12.1 Understand items on corporate income statements
1) Financial statement analysis indicates only that a problem may exist and offers clues as to what the problem might be.
2) In order to do a complete financial analysis, you should have at least five years of figures available for comparison.
3) The three ways to analyze financial statements are by using horizontal, vertical, and ratio analysis.
4) Financial statement analysis is only used for comparing the company's current performance with the company's past performance.
5) Reporting income from continuing operations helps investors make predictions about a company's future earnings.
6) Predictions about a company's future earnings can best be inferred from the:
A) cumulative effect of changes in accounting principles section.
B) discontinued operations section.
C) continuing operations section.
D) extraordinary items section.
E) earnings per share.
7) Other income (such as rental income) and other expenses (such as interest expense) are listed immediately after:
A) gross profit.
B) operating expenses.
C) operating income.
D) income tax expense.
E) profit.
8) A(n) ________ is a distinguishable part of a business that is subject to a different set of risks and returns than other parts of the business.
A) extraordinary event
B) business segment
C) product line
D) manufacturing line
E) operating segment
9) Basic earnings per share (EPS) is determined using:
A) authorized common shares.
B) issued common shares.
C) outstanding common shares.
D) treasury shares.
E) authorized preferred shares.
10) Diluted earnings per share is:
A) always lower than basic earnings per share.
B) always higher than basic earnings per share.
C) a figure that can be higher or lower than earnings per share.
D) computed only if the company does not have convertible preferred shares.
E) always the same as basic earnings per share.