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Financial Reporting And Analysis MCQ - Financial Reporting And Analysis Section 2

26 Which of the following statements is most accurate?

A
If revenue grows more quickly than assets, the company’s efficiency may be improving.
B
If inventory grows slower than revenue, the company is likely to face an operational problem with obsolescence.
C
If net income is growing faster than revenue, the company’s efficiency is declining.

Statement B is incorrect because the company is likely to face an operational problem with obsolescence if the inventory grows more quickly that revenue. Statement C is incorrect because if net income is growing faster than revenue, the company’s profitability increases.

27 With a vertical common size balance sheet, each item is divided by:

With a vertical common size balance sheet, each item is divided by total assets.

28 Which of the following is an analyst most likely to consider when deciding which financial ratios to use?

Several ratios are industry specific; hence ratios should be selected based on the industry being evaluated.

29 Presenting the financial data of a company in relation to a single financial statement item is best known as:

Presenting the financial data of a company in relation to single financial statement item is known common size analysis.

30 In which of the following situations is ratio analysis least likely useful?

This is a limitation of ratio analysis.

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Direct Cash Flow Method

The direct method presents major operating cash receipts and payments separately. It provides useful information about cash collections, payments, and operating patterns that may be less visible under the indirect method.

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Question:

If a company uses a perpetual inventory system, the inventory method that best matches the actual historical cost of the inventory sold with their physical flow is:

A. FIFO.
B. LIFO.
C. specific identification.

Correct answer: C

Explanation:

Specific identification matches the actual historical costs of the specific inventory items to their physical flow: The costs remain in inventory until the actual identifiable inventory is sold.

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