Financial Reporting and Analysis 6e Lawrence Revsine Collins
Johnson Fred Soffer (Test Bank All Chapters, 100% Original Verified,
A+ Grade)
Chapter 01
Student: ___________________________________________________________________________
1. The type of analysis that uses financial statements along with industry and macroeconomic data to
forecast future stock movements is technical analysis.
True False
2. The best source of information about a company's current health and prospects for the future is the
company's financial statements.
True False
3. One factor that considerably affects the ease with which users employ financial reports is that accounting
is an exact science.
True False
4. All economic events and activities that affect a company are reflected in a company's financial
statements.
True False
5. Investors are uncertain about the quality of each company's debt or equity offerings because the ultimate
return from the security depends on the company's past performance which is difficult to accurately
measure.
True False
6. Investors are uncertain about the quality of each company's debt or equity offerings because the ultimate
return from the security depends on future events.
True False
7. Taxing authorities sometimes use financial statement information as a basis for establishing tax rules to
match accounting rules.
True False
8. Investors use financial statements as an analytical tool.
True False
9. Sales value of a company's assets minus its debt owed is a company's liquidation value.
True False
10. The ability to raise additional cash by selling assets, issuing stock, or borrowing more is financial
flexibility.
True False
11. Information symmetry means that management has access to more and better information about the
business than do people outside the company.
True False
12. Contracts often contain language that refers to financial statement numbers.
True False
13. Investors who follow a fundamental analysis approach determine the value the company's assets would
yield if sold individually.
True False
14. Companies judged to be high credit risks may be subject to loan covenants.
True False
,15. Security analysts are among the most important users of financial statements.
True False
16. Because financial fraud is rare, investors and other users of financial statements can safely accept the
numbers in financial statements at face value.
True False
17. The SEC passed Regulation Fair Disclosure (Reg FD) to ensure that financial statement users have access
to all the financial information they need to make decisions.
True False
18. Regulators of industries granted monopoly privileges use financial statement data in setting allowable
charges for the services these industries provide.
True False
19. All financial statements provide a basis for what might occur in the future.
True False
20. Various trends and relationships that can be gleaned from a company's financial statements provide
insights into a company's economic opportunities and risks.
True False
21. All of the information needed by professional analysts to give a complete picture of a company is found
in the published financial statements.
True False
22. Owners and managers have an economic incentive to supply the amount and type of financial information
that will enable the company to raise capital at the lowest cost.
True False
23. Accounting improprieties are sometimes designed to meet the expectations and financial targets of Wall
Street analysts.
True False
24. Besides assessing the general reasonableness of reported numbers in relation to the company's activities,
industry conditions, and business climate, when designing audit procedures the company's auditor must
also assess fraud risk factors that may be present.
True False
25. Financial statements are crucial in investment decisions that use fundamental analysis to identify
mispriced securities (i.e., securities selling for more or less than they seem to be worth).
True False
26. Suppliers monitor the financial statements of their customers to protect collection of their accounts
receivable.
True False
27. An understanding of management's reporting incentives is sufficient to enable auditors to recognize
vulnerable areas where financial reporting abuses are likely to occur.
True False
28. Highly profitable but politically vulnerable firms have an incentive to make themselves appear less
profitable than they really are.
True False
29. Financial information capable of making a difference in a decision is relevant.
True False
30. For information to be relevant it must possess either predictive value or confirmatory value.
True False
,31. The "quality of information" as applied to financial reporting refers to the degree to which financial
statements are grounded in facts and sound judgments and thus are free from distortion.
True False
32. The role of financial accounting information is to facilitate economic transactions and to foster efficient
allocation of resources among businesses and individuals.
True False
33. Financial reports provide information that can reduce investors' uncertainty about the company's
opportunities and risks, thereby raising the company's cost of capital.
True False
34. Timeliness is a qualitative characteristic of accounting information that indicates that information should
be provided to users before statutory deadlines.
True False
35. Using the same accounting methods for a company to record and report similar events from period to
period demonstrates faithful representation.
True False
36. Comparability across companies allows analysts to identify real economic similarities in and differences
between underlying economic events because those similarities or differences are not obscured by
accounting methods or disclosure practices.
True False
37. Management has a responsibility to ensure that the company's financial information is properly classified,
characterized, and presented clearly and concisely in order to make it understandable.
True False
38. Managers are the stewards of the company's resources and thus responsible for their efficient use and for
protecting them from adversity.
True False
39. A mispriced security is a stock or bond that is selling for substantially more—or less—than it seems to be
worth.
True False
40. Fundamental investors buy undervalued stocks and avoid buying overvalued stocks.
True False
41. To efficient market investors, financial statement data provide a basis for assessing risk, dividend yield,
or other firm attributes that are important to portfolio selection decisions.
True False
42. When earnings and share price fall below acceptable levels, dissident shareholders may launch a proxy
contest to elect their own slate of directors at the next annual meeting.
True False
43. Executive compensation contracts seldom contain annual bonus and longer term pay components tied to
financial statement results, but instead usually rely on stock options as a means to reward managers in a
manner that is less subject to manipulation by management.
True False
44. Employees demand financial information to monitor the health of company-sponsored pension plans.
True False
45. Lenders monitor financial statement data to ascertain whether borrowers are adhering to, or violating,
loan covenants.
True False
, 46. Suppliers assess the financial strength of their customers to determine whether they will be paid for goods
shipped.
True False
47. Financial statement information can help customers monitor a supplier's manufacturing processes and
thus evaluate the quality of its products.
True False
48. Broadly defined, the term "analyst" includes anyone who uses financial statements to make decisions as
part of their job.
True False
49. Companies have an economic incentive to supply the information investors want.
True False
50. The efficient markets hypothesis says that any new development is quickly reflected in a firm's stock
price.
True False
51. According to the full disclosure principle, companies create a competitive advantage when they report:
• Details about the company's strategies, plans and tactics.
• Information about the company's technological and managerial innovations.
• Detailed information about the company's operations.
True False
52. Firms weigh the benefits they may gain from financial disclosures against the costs they incur in making
those disclosures.
True False
53. Some capital providers possess enough bargaining power to allow them to compel companies to deliver
the financial information they need for analysis.
True False
54. When a company's financial instruments are perceived to be of low quality, there is a cost to the company
in the form of lower proceeds from issuing stock or higher interest rates when it borrows funds.
True False
55. Because financial disclosures are regulated, owners and managers have little economic incentive
to supply the amount and type of financial information that will enable them to raise capital most
cheaply.
True False
56. Politically vulnerable firms with high earnings (like oil companies) are often attacked in the financial and
popular media, which alleges that those earnings are evidence of anticompetitive business practices.
True False
57. Because the supply of financial information is guided by the costs of producing and disseminating it and
the benefits it will provide to the company, regulatory groups have little influence over the amount and
type of financial information that companies disclose.
True False
58. The SEC issued regulation FD to help level the playing field between individual and institutional
investors.
True False
59. Financial reporting regulatory requirements are designed to ensure that companies meet certain minimum
levels of financial disclosure.
True False
Johnson Fred Soffer (Test Bank All Chapters, 100% Original Verified,
A+ Grade)
Chapter 01
Student: ___________________________________________________________________________
1. The type of analysis that uses financial statements along with industry and macroeconomic data to
forecast future stock movements is technical analysis.
True False
2. The best source of information about a company's current health and prospects for the future is the
company's financial statements.
True False
3. One factor that considerably affects the ease with which users employ financial reports is that accounting
is an exact science.
True False
4. All economic events and activities that affect a company are reflected in a company's financial
statements.
True False
5. Investors are uncertain about the quality of each company's debt or equity offerings because the ultimate
return from the security depends on the company's past performance which is difficult to accurately
measure.
True False
6. Investors are uncertain about the quality of each company's debt or equity offerings because the ultimate
return from the security depends on future events.
True False
7. Taxing authorities sometimes use financial statement information as a basis for establishing tax rules to
match accounting rules.
True False
8. Investors use financial statements as an analytical tool.
True False
9. Sales value of a company's assets minus its debt owed is a company's liquidation value.
True False
10. The ability to raise additional cash by selling assets, issuing stock, or borrowing more is financial
flexibility.
True False
11. Information symmetry means that management has access to more and better information about the
business than do people outside the company.
True False
12. Contracts often contain language that refers to financial statement numbers.
True False
13. Investors who follow a fundamental analysis approach determine the value the company's assets would
yield if sold individually.
True False
14. Companies judged to be high credit risks may be subject to loan covenants.
True False
,15. Security analysts are among the most important users of financial statements.
True False
16. Because financial fraud is rare, investors and other users of financial statements can safely accept the
numbers in financial statements at face value.
True False
17. The SEC passed Regulation Fair Disclosure (Reg FD) to ensure that financial statement users have access
to all the financial information they need to make decisions.
True False
18. Regulators of industries granted monopoly privileges use financial statement data in setting allowable
charges for the services these industries provide.
True False
19. All financial statements provide a basis for what might occur in the future.
True False
20. Various trends and relationships that can be gleaned from a company's financial statements provide
insights into a company's economic opportunities and risks.
True False
21. All of the information needed by professional analysts to give a complete picture of a company is found
in the published financial statements.
True False
22. Owners and managers have an economic incentive to supply the amount and type of financial information
that will enable the company to raise capital at the lowest cost.
True False
23. Accounting improprieties are sometimes designed to meet the expectations and financial targets of Wall
Street analysts.
True False
24. Besides assessing the general reasonableness of reported numbers in relation to the company's activities,
industry conditions, and business climate, when designing audit procedures the company's auditor must
also assess fraud risk factors that may be present.
True False
25. Financial statements are crucial in investment decisions that use fundamental analysis to identify
mispriced securities (i.e., securities selling for more or less than they seem to be worth).
True False
26. Suppliers monitor the financial statements of their customers to protect collection of their accounts
receivable.
True False
27. An understanding of management's reporting incentives is sufficient to enable auditors to recognize
vulnerable areas where financial reporting abuses are likely to occur.
True False
28. Highly profitable but politically vulnerable firms have an incentive to make themselves appear less
profitable than they really are.
True False
29. Financial information capable of making a difference in a decision is relevant.
True False
30. For information to be relevant it must possess either predictive value or confirmatory value.
True False
,31. The "quality of information" as applied to financial reporting refers to the degree to which financial
statements are grounded in facts and sound judgments and thus are free from distortion.
True False
32. The role of financial accounting information is to facilitate economic transactions and to foster efficient
allocation of resources among businesses and individuals.
True False
33. Financial reports provide information that can reduce investors' uncertainty about the company's
opportunities and risks, thereby raising the company's cost of capital.
True False
34. Timeliness is a qualitative characteristic of accounting information that indicates that information should
be provided to users before statutory deadlines.
True False
35. Using the same accounting methods for a company to record and report similar events from period to
period demonstrates faithful representation.
True False
36. Comparability across companies allows analysts to identify real economic similarities in and differences
between underlying economic events because those similarities or differences are not obscured by
accounting methods or disclosure practices.
True False
37. Management has a responsibility to ensure that the company's financial information is properly classified,
characterized, and presented clearly and concisely in order to make it understandable.
True False
38. Managers are the stewards of the company's resources and thus responsible for their efficient use and for
protecting them from adversity.
True False
39. A mispriced security is a stock or bond that is selling for substantially more—or less—than it seems to be
worth.
True False
40. Fundamental investors buy undervalued stocks and avoid buying overvalued stocks.
True False
41. To efficient market investors, financial statement data provide a basis for assessing risk, dividend yield,
or other firm attributes that are important to portfolio selection decisions.
True False
42. When earnings and share price fall below acceptable levels, dissident shareholders may launch a proxy
contest to elect their own slate of directors at the next annual meeting.
True False
43. Executive compensation contracts seldom contain annual bonus and longer term pay components tied to
financial statement results, but instead usually rely on stock options as a means to reward managers in a
manner that is less subject to manipulation by management.
True False
44. Employees demand financial information to monitor the health of company-sponsored pension plans.
True False
45. Lenders monitor financial statement data to ascertain whether borrowers are adhering to, or violating,
loan covenants.
True False
, 46. Suppliers assess the financial strength of their customers to determine whether they will be paid for goods
shipped.
True False
47. Financial statement information can help customers monitor a supplier's manufacturing processes and
thus evaluate the quality of its products.
True False
48. Broadly defined, the term "analyst" includes anyone who uses financial statements to make decisions as
part of their job.
True False
49. Companies have an economic incentive to supply the information investors want.
True False
50. The efficient markets hypothesis says that any new development is quickly reflected in a firm's stock
price.
True False
51. According to the full disclosure principle, companies create a competitive advantage when they report:
• Details about the company's strategies, plans and tactics.
• Information about the company's technological and managerial innovations.
• Detailed information about the company's operations.
True False
52. Firms weigh the benefits they may gain from financial disclosures against the costs they incur in making
those disclosures.
True False
53. Some capital providers possess enough bargaining power to allow them to compel companies to deliver
the financial information they need for analysis.
True False
54. When a company's financial instruments are perceived to be of low quality, there is a cost to the company
in the form of lower proceeds from issuing stock or higher interest rates when it borrows funds.
True False
55. Because financial disclosures are regulated, owners and managers have little economic incentive
to supply the amount and type of financial information that will enable them to raise capital most
cheaply.
True False
56. Politically vulnerable firms with high earnings (like oil companies) are often attacked in the financial and
popular media, which alleges that those earnings are evidence of anticompetitive business practices.
True False
57. Because the supply of financial information is guided by the costs of producing and disseminating it and
the benefits it will provide to the company, regulatory groups have little influence over the amount and
type of financial information that companies disclose.
True False
58. The SEC issued regulation FD to help level the playing field between individual and institutional
investors.
True False
59. Financial reporting regulatory requirements are designed to ensure that companies meet certain minimum
levels of financial disclosure.
True False
