Question

Analysis of Financial Statements

REVIEW

1. The independent auditor's opinion is best described as an opinion as to whether the:

A. performance of the company is sufficient.


B. company's management has committed fraud.

C. company's financial statements conform to generally accepted accounting principles.

2. Which of the following statements represents the valuation of accounts as of the end of the fiscal period?

A. Balance sheet.

B. Income statement.

C. Statement of cash flows.

3. Depreciation is added back to net income in the statement of cash flows because it is:

A. a cash flow.

B. not taxable.


C. a noncash expense that was deducted to arrive at net income.


4. Treasury stock is best described as:


A. outstanding shares of stock of the company.


B. authorized, yet unissued shares of stock of the company.


C. shares of stock of the company that are purchased by the company.

5.
Suppose a company has the following:

Current assets	$10 million
Current liabilities	$8 million
Net property, plant and equipment	$20 million
Long-term liabilities	$12 million

Shareholders' equity is closest to:

A. $2 million


B. $10 million


C. $12 million

6. The operating profit of a company is best described as the earnings:

A. before interest and taxes.


B. after interest but before taxes.


C. before depreciation, amortization, interest, and taxes.

7. Which of the following methods will result in highest depreciation expenses, hence lowest reported earnings, in the first few years that an asset is depreciated?

A. Straight-line depreciation.

B. Declining balance depreciation.

C. Double-declining balance depreciation.

8. A major source of deferred income taxes is the use of:

A. off-balance sheet financing.

B. net operating loss carryovers.

C. straight-line depreciation for reporting purposes, but MACRS depreciation for tax purposes.

9. If a company borrows during the period using long-term debt to buy processing equipment, this directly affects all but which of the following?

A. Cash flow for investing.

B. Cash flow from financing.

C. Cash flow from operations.

10. The SEC requires companies that present pro forma accounting statements or data to also provide:

A. a reconciliation with GAAP.


B. forecasted financial statements.

C. an auditor's opinion on the fairness of the pro forma statements.

Answer 1

1. The independent auditor's opinion is best described as an opinion as to whether the:

    C. company's financial statements conform to generally accepted accounting principles

2. Which of the following statements represents the valuation of accounts as of the end of the fiscal period?

    B. Income statement.

3. Depreciation is added back to net income in the statement of cash flows because it is:

    C. a noncash expense that was deducted to arrive at net income.

4. Treasury stock is best described as:

    C. shares of stock of the company that are purchased by the company.