11. Which of the following is a factor involved in communicating useful information?
A. Attributes of the users
B. Purpose for which the information will be used
C. Process by which the information is analyzed
D. All of these answer choices are correct.
12. Current financial reporting standards assume that users of accounting information:
A. have an expert's understanding of economic and financial events and conditions.
B. have a reasonably informed knowledge of business.
C. have widely differing levels of knowledge about business, and that financial reporting must meet these differing needs.
D. have only minimal knowledge of business.
13. Select the incorrect statement regarding the information disclosed in financial statements.
A. The costs of providing all possible information about a firm would be prohibitively high for the business.
B. Some information disclosed in financial statements may be irrelevant to some users.
C. Financial statements should be detailed enough to answer any financial-related question an investor might have.
D. When too much information is presented users may suffer from information overload.
14. Common methods of financial statement analysis include all of the following except:
A. Incremental analysis.
B. Horizontal analysis.
C. Vertical analysis.
D. Ratio analysis.
15. Financial statement analysis involves forms of comparison including:
A. Comparing changes in the same item over a number of periods.
B. Comparing key relationships within the same year.
C. Comparing key items to industry averages.
D. All of these answer choices are correct.
16. The study of an individual financial statement item over several accounting periods is called:
A. Horizontal analysis.
B. Vertical analysis.
C. Ratio analysis.
D. Time and motion analysis.
17. Select the incorrect statement regarding the analysis of absolute amounts of various accounts reported on the financial statements.
A. To fully appreciate an absolute amount, the analyst must consider the size of other accounts of the business.
B. Using absolute amounts eliminates the problem of varying materiality levels.
C. Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses.
D. Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area.
18. Select the incorrect statement regarding horizontal analysis.
A. Percentage analysis involves establishing the relationship of one amount to another.
B. In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account.
C. A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue.
D. Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes.
19. An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:
A. Ratio analysis.
B. Contribution analysis.
C. Horizontal analysis.
D. Vertical analysis.
20. Select the correct statement regarding vertical analysis.
A. Vertical analysis of the income statement involves showing each item as a percentage of sales.
B. Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets.
C. Vertical analysis examines two or more items from the financial statements of one accounting period.
D. All of these answer choices are correct.