Problem 1-7 Multiple choice (IAA)

1. Which of the following would most likely prepare the most accurate financial
forecast for an entity based on empirical evidence?
a. Investors using statistical models to generate forecasts
b. Corporate management
c. Financial analysis
d. Independent certified public accountants
2. The most useful information to existing and potential investors, lenders and other
creditors in predicting future cash flows is
a. Information about current cash flows
b. Currents earning based on accrual accounting
c. Information regarding the accounting policies used by management
d. Information regarding the result obtained by using a wide variety of
accounting policies
3. The accrual basis of accounting is most useful for
a. Determining the amount of income tax liability
b. Predicting short-term financial performance
c. Predicting long-term financial performance
d. Determining the amount of dividends to shareholders
4. The financial statements prepared under GAAP
a. Do not articulate with one another
b. Reflecting a single measurement basis which is historical cost.
c. Are not highly precise because estimate and judgment must be made.
d. Contain a limited number of future projection
5. In measuring financial performance, accrual accounting is used because
a. Cash flows are considered less important
b. It provides a better indication of ability to generate cash flows than cash
basis.
c. It recognizes revenue when cash is received and expenses when cash is paid
d. It is of the implicit assumptions.