Question 1

Financial statements are designed to meet the needs of specific financial statement user groups.

True
False

Question 2

The accounting profession assumes that financial statement users have a reasonable knowledge of business.

True
False

Question 3

A company has an obligation to provide highly detailed information on its financial statements.

True
False

Question 4

Vertical analysis of a balance sheet involves converting each component to a percentage of stockholders' equity.

True
False

Question 5

Small percentage changes in an amount from a company's financial statements may still represent large dollar amounts; therefore, analysts should examine changes in both absolute dollar amounts and percentages.

True
False

Question 6

When performing horizontal analysis, analysts should examine changes in both absolute dollar amounts and percentages, as well as the underlying reasons for the change.

True
False

Question 7

A vertical analysis calculates percentages to compare individual parts of a statement to a key figure on that statement. For example, on an income statement, each item could be shown as a percentage of sales.

True
False

Question 8

A drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

True
False

Question 9

While horizontal analysis examines the behavior of items over two or more accounting periods, vertical analysis compares many items within the same period of time.

True
False

Question 10

The current ratio and quick ratio are similar in that both are used to assess a company's ability to pay short-term obligations, but they differ in that the quick ratio excludes the least liquid current assets from the numerator.

True
False