Question

A. What can be found by conducting the Vertical Analysis (Common Sized Analysis) of the Income Statements of a few years?

1. We can find whether the amount of certain expense changes over time.

2. We can find out whether revenues are growing (or declining) over time.

3. We can find out whether a certain expense truly increase/decrease over time.

4. We can find out whether the amount of the Net Profit grows over time.

B. Which one of the following is wrong about the Cash Flows Statement?

1. It presents where the company obtains cash; and where it spent.

2. It shows Net Income (or Loss) as the major source (or use) of cash as the starting point..

3. It presents the increase (or decrease) of cash that has taken place while the company conducts its operating activities such as purchasing inventory, collecting receivable, making payments of current liabilities.

4. It does not present information of gains (or losses) created by selling properties of the business.

C. Which one of the following is wrong about the nature/function of Assets of a company?

1. Assets are the result of the host company's investing activities.

2. Assets are the resources of the host company to use in its operating activities.

3. When a business closes, the investors of the business claim their ownership on the assets and take the amount first.

4. Assets are the necessary material for the management to use to generate revenues, and eventually profits.

D. Which of the following is wrong about the (owners') equity?

1. It includes the amount of investment made by owners.

2. It includes the amount of historical profits generated & returned to the owners.

3. It is called the Residual Claim of the owners because owners have the primary right to collect their share from the company's assets.

4. It only presents the book value of the owners' claim on the company's assets.

E. Which of the following describes the Retained Earnings most appropriately?

1. It is the Net Profit amount of one's accounting period that is returned to the owners before taking out dividends.

2. It is the Net Profit amount of one's accounting period that is returned to the owners after taking out dividends.

3. It is the accumulated Net Profits of a company's history that is returned to the owners after taking out dividends.

4. It is the accumulated Net Profits of a company's history that is returned to the owners before taking out dividends.

Answer 1

The correct answers are:

A. What can be found by conducting the Vertical Analysis (Common Sized Analysis) of the Income Statements of a few years?

3. We can find out whether a certain expense truly increase/decrease over time.

B. Which one of the following is wrong about the Cash Flows Statement?

4. It does not present information of gains (or losses) created by selling properties of the business.

C. Which one of the following is wrong about the nature/function of Assets of a company?

3. When a business closes, the investors of the business claim their ownership on the assets and take the amount first.

D. Which of the following is wrong about the (owners') equity?

3. It is called the Residual Claim of the owners because owners have the primary right to collect their share from the company's assets.

E. Which of the following describes the Retained Earnings most appropriately?

3. It is the accumulated Net Profits of a company's history that is returned to the owners after taking out dividends.

Please comment in case of any issue and I will be happy to rectify it.