Question 1

Financial statements are designed to meet the needs of specific financial statement user groups.

Question 1 options:

	True
	False

Question 2

The accounting profession assumes that financial statement users have a reasonable knowledge of business.

Question 2 options:

	True
	False

Question 3

A company has an obligation to provide highly detailed information on its financial statements.

Question 3 options:

	True
	False

Question 4

Vertical analysis of a balance sheet involves converting each component to a percentage of stockholders' equity.

Question 4 options:

	True
	False

Question 5

Small percentage changes in an amount from a company's financial statements may still represent large dollar amounts; therefore, analysts should examine changes in both absolute dollar amounts and percentages.

Question 5 options:

	True
	False

Question 6

When performing horizontal analysis, analysts should examine changes in both absolute dollar amounts and percentages, as well as the underlying reasons for the change.

Question 6 options:

	True
	False

Question 7

A vertical analysis calculates percentages to compare individual parts of a statement to a key figure on that statement. For example, on an income statement, each item could be shown as a percentage of sales.

Question 7 options:

	True
	False

Question 8

A drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

Question 8 options:

	True
	False

Question 9

While horizontal analysis examines the behavior of items over two or more accounting periods, vertical analysis compares many items within the same period of time.

Question 9 options:

	True
	False

Question 10

The current ratio and quick ratio are similar in that both are used to assess a company's ability to pay short-term obligations, but they differ in that the quick ratio excludes the least liquid current assets from the numerator.

Question 10 options:

	True
	False