Question 1

Standards for comparison are necessary when making judgments about a company's financial performance.

Accepted Answer

Standards for comparison provide a benchmark for evaluating and interpreting a company's financial performance. Without such standards, it is difficult to assess whether the company is performing well or poorly compared to its peers, industry averages, or past performance.

Question 2

A company can change from one acceptable accounting principle to another as long as the change improves the usefulness of information in its financial statements.

Accepted Answer

According to the accounting principle of consistency, a company is required to follow the same accounting principles from one period to the next, unless there is a valid reason to change. If a change is made, it must be disclosed and justified. The change must also improve the usefulness of information in the financial statements. Therefore, the statement is true.

Question 3

Financial reporting includes not only general purpose financial statements,but also information from SEC filings,press releases,shareholders' meetings,forecasts,management letters,auditor's reports,and Webcasts.

Accepted Answer

Financial reporting includes all of the mentioned sources of information in addition to general purpose financial statements.

Question 4

Horizontal analysis is the comparison of a company's financial condition and performance to a base amount.

Accepted Answer

The answer of Horizontal analysis is the comparison of a...

Question 5

A financial statement analysis report should include a brief table of contents to help users focus on those areas most relevant to their decisions.

Accepted Answer

Including a brief table of contents in a financial statement analysis report can help users quickly locate and focus on the areas of the report that are most relevant to their decision-making.

Question 6

Market prospects are the ability to provide financial rewards sufficient to attract and retain financing.

Accepted Answer

The answer of Market prospects are the ability to provide...

Question 7

Extraordinary items are reported in the operating section of the income statement.

Accepted Answer

Extraordinary items are reported separately after the operating section in the income statement.

Question 8

A financial statement analysis report helps to reduce uncertainty in business decisions through a rigorous and sound evaluation.

Accepted Answer

A financial statement analysis report provides valuable information and insights that can inform business decisions, highlighting strengths and weaknesses of a company and providing a basis for forecasting. This can help to reduce uncertainty and increase confidence in decision making.

Question 9

Profitability is the company's ability to generate future revenues and meet long-term financial obligations.

Accepted Answer

Profitability refers to a company's ability to generate earnings compared to its expenses and other costs incurred during a specific period, not its ability to generate future revenues or meet long-term obligations.

Question 10

General standards or guidelines of comparisons include the 2 to 1 level for the current ratio and 1 to 1 level for the acid-test ratio.

Accepted Answer

This statement is true. The 2 to 1 level for the current ratio and 1 to 1 level for the acid-test ratio are general standards or guidelines for comparisons in financial analysis.

Question 11

Financial statement analysis can be used for personal investment decisions.

Accepted Answer

By analyzing financial statements of companies, an individual can make informed decisions about investing in the stock market, purchasing real estate or other assets, or choosing to invest in a particular mutual fund or retirement account.

Question 12

If a company's activities include operations that are being discontinued,the income or loss from the discontinued operations are included on the income statement as part of income from continuing operations.

Accepted Answer

Income or loss from discontinued operations is reported separately from income from continuing operations on the income statement to provide a clear distinction between ongoing and non-recurring activities.

Question 13

Vertical analysis is the comparison of a company's financial condition and performance through time.

Accepted Answer

Vertical analysis involves comparing each item on a financial statement to a base item within the same statement, typically as a percentage, for a single period, not over time.

Question 14

For internal users,one purpose of financial statement analysis is to provide information helpful in improving the company's efficiency and effectiveness in providing products and services.

Accepted Answer

Financial statement analysis can help internal users identify areas of inefficiency or ineffectiveness, allowing them to take corrective actions and improve the company's operations.

Question 15

Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.

Accepted Answer

This statement is true. Financial statement analysis involves using tools and techniques to analyze financial statements and other financial data for the purpose of making informed business decisions.

Question 16

The evaluation of company performance and financial condition includes evaluation of (1) past and current performance, (2) current financial position,and (3) future performance and risk.

Accepted Answer

This statement is true. Evaluation of a company's performance and financial condition typically involves an analysis of its past and current performance, as well as its current financial position, in order to make predictions about its future performance and level of risk.

Question 17

Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.

Accepted Answer

Measures taken from competitors are often used as benchmarks to assess the performance of a business or product. This helps to identify areas that need improvement and set achievable goals for success. Therefore, selecting a competitor or a group of competitors can help in getting an accurate benchmark for comparison and analysis.

Question 18

Profitability is the ability to generate positive market expectations.

Accepted Answer

The answer of Profitability is the ability to generate positive...

Question 19

Liquidity and efficiency are measures of a company's ability to meet short-term obligations.

Accepted Answer

Liquidity refers to a company's ability to meet its short-term obligations, while efficiency refers to how well a company utilizes its resources to generate profits.

Question 20

A good financial statement analysis report often includes the following sections: Executive summary,analysis overview,evidential matter,assumptions,key factors,and inferences.

Accepted Answer

A comprehensive financial statement analysis report typically includes these sections to provide a clear, structured, and detailed examination of financial data and insights.

Quiz 13: Analyzing and Interpreting Financial Statements