Question 1

A management discussion and analysis (MD&A)of financial results,as well as footnotes to the financial statements,are part of a company's annual report.

Accepted Answer

Both management discussion and analysis (MD&A) of financial results and footnotes to the financial statements are required components of a company's annual report. The MD&A provides an overview and analysis of the company's financial performance and results, while the footnotes provide additional information and detail about specific aspects of the financial statements. Together, these components help investors and stakeholders understand the company's financial health and prospects for the future.

Question 2

Short-term liquidity is

Accepted Answer

Short-term liquidity refers to the ability of a company to meet its current payments and obligations as they become due. It is an important aspect of financial management as it ensures that a company is able to sustain its operations and avoid defaulting on its liabilities. A company's short-term liquidity can be measured by ratios such as the current ratio, quick ratio, and cash ratio.

Question 3

The disclosure practices that have evolved in the United States have the specific and only purpose of providing information to tax authorities.

Accepted Answer

The disclosure practices in the United States serve the purpose of providing information not only to tax authorities but also to investors, stakeholders, and regulatory bodies. These practices ensure that companies provide transparent and accurate information about their financial performance, risks, and other material information.

Question 4

Fulton Company has the following data available: 
Interst Expense, For the Year Ending December 31, 2013$ \quad $$ \quad $$\$ 15$
Interst Expense, For the Year Ending December 31, 2012$ \quad $$ \quad $$\$ 10$ 
What is the percentage increase or (decrease)in interest expense from 2012 to 2013 for Fulton Company?

Accepted Answer

The interest expense increased from $10 in 2012 to $15 in 2013. This is a $5 increase on a base of $10, which is a 50% increase.

Question 5

Fulton Company has the following data available: 
Wage Expense, For the Year Ending December $ 31,2 \times 13 $$ \quad $$ \quad $$ \$ 95 $
Wage Expense, For the Year Ending December $ 31,2 \times 12 $$ \quad $$ \quad $$ \$ 90 $ 
What is the percentage increase or (decrease)in wage expense from 2X12 to 2X13 for Fulton Company?

Accepted Answer

The wage expense increased from $90 in 2X12 to $95 in 2X13. The increase is $5 on a base of $90, so the percentage increase is $\frac{5}{90} \times 100 = 5.56\%$, which rounds to 5.6%.

Question 6

Which of the following statement(s)describe the principal reason(s)why investors and creditors use financial statement analysis? 1.To assess the risks associated with expected returns
2)To evaluate top and middle level management
3)To predict the amount of expected returns
4)To establish recommended dividend and interest payments

Accepted Answer

Investors and creditors use financial statement analysis primarily to assess the risks associated with expected returns (statement 1) and to predict the amount of expected returns (statement 3). While evaluating top and middle level management (statement 2) and establishing recommended dividend and interest payments (statement 4) are also important factors, they are not the principal reasons for using financial statement analysis. Therefore, choice C is the best option as it contains the two most important statements.

Question 7

Fulton Company has the following information available: 
Gross profit, For the Year Ending December 31, 2013$ \quad $$ \quad $$\$ 430$
Gross Profit, For the Year Ending December 31, 2012$ \quad $$ \quad $$\$ 360$ 
What is the percentage increase or (decrease)in gross profit from 2012 to 2013 for Fulton Company?

Accepted Answer

To find the percentage increase or decrease in gross profit from 2012 to 2013, we use the formula:

Percentage increase/decrease = [(New value - Old value)/Old value] x 100%

Using the given values, we get:

Percentage increase/decrease = [(430 - 360)/360] x 100%
Percentage increase/decrease = (70/360) x 100%
Percentage increase/decrease = 0.1944 x 100%
Percentage increase/decrease = 19.44%

Therefore, the gross profit increased by 19.44% from 2012 to 2013. The correct answer choice is E.

Question 8

A pro forma statement is a carefully formulated expression of predicted results conveyed in a statement.

Accepted Answer

A pro forma statement is indeed a carefully formulated expression of predicted results conveyed in a statement. It is typically used in financial reporting and forecasting to provide a projection of future earnings, expenses, assets, and liabilities based on different scenarios, assumptions, and data inputs. Pro forma statements can help investors, analysts, and managers evaluate the potential impact of various business decisions, strategies, and market conditions on the financial performance of a company.

Question 9

In addition to annual reports,financial information regarding a company can come from all of the following sources EXCEPT

Accepted Answer

Financial information regarding a company cannot come from the Internal Revenue Service as it is a government agency responsible for collecting taxes, not releasing financial data about private companies.

Question 10

Describe several advantages and several disadvantages to investor access to the Internet.

Accepted Answer

The answer of Describe several advantages and several disadvantages to...

Question 11

Annual reports and 10K filings for the Securities and Exchange Commission are timely,since they usually precede the events being reported.

Accepted Answer

Annual reports and 10K filings are retrospective, meaning they cover events and financial performance of the past year, not events that have yet to occur.

Question 12

With respect to creditors and equity investors,which of the following statements is incorrect?

Accepted Answer

Creditors are primarily concerned with the company's ability to repay the loan, while equity investors are concerned with the company's profitability and potential for future growth. Therefore, creditors are not typically concerned about future security prices, as they are more focused on the company's financial stability and ability to repay the loan.

Question 13

Investors purchase capital stock expecting to receive dividends and an increase in the value of the stock.

Accepted Answer

This is a common reason why investors purchase capital stock. They hope to receive dividends and see the value of their stock increase over time. However, there are no guarantees that these expectations will be met.

Question 14

Long-term solvency refers to an organization's ability to meet current payments as they become due.

Accepted Answer

Long-term solvency refers to an organization's ability to meet long-term debt obligations and financial commitments, not just current payments as they become due.

Question 15

When analyzing the financial statements of a potential debtor,the primary concerns of creditors include

Accepted Answer

Creditors are concerned with both the short-term liquidity of a potential debtor (ability to meet short-term obligations) and their long-term solvency (ability to meet long-term obligations and remain financially stable). Interest and dividend revenue are not primary concerns for creditors when analyzing a potential debtor's financial statements.

Question 16

List the assets in the order from most liquid to least liquid.

Accepted Answer

Cash is the most liquid asset, followed by accounts receivable which can be converted into cash relatively quickly, and inventory is the least liquid as it takes the longest time to convert into cash.

Question 17

The Internet is a powerful,useful tool used by investors.Which statement is false regarding the Internet as it relates to investors?

Accepted Answer

This statement is false. The Internet can be a source of inaccurate information, and investors must always verify information from multiple sources before making investment decisions.

Question 18

A pro forma statement is

Accepted Answer

A pro forma statement is a projected financial statement that is based on predicted results. It is often used for planning purposes, such as creating budgets or forecasting future financial performance.

Question 19

Since financial statements report on past results,they are not particularly useful to investors and creditors,who want to predict future returns and their risks.

Accepted Answer

This statement is false. While financial statements do report on past results, they are still useful to investors and creditors in predicting future returns and risks. Historical financial data can provide insight into a company's performance trends and financial health, which can help inform future investment decisions. Additionally, financial statements can be used in conjunction with other information, such as management commentary and industry analysis, to form a more complete picture of a company's potential for future success.

Question 20

Short-term liquidity refers to an organization's ability to generate enough cash to repay long-term debts as they mature.

Accepted Answer

Short-term liquidity refers to an organization's ability to generate enough cash to meet its current obligations, such as paying suppliers and employees. Long-term liquidity refers to an organization's ability to repay long-term debts as they mature.

Quiz 12: Financial Statement Analysis