Wrapping Up Financial Statements and What Lies Ahead Quiz :Understanding Financial Statements: Company Performance (Fundamentals of Accounting Specialization) Answers 2025

1. Comparing only net incomes gives a clear picture.

• ❌ True

• ✅ False
  Explanation: Net income alone ignores size, industry, assets, etc.

2. Ratio = Net income ÷ Average total assets

• ❌ Current ratio

• ✅ Return on assets

• ❌ Risk ratio

• ❌ EPS
  Explanation: ROA measures profitability from assets.

3. Profitability ratio showing net income per share?

• ❌ Return on assets

• ❌ Risk ratio

• ❌ Current ratio

• ✅ Earnings per share
  Explanation: EPS = Net income / shares outstanding.

4. Public companies are NOT required to report EPS.

• ❌ True

• ✅ False
  Explanation: Public companies must report EPS on the income statement.

5. Ratios help compare different-sized companies.

• ✅ True

• ❌ False
  Explanation: Ratios standardize performance across size and industry.

6. Risk ratio showing ability to meet liabilities using current assets?

• ✅ Current ratio

• ❌ ROA

• ❌ EPS

• ❌ None
  Explanation: Current assets ÷ current liabilities = liquidity.

7. Accounting is fundamentally about measurement.

• ✅ True

• ❌ False
  Explanation: Accounting measures and communicates financial info.

8. Cash flow statement shows change in only one balance sheet item.

• ❌ True

• ✅ False
  Explanation: It explains changes in cash, but affects many accounts.

9. Which statement shows what increased/decreased assets or liabilities?

• ❌ Balance sheet

• ❌ Income statement

• ❌ Cash flows

• ✅ All of the above
  Explanation: All statements affect assets/liabilities in different ways.

10. Balance sheet represents financial performance.

• ❌ True

• ✅ False
  Explanation: Performance = income statement, not balance sheet.

11. Assets and liabilities appear on the balance sheet.

• ✅ True

• ❌ False
  Explanation: That is the purpose of the balance sheet.

12. Revenue and expenses are reported in:

• ❌ Balance sheet

• ✅ Income statement

• ❌ Cash flows

• ❌ All of the above
  Explanation: Income statement reports performance.

13. Balance sheet represents the company’s what?

• ✅ Position

• ❌ Performance

• ❌ Successfulness

• ❌ Position AND performance
  Explanation: It shows financial position at a point in time.

14. Operating, investing, financing activity details found where?

• ❌ Balance sheet

• ❌ Income statement

• ✅ Statement of cash flows

• ❌ All of the above
  Explanation: Cash flow statement is divided into O/I/F.

15. Notes are important for understanding statements.

• ✅ True

• ❌ False
  Explanation: Notes give clarity, assumptions, policies, and details.

16. Investment decision: only look at cash?

• ❌ True

• ✅ False
  Explanation: Investment decisions need ratios, income, cash flows, risks.

17. Ratio benchmarks help comparison.

• ✅ True

• ❌ False
  Explanation: Benchmarks allow comparing across periods or competitors.

18. How ratios are helpful:

• ❌ Compare sizes

• ❌ Compare prior periods

• ❌ Compare competitors

• ✅ All of the above
  Explanation: Ratios normalize information.

19. EPS stands for:

• ❌ Equity per share

• ✅ Earnings per share

• ❌ Earnings performance standard

• ❌ None
  Explanation: EPS indicates profitability per share.

20. Income statement is a snapshot of position.

• ❌ True

• ✅ False
  Explanation: Position = balance sheet. Income statement = performance over time.

🧾 Summary Table