Which of the following statements is CORRECT?

a. The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and statement of stockholders' equity.

b. Assets other than cash are expected to produce cash over time, and the amounts of cash they eventually produce should be exactly the same as the amounts at which the assets are carried on the books.

c. The annual report is an internal document prepared by a firm's managers solely for the use of its creditors/lenders.

d. The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends, and the riskiness of those cash flows.

e. Prior to the Enron scandal in the early 2000s, companies would put verbal information in their annual reports, along with the financial statements. That verbal information was often misleading, so today annual reports can contain only quantitative information: audited financial statements.

Answer:

a. The annual report primarily consist of income statement, statement of retained earnings, balance sheet, and cash flow statement.

b. The Assets whose useful-life is more than a year, are come under the balance sheet. The value of these long-term assets get capitalized over the period as per their usage during the financial year. The usage of these assets considered as an expense in the form of depreciation, which the firm accounts ever year on its income statement till the time the assets’ carrying value becomes zero.

The amount of cash generated by these assets can never be equal to the amount of their carrying value, because the amount they generate that includes cost of the assets as well as the profit.

c. Annual report is a common document that is being used by different stakeholders or the interested parties such as investors, analyst, managers, creditors, and debtors.

d. Yes, it is correct the primary reason for annual report is to let the firm’s investors know about its current and future earnings, the dividend they can expect, and the current status of its cash flows.

e. The verbal statement has always been a part of an annual statement, the primary reason for the statement is an attempt to disclose the firm’s investors, why things turned out the way they did.

Hence, the correct answer is (d).