Deck 4: Financial Statements and Analysis

Question 1

Private companies are not required to use GAAP but they should because following GAAP makes:

A) training new employees easier
B) obtaining outside equity financing easier
C) obtaining loans from banks easier
D) obtaining independent audit possible
E) all of the above

Answer 1

E

Question 2

Factors to consider when setting up a chart of accounts include the following except

A) time and efforts involved in training employees and the entrepreneur
B) level of details needed to make informed decisions
C) flexibility and comprehensiveness for growth
D) industry norms
E) initial set-up costs

Answer 2

E

Question 3

Which of the following accounting methods is recommended for management?

A) cash accounting method
B) accrual accounting method
C) modified cash accounting method
D) modified accrual accounting method
E) hybrid accounting method

Answer 3

B

Question 4

Which of the following financial statements contains gross profit?

A) Income statement
B) Balance Sheet
C) Statement of cash flows
D) Statement of equity
E) None of the above

Question 5

Which of the following financial statements contains retained earnings?

A) Income statement
B) Balance Sheet
C) Statement of cash flows
D) Statement of equity
E) None of the above

Question 6

A common size income statement expresses all items as a percentage of

A) Total Assets
B) Total Equity
C) Total Liabilities
D) Revenues
E) Net Income

Question 7

Outside investors tend to focus more on

A) Gross Margin
B) Profit Margin
C) ROA
D) ROE
E) Debt Ratio

Question 8

A balance sheet is arranged in order of

A) relative importance of an item
B) book values
C) market values
D) liquidity
E) taxability

Question 9

Advantages of the indirect method of computing cash flows from operating activities include the following except

A) more intuitive and easier to understand
B) connecting back to the income statement and balance sheets
C) satisfies the reconciliation requirement of GAAP
D) shows cash receipts and disbursement clearly
E) all of the above are advantages of the indirect method

Question 10

The main categories of equity include

A) contributions from owners
B) accumulated earnings
C) accumulated dividends
D) A and B
E) A, B, and C