Reading Quiz Chapter 9Question 1(1 point)

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

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Question 2(1 point)

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

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Question 3(1 point)

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

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Question 4(1 point)

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

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Question 5(1 point)

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.

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Question 6(1 point)

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

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Question 7(1 point)

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.

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Question 8(1 point)

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

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Question 9(1 point)

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.

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Question 10(1 point)

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.

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