Multiple Choice: Supplemental Information and Analysis Select the correct answer for each of the following:

1. Which of the following types of information about a company would you expect to find in its management’s discussion and analysis?

a. Expansion plans for subsequent years.

b. An analysis of sales volume changes.

c. An explanation of major changes in liquidity.

d. All of the above.

2. Which of the following notes to the financial statements is required of all companies?

a. A list of individual contingent liabilities and to whom payments may be required.

b. Explanation of the products included in the major line of business.

c. A summary of significant accounting policies.

d. A discussion of major changes in sales revenue since last year.

3. You are analyzing a company’s liquidity position to help make a decision whether or not to grant it credit. Which of the following is a liquidity ratio that might help in your decision?

a. Net income margin.

b. Asset turnover.

c. Current ratio.

d. All of the above.

4. Which of the following ratios would be included automatically in a vertical analysis of a full income statement?

a. Net income as a percent of sales and the dividend payout ratio.

b. The dividend payout ratio and the gross margin percentage.

c. The dividend payout ratio and earnings per share.

d. The gross margin percentage and net income as a percent of sales.
5. If a company’s total revenues and gross margin percentage have declined and you were concerned about the level of sales and the profit margins in the countries in which the company operates, where would you look for more information?

a. The notes and other supplemental information accompanying the financial statements.

b. The management’s discussion and analysis section of the annual report.

c. The segment reporting section of the company’s annual report.

d. All of the above.