Question 2.1 Financial Statements

2.1 Financial Statements

1) The purpose of studying financial statements is ________.

A) to mechanically build portfolio analysis

B) to understand those portions of the statements that have relevance for financial decision making

C) to primarily investigate all portions of the statements that have relevance for dividend policy

D) to mechanically learn how to read and understand footnotes

.

2) Which of the statements below is FALSE?

A) The purpose of studying financial statements is to understand those portions of the statements that have relevance for financial decision making.

B) We need to understand how to interpret and use the information presented in financial statements to form a picture of the financial profile of the firm.

C) Accounting, it has been said, looks back to where a company has been — somewhat like looking through a rear view mirror.

D) Accounting and finance view the numbers in the same way.

3) Understanding the sources and uses of cash in the recent past will enable a manager to ________ the cash flow for a potential project of the firm.

A) determine with perfect precision

B) forecast with perfect precision

C) predict more accurately

D) know today

4) The fundamental starting point of all the accounting statements is the ________.

A) accounting identity

B) computing identity

C) investing identity

D) financing identity

5) Which of the statements below is TRUE?

A) Accounting Identity is: Assets ? Liabilities – Owners’ Equity.

B) Accounting Identity is: Assets ? Liabilities + Owners’ Equity.

C) Accounting Identity is: Assets ? Owners’ Equity – Liabilities.

D) Accounting Identity is: Liabilities ? Assets + Owners’ Equity.

6) There are four primary financial statements that are used to measure the performance of a firm. Which of the choices below are included among these four?

A) The balance statement and income statement

B) The income sheet and statement of retained earnings

C) The statement of cash flow and statement of balance

D) The balance sheet and statement of cash flow

7) It is important to remember that the fundamental ________ of accounting is the debit and credit recording activity where debits always equal credits.

A) effect

B) end product

C) outcome

D) identity

.

8) It is important to remember that the fundamental identity of accounting is the debit and credit recording activity where debits ________ equal credits.

A) never

B) seldom

C) sometimes

D) always

9) Which of the statements below is FALSE?

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