Reading 37- LOS d ～ Q 1－4 style, class, black, reports, accounting

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1.Disclosures of accounting practices and basis are often made in what part of a firm’s financial reports?

A)   Income statement.

B)   Footnotes to the financial statements.

C)   Balance sheet.

D)   Cash flow statement.

2.Notes to financial statements contain:

A)   little useful information for the analyst relative to the actual financial statements.

B)   biased predictions of the future performance of the firm's management.

C)   important information about the firm's accounting practices and basis of presentation.

D)   statements by auditors.

3.An analyst should carefully review the footnotes to a firm’s financial statements to determine the:

A)   accounting practices and basis utilized by the firm.

B)   salaries of top executives.

C)   future growth rate of the firm.

D)   income from past periods.

4.What are three factors that would make a firm's accounting earnings less of a gauge of future economic performance?

A)   Late filings, unusually high amounts of loans to company insiders, and long tenure of senior management.

B)   Late filings, unusually high amounts of loans to company insiders, and short tenure of senior management.

C)   Late filings, unusually low amounts of loans to company insiders, and short tenure of senior management.

D)   Late filings, unusually low amounts of loans to company insiders, and long tenure of senior management.

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1.Disclosures of accounting practices and basis are often made in what part of a firm’s financial reports?

A)   Income statement.

B)   Footnotes to the financial statements.

C)   Balance sheet.

D)   Cash flow statement.

The correct answer was  B)

A number of important disclosures regarding a firm’s accounting practices and the basis on which income and expense are recognized are contained in the footnotes to the financial statements.

2.Notes to financial statements contain:

A)   little useful information for the analyst relative to the actual financial statements.

B)   biased predictions of the future performance of the firm's management.

C)   important information about the firm's accounting practices and basis of presentation.

D)   statements by auditors.

The correct answer was  C)

A number of important disclosures regarding a firm’s accounting practices and the basis on which income and expense are recognized are contained in the footnotes to the financial statements.

3.An analyst should carefully review the footnotes to a firm’s financial statements to determine the:

A)   accounting practices and basis utilized by the firm.

B)   salaries of top executives.

C)   future growth rate of the firm.

D)   income from past periods.

The correct answer was  A)  

A number of important disclosures regarding a firm’s accounting practices and the basis on which income and expense are recognized are contained in the footnotes to the financial statements.

4.What are three factors that would make a firm's accounting earnings less of a gauge of future economic performance?

A)   Late filings, unusually high amounts of loans to company insiders, and long tenure of senior management.

B)   Late filings, unusually high amounts of loans to company insiders, and short tenure of senior management.

C)   Late filings, unusually low amounts of loans to company insiders, and short tenure of senior management.

D)   Late filings, unusually low amounts of loans to company insiders, and long tenure of senior management.

The correct answer was  B)

Quality of earnings looks at the relationship between accounting earnings and economic profit potential of the firm. An analyst is concerned about anything that would render accounting earnings less useful as a gauge of the firm’s future expected economic earnings. Warning signals include late filings, unusually high amounts of loans to company insiders, and short tenure of senior management.