Introduction to Financial Statement Analysis

Which of the following is least likely to be considered a role of financial statement analysis?

• Determining whether to invest in the company's securities

• Assessing the management skill of the company's executives.

• To make economic decisions.

A company collects cash from a customer to settle an account receivable. What effect does this transaction have on the company's total assets and total shareholders' equity?

• Assets: Increase - Equity: Increase

• Assets: No effect - Equity: Increase

• Assets: No effect - Equity: No effect

The Management Discussion and Analysis (MD&A) portion of the financial statements:

• Is not required by the SEC.

• Includes such items as discontinued operations, extraordinary items, and other unusual or infrequent events.

• Includes audited disclosures that help explain the information summarized in the financial statements.

In the expanded form of the accounting equation, assets equal liabilities plus contributed capital plus:

• ending retained earnings minus beginning retained earnings.

• beginning retained earnings plus revenue minus expenses.

• ending retained earnings.

According to the IASB, which of the following least accurately describes financial reporting? Financial reporting:

• provides information about changes in financial position of an entity.

• uses the information in a company's financial statements to make economic decisions.

• is useful to a wide range of users.

Alpha Company reported the following financial statement information

December 31, 2006:

Assets 70,000

Liabilities 45,000

December 31, 2007:

Assets 82,000

Liabilities 55,000

During 2007:

Stockholder investments 3,000

Net income ?

Dividends 6,000

Calculate Alpha's net income for the year ended December 31, 2007 and the change in stockholders' equity for the year ended December 31, 2007.

• Net Income: 5000 - Change in SE: 2000/decrease

• Net Income: (3000) - Change in SE: 2000/increase

• Net Income: 5000 - Change in SE: 2000/increase

What is the fundamental balance sheet equation?

• Assets = Liabilities + Stockholders' Equity (A = L + E).

• Liabilities = Assets + Stockholders' Equity (L = A + E).

• Assets = Stockholders' Equity ­- Liabilities (A = E - L).

Prema Singh is the bookkeeper for Octabius Industries. Singh has been asked by the CFO of Octabius to review all purchases that occurred between February 1 and February 8 to investigate an error on the receiving dock. Singh will most likely look at the:

• initial trial balance

• general ledger

• general journal

Beta Company reported the following financial statement information:

December 31, 2006:

Assets - 58,000

Liabilities - 28,000

December 31, 2007:

Assets - ?

Liabilities - 38,000

During 2007:

Stockholders' investment - 15,500

Net Income - 18,000

Dividends - 7,750

Calculate Beta's total assets and stockholders' equity as of December 31, 2007.

• Total Assets: 93,750 - SE: 30,000

• Total Assets: 93,750 - SE: 55,750

• Total Assets: 79,250 - SE: 55,750

An accounting entry that updates the historical cost of an asset to current market levels is best described as:

• a contra account

• a valuation adjustment

• accumulated depreciation