Reference no: EM132069476

1. Which of the following statements is correct?

a. The annual report contains four basic financial statements: the income statement; balance sheet; statement of cash flows; and statement of changes in long-term financing.

b. Although the annual report is geared toward the average stockholder, it represents financial analysts' most complete source of financial information about the firm.

c. The key importance of annual report information is that it is used by investors when they form their expectations about the firm's future earnings and dividends and the riskiness of those cash flows.

d. The annual report provides no relevant information for use by financial analysts or by the investing public.

e. None of the above statements is correct.

2. Which of the following statements is correct?

a. Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation), so depreciation is set forth on a separate line in the cash budget.

b. If cash inflows and cash outflows occur on a regular basis, such as the situation where inflows from collections occur in equal amounts each day and most payments are made regularly on the 10th of each month, then it is not necessary to use a daily cash budget. A cash budget prepared at the end of the month will suffice.

c. Cash budgets are more important for fast food retailers, such as McDonald's, which deal primarily with cash than for manufacturers, such as General Motors, that generally sell on credit.

d. When constructing a cash budget, it probably is easier to forecast cash inflows than cash outflows.

e. All of the above statements are false.