Financial reporting and analysis are integral aspects of assessing a company’s financial health and performance. Whether you are an investor, a financial analyst, or a business owner, understanding these topics is crucial for making informed decisions. In this compilation of the top 15 financial reporting and analysis questions and answers, we will explore key concepts, ratios, and techniques that help you delve deeper into financial statements and make sense of the numbers. From assessing profitability and liquidity to understanding the implications of various financial metrics, this collection will provide valuable insights to enhance your financial acumen. Let’s embark on this journey of financial exploration, and by the end, you’ll be better equipped to decipher the language of numbers in the world of finance.
Now, let’s move on to the Top 15 Financial Reporting & Analysis Question and Answer
Q1. Which one of the following is the financial statement that shows a financial snapshot, taken at a point in time, of all the assets the company owns and all the claims against those assets?
a. Income statement
c. Balance sheet
d. Cash flow statement
e. Sources and uses statement
Q2. Which one of the following is the financial statement that summarizes a firm’s revenue and expenses over a period of time?
a. Income statement
b. Balance sheet
c. Cash flow statement
d. Sources and uses statement
e. Market value statement
Q3. The sources and uses of cash over a stated period of time are reflected in the
a. income statement.
b. balance sheet.
c. shareholders’ equity statement.
d. cash flow statement.
e. statement of operating position.
Q4. Which one of the following is a source of cash?
a. Increase in accounts receivable
b. Decrease in notes payable
c. Decrease in common stock
d. Increase in inventory
e. increase in accounts payable
Q5. Which one of the following is a use of cash?
a. Increase in notes payable
b. Increase in inventory
c. Increase in long-term debt
d. Decrease in accounts receivable
e. Increase in common stock
Q6. Which of the following is NOT a major category on the cash flow statement?
a. Cash flows from selling activities
b. Cash flows from operating activities
c. Cash flows from financing activities
d. Cash flows from investing activities
Q7. The book value of an asset
a. is always equal to its market value.
b. is always less than or equal to its market value.
c. is always greater than or equal to its market value.
d. could be greater than, equal to, or less than its market value.
Q8. Depreciation expense
a. decreases both taxes and net income.
b. increases net fixed assets.
c. increases net income.
d. increases both current assets and net income.
e. decreases both current assets and net income.
Q9. Suppose an acquiring firm pays $100 million for a target firm, and the target’s assets have a book value of $60 million and an estimated replacement value of $70 million. What amount would be allocated to the acquiring firm’s goodwill account?
a. $0 million
b. $20 million
c. $30 million
d. $70 million
e. $80 million
f. None of the options are correct.
Q10. Financial accounting information __.
a. should be incomplete in order to confuse competitors
b. should be incomplete in order to confuse competitors
c. provides investors guarantees about the future
d. summarizes what has already occurred
f. is generally too confusing to be useful
Q11. External users of financial accounting information include all of the
following except __.
a. lenders such as bankers
b. governmental agencies such as the IRS
c. employees of a business
d. potential investors
e. potential customers or suppliers
Q12. Assume a company has a $350 credit (not cash) sale. How would the transaction
appear if the business uses accrual accounting?
a. $350 would show up on the balance sheet as a sale.
b. $350 would show up on the balance sheet as an accrued liability
c. $350 would show up on the statement of cash flows as a cash outflow.
d. The transaction would not be reported because the cash was not exchanged.
e. $350 would show up on the income statement as a sale.
Q13. The accounting equation is expressed as __.
a. Assets + Liabilities = Owner’s Equity
b. Assets – Noncurrent Assets = Liabilities
c. Assets = Liabilities + Investments by Owners
d. Assets = Liabilities + Owner’s Equity
e. Assets = Liabilties – Owner’s Equity
Q14. All of the following increase owner’s equity except for which one?
b. investments by owners
d. acquisitions of assets by incurring liabilities
f. retained earnings
Q15. Working capital is an indication of the firm’s __.
a. asset utilization
b. amount of noncurrent liabilities
d. amount of noncurrent assets
e. work ethic