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FINANCIAL REPORTING AND ANALYSIS
What is the objective of financial reporting?
A. Show cash flows of company
B. Give stockholders incentive to invest
C. Companies have to
D. To provide information about a company's performance, financial position, and
changes in financial position✔ ✔D. To provide information about a company's performance, financial position, and changes in financial position
Past and present reports used to form expectations about a company's future profit
and cash flows is called✔ ✔Financial Statement Analysis
What are the 5 financial statements used?✔ ✔1. Balance sheet
- income statement
- statement of comprehensive income
- changes in equity-gains and losses excluded from income statement
- cash flows
The primary purpose of cash flows is to give ____ and ____ the ability to evaluate
a company's ____, ____, and ___ ______.✔ ✔Creditors, Investors
liquidity, solvency, and financial flexibility
What are the 3 components in the cash flow statement?✔ ✔1. Operating
- Investing
- Financing
Cash flow of Operations compromise which of the following?
a. Purchase of long term assets, investments, and other investments
b. Cash transactions of normal business functions
c. Activities related to obtaining or repaying capital
d. Issuance of stockholder equity✔ ✔b. Cash transactions of normal business functions
Cash flow of Investing compromise which of the following?
a. Purchase of long term assets, investments, and other investments
b. Cash transactions of normal business functions
c. Activities related to obtaining or repaying capital
d. Issuance of stockholder equity✔ ✔a. Purchase of long term assets, investments, and other investments
Cash flow of Finance compromise which of the following?
a. Purchase of long term assets, investments, and other investments
b. Cash transactions of normal business functions
c. Activities related to obtaining or repaying capital
d. Issuance of stockholder equity✔ ✔c. Activities related to obtaining or repaying capital
What report goes below the financial statements to give additional information?✔
✔The Report Footnotes
Reports footnotes provide additional information which allows analysts to do more in-depth analysis. Footnotes provide a basis of preparation of the reports,
accounting methods, and estimates and additional information. T/F✔ ✔True
What opinion does an auditor provide on the processes by which a company
ensures accurate financial statements are done?✔ ✔Opinion on internal control
What is an interim report?✔ ✔Reports in between annual reports.
Are interim reports reviewed for audit purposes?✔ ✔No
What is a proxy statement?✔ ✔A proxy statement is a statement issued to stockholders when a vote is required.
Other than financial reports, what else should financial analyst monitor?✔
✔Economy in comparison to the industry they're in and its competitors
What are the six steps (in order) of the financial statement analysis framework?✔
✔1. Determine the objective and context of the report
- Gather raw data from financial statements and various other reports, including interviewing managers, suppliers, etc
- Process the data
- Analyse and interpret
- Report the findings
- Update the analysis
Process is to be repeated on a periodic basis to ensure accuracy of findings.
Which of these is most likely reported under 'Other Comprehensive Income'?
a. Foreign exchange gains
b. Rental income
c. Realised investment gains✔ ✔a. Foreign exchange gains
When an auditor determines that the financial statements are materially nonconforming with accounting standards, which opinion should the auditor issue?
a. Unqualified Opinion
b. Qualified Opinion
c. Adverse Opinion
d. Disclaimer of Opinion✔ ✔c. Adverse Opinion
Information on the issuance of stock options is most likely found in:
a. Statement of owners' equity
b. Footnotes
c. Proxy statements✔ ✔c. Proxy statements
Information about the nature of business, past performance, and future outlook of a company would most likely be found in the:
a. Auditor's report
b. Management discussion & analysis (MD&A)
c. Footnotes✔ ✔b. Management discussion & analysis (MD&A)
What are the three business activities?✔ ✔Operating
Investing
Financing
What compromises operating business activities?✔ ✔Operations related to company function.
ex: shoe retail
In Accrual Accounting, ___ is recorded when the firm ____, and expenses are
recorded as the firm ____. Regardless of whether cash is paid.✔ ✔Revenue, Earns it
Incurs them.
What are the four accrual accounts?✔ ✔-Accounts Receivable
-Prepaid expenses
-Accounts Payable
-Unearned Revenue
Another term for accounts receivable is ____.✔ ✔Accrued Revenue
What is the opposite of accrued revenue?✔ ✔Unearned Revenue because the firm is paid in advance before services are rendered for the customer
What is a valuation adjustment?✔ ✔Adjustments that are made to a company's assets or liabilities so that the accounting records reflect the current market value rather than the historical cost.
Which of the following items would most likely be classified as an investing activity?
a. Issuance of new stocks
b. Purchase of inventory.
c. Purchase of new equipment✔ ✔c. Purchase of new equipment
Which of the following are most likely to be considered current assets?
Short term notes issued by the company Equity stake in a supplier Machinery Patent Inventory Accounts receivable Accounts payable Unearned revenue
Prepaid expenses✔ ✔Inventory
Accounts receivable
Prepaid expenses
At the beginning of the year, company X had $40,000 in retained earnings.
The company had a net income of $10,000 for the year, and paid out $3,000 in cash dividends.
What is the retained earnings at the end of the year?
a. $47,
b. $50,
c. $53,000✔ ✔a. $47,
A company issued $80,000 bonds, and repurchased $50,000 shares in a period.
What is the most likely combined effect of these 2 activities?
a. Assets increase Liabilities increase Equity decrease
A firm issued $10 million worth of bonds. Which of the following statements will likely reflect this transaction.
a. Income statement b. Balance sheet c. Statement of owners' equity
d. Cash flow statement✔ ✔b. Balance sheet d. Cash flow statement
At the beginning of the year, Tintan Corp had a total equity of $520,000 in its balance sheet.
During the year, Tintan redeemed $100,000 worth of bonds, issued $80,000 worth of new shares, and did not pay out any dividend.
How much should the total equity be on its statement of owners' equity at the end of the year?
a. $700,
b. $600,
c. $500,000✔ ✔b. $600,
