FREE Financial Statement Analysis Questions and Answers

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Stock dividends and stock splits are dissimilar because

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An accounting entry is not necessary for a stock split. Instead, more new shares are issued in order to replace and retire all of the existing shares.

What one of the following qualifies as a liability resulting from financing activities?

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The liability associated with notes payable is a result of financing activities. Usually, interest is used to cover liabilities that result from financing activities. In contrast, liabilities that result from normal business operations do not involve the extension of interest-bearing credit and instead arise from the "course of business.

When an auditor qualifies her judgment with a "adverse opinion," she is referring to the following:

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When financial statements aren't prepared in accordance with generally accepted accounting principles and it significantly affects how fairly they're presented, an unfavorable opinion is given.

Which of the following would be considered an investment cash inflow?
I. Proceeds from the sale of debt securities of other entities, excluding cash equivalents II. Proceeds from the collection of loan principals III. Proceeds from the sale of equity investments in other firms

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All of the answers are considered to be cash inflows from investing activities.

The following list includes operating cash flows?
I. Interest paid; II. Interest earned; and III. Dividends received. IV. Dividends received

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The following details regarding dividends and interest are crucial to keep in mind:
• Dividends from stock investments are regarded as operating cash flows.
• Equity dividend payments are regarded as financing cash flows.
• Debt-related interest payments are regarded as operating cash flows.
• Debt investment interest is regarded as an operating cash flow.

The primary earnings per share data are calculated using the treasury stock method as though outstanding options and warrants (for the entire year) were exercised at the

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The treasury stock method presupposes that all outstanding options and warrants will be exercised at the start of the period or, if later, at the time of issuance. It also assumes that the common stock was bought with the exercise's proceeds at the time's average market price.

The payment of cash dividends is an illustration of:

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A financing activity is the payment of a cash dividend to stockholders as a return on their investment.

Which of the following would be considered an investment cash inflow?

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All remaining responses constitute cash flows from financing activities.

Basic earnings per share are computed as follows:

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The goal of the basis EPS formula is to calculate earnings per share of common stock for the total number of the year's outstanding common shares. Because of this, preferred dividends are excluded from the denominator, which instead uses the weighted average number of outstanding common shares.

Companies disclose their receivables at:

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Accounts receivable's net realizable value is calculated by deducting an allowance for non-collectible items from the total amount owed. Companies typically report receivables at their net realizable value.

Retained profits are what:

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Any net income not distributed during a given accounting period is deposited into the "retained earnings" account.

Revenue is typically recognized when it is ________, on average.

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In general, when revenue is earned and realizable, it is recognized.

A company is bought for more than its assets' fair market value.
The surplus is:

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The price paid over the fair market value of the target company's assets is referred to as goodwill. Only Goodwill created during acquisitions is allowed to be capitalized under US GAAP; internally created Goodwill is not permitted.

A company's net income is 200, accounts receivables increased by 30, depreciation increased by 55, and accounts payable decreased by 25. It has a ________ operating cash flow.

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cash flow from operations 150. = net income plus noncash expenses minus noncash revenues 200 + 55 - 30 - 25 = 200

A current asset is which of the following?

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A contra account to the fixed asset account is accumulated depreciation (s)

The opinion section of an independent auditor's report begins, "In our opinion, the aforementioned financial statements fairly present the financial position in all material respects..." This language specifies .

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These references do not constitute a disclaimer or an opinion that is qualified or negative; therefore, the language refers to an opinion that is not qualified.

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