Horngren’s Financial and Managerial Accounting, 6e (Miller-Nobles)
1) Investors and creditors can evaluate a company by examining only one year of data.
2) Investors and creditors cannot evaluate a company by examining only one year of data.
3) To accurately determine the financial performance of a company, it is necessary to compare its
performance from year to year, with a competing company, and with the same industry as a whole.
4) Which of the following is NOT a way to accurately determine the financial performance of a company?
A) carefully examining one year of data
B) evaluating a company‘s performance from year to year
C) comparing a company’s performance with a competing company
D) comparing a company‘s performance with the same industry as a whole
5) To accurately determine the financial performance of a company, it is necessary to compare the
company’s performance ________.
A) with a competing company
B) to the budget
C) with companies in different industries
D) only with profitable companies
6) Horizontal analysis provides a year-to-year comparison of a company’s performance in different
periods.
7) Ratio analysis is used most effectively to measure a company against other companies in different
industries.
8) There are three main ways to analyze financial statements. Which of the following does NOT represent
one of these ways of analyzing financial statements?
A) horizontal analysis
B) ratio analysis
C) financial statement analysis
D) vertical analysis
9) Ratio analysis ________.
A) cannot be used to evaluate a company’s financial condition
B) is used most effectively to compare a company against other companies in the same industry and to
denote trends within the company
C) cannot be used to compare a company against other companies in the same industry because the
necessary information is not available
D) cannot be used to evaluate a company‘s performance
10) List the three ways to analyze financial statements. State what each of these ways provides to
investors and creditors.
11) An annual report provides information about a company’s financial condition.
12) A quarterly report filed with the Securities and Exchange Commission is called a Form 10–K.
13) Management’s discussion and analysis of financial condition and results of operations section of the
annual report is the company’s attempt to explain its financial statements and discuss its performance.
14) The audit report in the annual report is prepared by an internal auditor of a company.
15) The audit report in the annual report attests to the fairness of the presentation of the financial
statements.
16) An external auditor is responsible for assessing the effectiveness of a company’s internal controls.
17) In an audit report in the annual report, a qualified opinion states that the financial statements are
presented fairly in all material respects.
18) An adverse opinion is issued if the auditor finds that the financial statements are not presented fairly.
19) The income statement is also known as the ________.
A) statement of operations
B) statement of cash flows
C) statement of stockholders‘ equity
D) statement of financial position
20) A summary of significant accounting policies and explanations of specific items on the financial
statements are included in ________.
A) the balance sheet
B) the income statement
C) the notes to financial statements
D) the report of the independent registered public accounting firm
21) The auditor’s report ________.
A) attests that the financial statements are error-free
B) is prepared by the internal auditors
C) states whether the financial statements are presented in accordance with GAAP
D) does not include an assessment of the effectiveness of the company‘s internal controls
22) Which of the following statements regarding the management’s discussion and analysis (MD&A) part
of the annual report is NOT correct?
A) Investors are not interested in the MD&A because it is written by the company and could present a
biased view of the company’s financial condition and performance.
B) It often contains information that is not found in the financial data.
C) It provides forward-looking formation.
D) The MD&A is the company‘s attempt to explain its financial statements and to discuss its performance.
23) Annual reports ________.
A) are required to be prepared by every corporation
B) discuss the company’s competitors and the risks related to the company‘s business
C) are also called a Form 10-Q
D) only include the company’s financial statements
24) Which of the following is NOT a part of a corporation’s annual report?
A) report of independent registered public accounting firm
B) MD&A
C) notes to financial statements
D) employees’ pay rates
25) What is an annual report? Briefly describe the key parts of the annual report.
26) Provide a description of the contents of each of the following components of the annual report.
Annual Report Component
Description of the contents
Financial statements
Report of independent
registered public accounting
firm
Financial statements
This includes the income
statement of stockholders’
equity, and statement of cash
flows.
registered public accounting
firm
presentation of the financial
statements and whether the
financial statements are
presented in accordance with
GAAP.
27) Provide a description of the contents of each of the following components of the annual report.
Annual Report Component
Description of the contents
MD&A
Notes to financial statements
Annual Report Component
Description of the contents
MD&A
This is written by the company
to help investors understand
the results of operations and the
financial condition of the
company.
Notes to financial statements
This includes a summary of
significant accounting policies
and explanations of specific
items on the financial
statements.
1) Horizontal analysis is the study of percentage changes in line items in comparative financial
statements.
2) Horizontal analysis compares the change in each statement item from one year to the next.
3) Horizontal analysis is computed by dividing a specific statement line item by its base amount and then
multiplying by 100.
4) Which of the following best describes horizontal analysis?
A) comparing financial statement line items from year to year for the same company
B) expressing each financial statement amount as a percentage of a budgeted amount
C) comparing a company’s financial statements with other companies
D) calculating key ratios to evaluate performance
5) The horizontal analysis is computed by which of the following formulas?
A) ((earlier period amount – later period amount)/base period amount) × 100
B) (later period amount/earlier period amount) × 100
C) (base period amount/dollar amount of change) × 100
D) (dollar amount of change/base period amount) × 100
6) Horizontal analysis compares each item in the income statement to the net sales amount.
7) Which of the following is used to determine how the sales revenue of a company has changed from
one year to the next?
A) vertical analysis of the balance sheet
B) horizontal analysis of the income statement
C) horizontal analysis of the balance sheet
D) vertical analysis of the income statement