Fundamentals of Corporate Finance (2015), 3e (Berk/DeMarzo/Harford) test bank.

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford)
Chapter 2 Introduction to Financial Statement Analysis

2.1 Firms' Disclosure of Financial Information

1) In the United States, publicly traded companies can choose whether or not they wish to
release periodic financial statements.
Answer: FALSE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition

2) Financial statements are optional accounting reports issued periodically by a firm which
present information on the past performance of the firm, a summary of the firm's assets
and the financing of those assets, and a prediction of the firm's future performance.
Answer: FALSE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised

3) International Financial Reporting Standards are taking root throughout the world.
However, it is unlikely that the U.S. will report according to IFRS before the second half of
the twenty-first century.
Answer: FALSE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: JP
Question Status: New

4) What is the main reason that it is necessary for public companies to follow the rules and
format set out in the Generally Accepted Accounting Principles (GAAP) when creating
financial statements?
A) It ensures that the market value of assets and debt are reported accurately.
B) It ensures that information on the performance of public companies is reported on cash-
basis accounting.
C) It ensures that important budgetary information is not omitted.
D) It makes it easier to compare the financial results of different firms.
Answer: D
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised

5) Which of the following best describes why a firm produces financial statements?
A) to use as a tool when planning future investments within a firm
B) to increase the intrinsic value of a firm
C) to provide a means for interested outside parties such as creditors to obtain information
about a firm, with an overview of the short- and long-term financial condition of a business
D) to show the daily activities a firm has undertaken in the previous financial year, and
1
Copyright © 2015 Pearson Education, Inc.

,what activities are planned for the near future
Answer: C
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised

6) The exchanges in which of the following countries or regions do NOT accept the
International Financial Reporting Standards set out by the International Accounting
Standards Board?
A) Germany
B) France
C) United States
D) United Kingdom
Answer: C
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition

7) Which of the following is NOT one of the financial statements that must be produced by
a public company?
A) the balance sheet
B) the income statement
C) the statement of cash flows
D) the statement of activities
Answer: D
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition




2
Copyright © 2015 Pearson Education, Inc.

,8) U.S. public companies are required to file their annual financial statements with the U.S.
Securities and Exchange Commission on which form?
A) 10-A
B) 10-K
C) 10-Q
D) 10-SEC
Answer: B
Diff: 1 Var: 1
Skill: Definition
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition

9) Which of the following is NOT a financial statement that every public company is
required to produce?
A) income statement
B) statement of sources and uses of cash
C) balance sheet
D) statement of stockholders' equity
Answer: B
Diff: 2 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition

10) The third party who checks annual financial statements to ensure that they are
prepared according to Generally Accepted Accounting Principles (GAAP) and verifies that
the information reported is reliable is the ________.
A) NYSE Enforcement Board
B) Accounting Standards Board
C) Securities and Exchange Commission (SEC)
D) auditor
Answer: D
Diff: 1 Var: 1
Skill: Definition
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised




3
Copyright © 2015 Pearson Education, Inc.

, 11) What is the role of an auditor in financial statement analysis?
Answer: Key points:
1. to ensure that the annual financial statements are prepared accurately
2. to ensure that the annual financial statements are prepared according to Generally
Accepted Accounting Principles (GAAP)
3. to verify that the information used in preparing the annual financial statements is
reliable
Diff: 2 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition

12) What are the four financial statements that all public companies must produce?
Answer:
1. balance sheet
2. income statement
3. statement of cash flows
4. statement of stockholders' equity
Diff: 2 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition

2.2 The Balance Sheet

1) The balance sheet shows the assets, liabilities, and stockholders' equity of a firm over a
given length of time.
Answer: FALSE
Diff: 2 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition

2) Stockholders' equity is the difference between a firm's assets and liabilities, as shown on
the balance sheet.
Answer: TRUE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition




4
Copyright © 2015 Pearson Education, Inc.