definition of a 'Common-size balance sheet'.
5. Conclude that the correct term for a balance sheet showing component percentages relative to total assets is 'Common-size balance sheet'.