Question 1

Which of the following best describes horizontal analysis?
A)comparing figures from year to year for the same company
B)expressing each figure as a percentage of a budgeted figure
C)comparing a company's financial statements with other companies
D)calculating key ratios to evaluate performance

Accepted Answer

Horizontal analysis involves comparing figures from year to year for the same company to identify trends and changes in financial performance over time. Option B describes vertical analysis, option C describes comparative analysis, and option D describes ratio analysis.

Question 2

A summary of significant accounting policies and explanations of specific items on the financial statements will be given in:
A)the balance sheet.
B)the income statement.
C)notes to financial statements.
D)the report of independent registered public accounting firm.

Accepted Answer

Notes to financial statements typically provide a detailed explanation of significant accounting policies and specific items on the financial statements. The balance sheet and income statement provide a summary of financial information, while the report of independent registered public accounting firm provides an opinion on the fairness of the financial statements.

Question 3

An unqualified opinion in an audit report states that the financial statements are presented fairly, in all material respects.

Accepted Answer

An unqualified opinion in an audit report is the best opinion that can be given and it means that the financial statements are presented fairly in all material respects.

Question 4

The following is summary of information presented on the financial statements of a company on December 31, 2015.  What would a horizontal analysis report show with respect to current liabilities?
A)current liabilities are 38.46% of total capital
B)a 50.00% increase in current liabilities
C)a current ratio of .87
D)a 33.33% increase in current liabilities

Accepted Answer

The answer of The following is summary of information presented...

Question 5

If an analyst wants to see how assets of a company have changed from one year to the next, horizontal analysis must be used.

Accepted Answer

Horizontal analysis is a financial analysis technique that compares two or more financial statements of a company to identify changes over a period of time, typically from one year to the next. Therefore, if an analyst wants to see how assets of a company have changed from one year to the next, horizontal analysis must be used.

Question 6

An external auditor is responsible for assessing the effectiveness of a company's internal controls.

Accepted Answer

An external auditor performs an independent evaluation of a company's financial statements, processes, and internal controls. They provide an opinion on the accuracy, reliability, and completeness of the financial information presented in the company's annual report. In doing so, they also assess the effectiveness of the company's internal controls.

Question 7

Which of the following types of financial statement analysis would be used to see how sales revenue of a company has changed from one year to the next?
A)vertical analysis of balance sheet
B)horizontal analysis of income statement
C)horizontal analysis of balance sheet
D)vertical analysis of income statement

Accepted Answer

Horizontal analysis of income statement compares the figures of the income statement of a company for two or more periods to determine how the different items have changed. This is useful to see how sales revenue has changed from one year to the next.

Question 8

The audit report attests to the fairness of the presentation of the financial statements.

Accepted Answer

The primary purpose of an audit is to give assurance that the financial statements are free from material misstatement and that they present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity in accordance with the applicable financial reporting framework, which could be generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) or any other financial reporting framework. Therefore, the audit report attests to the fairness of the presentation of the financial statements.

Question 9

Management's discussion and analysis section of the annual report is the company's attempt to explain its financial statements and to discuss its performance.

Accepted Answer

The management's discussion and analysis section of the annual report is indeed the company's attempt to explain its financial statements and to discuss its performance. This section provides insights into the company's financial position, results of operations, and cash flows, as well as any significant changes or events that have occurred during the reporting period.

Question 10

Trend analysis is a form of horizontal analysis.

Accepted Answer

Trend analysis involves comparing financial data over a period of time to identify patterns and changes in performance. This analysis is done horizontally, as it looks at changes in data across the same financial statement over different time periods. Therefore, trend analysis is a form of horizontal analysis.

Question 11

An adverse opinion is issued if the auditor finds that the financial statements are not presented fairly.

Accepted Answer

An adverse opinion is issued when the auditor concludes that the financial statements are materially misstated and not presented fairly in accordance with accounting standards.

Question 12

An annual report provides information about a company's financial condition.

Accepted Answer

An annual report is a comprehensive report prepared by a company that provides information about its financial performance and other relevant information to its shareholders and other stakeholders. It includes financial statements, auditor's report, management discussion and analysis, corporate governance report, and other important information.

Question 13

The audit report is prepared by an internal auditor of a company.

Accepted Answer

The audit report can either be prepared by an external auditor hired by the company or by the internal auditor who is an employee of the company.

Question 14

The study of percentage changes in comparative financial statements is called horizontal analysis.

Accepted Answer

Horizontal analysis compares financial statements from different periods to analyze changes over time, specifically in terms of percentage changes.

Question 15

Horizontal analysis compares each item in the income statement to the net sales amount.

Accepted Answer

Horizontal analysis compares the financial statements of a company over a series of reporting periods, focusing on the changes in the amounts of specific items over time rather than comparing items to net sales.

Question 16

Which of the following best describes trend analysis?
A)calculating key ratios to evaluate performance
B)expressing each figure as a percentage of a budgeted figure
C)comparing a company's financial statements with that of other companies
D)expressing each year's figures as a percentage of the base year figures

Accepted Answer

Trend analysis involves expressing each year's figures as a percentage of the base year figures, allowing for comparison of performance over time. This allows for identification of trends and changes in performance that may require action.

Question 17

The following is summary of information presented on the financial statements of a company on December 31, 2015.  What would a horizontal analysis report show with respect to net income?
A)both net income before income tax expense and net income are 45.45% of net sales revenue
B)a $25,000 increase in net income
C)a 45.45% increase in net income
D)a 103% increase in net income

Accepted Answer

The answer of The following is summary of information presented...

Question 18

If an analyst wants to see how gross profit of a company has changed from one year to the next, vertical analysis would be used.

Accepted Answer

Vertical analysis is used to see how each item on a company's financial statement relates to its total revenue or assets, expressed as a percentage. To compare the gross profit of a company from one year to the next, horizontal analysis (also known as trend analysis) would be used.

Question 19

The income statement is also known as the:
A)statement of operations.
B)statement of cash flows.
C)statement of stockholders' equity.
D)statement of financial position.

Accepted Answer

The income statement is also known as the statement of operations. It reports a company's revenues, expenses, gains, and losses during a specific period of time, usually a quarter or a year. The income statement helps investors and analysts to assess a company's profitability, efficiency, and financial health.

Question 20

A quarterly report filed with the Securities and Exchange Commission is called a Form 10-K.

Accepted Answer

A Form 10-K is actually an annual report filed with the Securities and Exchange Commission.

Quiz 17: Financial Statement Analysis

Which of the following best describes horizontal analysis?

A summary of significant accounting policies and explanations of specific items on the financial statements will be given in: