Question 1

List and explain the three basic financial statements.

Accepted Answer

Financial statements are used to convey a concise picture of a company's operating activity over a period of time and its financial position on a specific date. The three basic statements include:
• Balance sheet: The purpose of the balance sheet is to show the financial position of an organization on a specific date. It reports major classes and amounts of assets, liabilities, and equity. Assets are either purchased or generated through operations. They are, directly or indirectly, financed by the creditors or investors.
• Income statement: The purpose of the income statement is to summarize the performance of the organization over a specific period of time. It explains some changes in the assets, liabilities, and equity of a company between two consecutive balance sheet dates. If prepared using GAAP, the income statement is governed by the matching principle, which provides that performance can be measured only if revenues and related costs are accounted for during the same time period.
• Statement of cash flows: The cash flow statement covers the reporting period and serves to reconcile sources and uses of cash, which are classified as operating, investing, or financing activities. This statement helps explain changes in consecutive balance sheets and serves to supplement information provided by the income statement.

Question 2

Which of the following accountants use a conservative reporting strategy?

Accepted Answer

A)  Imogene reported a higher inventory than actual. 
B)  Malik understated the expense incurred during the year. 
C)  Lia capitalized the general maintenance expenses. 
D)  Yuriko used a higher depreciation rate for the assets. 
A)  Imogene reported a higher inventory than actual. 
B)  Malik understated the expense incurred during the year. 
C)  Lia capitalized the general maintenance expenses. 
D)  Yuriko used a higher depreciation rate for the assets. D

Question 3

Which of the following is true of the compound annual growth rate?

Accepted Answer

A)  It reflects average annual growth over a period of multiple years. 
B)  It reflects total annual growth over a period of multiple years. 
C)  It reflects average annual growth for a year as compared to the previous year. 
D)  It reflects total annual growth for a year as compared to the previous year. 
A)  It reflects average annual growth over a period of multiple years. 
B)  It reflects total annual growth over a period of multiple years. 
C)  It reflects average annual growth for a year as compared to the previous year. 
D)  It reflects total annual growth for a year as compared to the previous year. A

Question 4

Which of the following is the correct formula for calculating sustainable growth rate?

Accepted Answer

A)  Sustainable growth rate = Return on sales × Return on equity 
B)  Sustainable growth rate = Retention ratio × Return on equity 
C)  Sustainable growth rate = Retention ratio × Return on assets 
D)  Sustainable growth rate = Return on sales × Return on assets 
A)  Sustainable growth rate = Return on sales × Return on equity 
B)  Sustainable growth rate = Retention ratio × Return on equity 
C)  Sustainable growth rate = Retention ratio × Return on assets 
D)  Sustainable growth rate = Return on sales × Return on assets

Question 5

The income statement explains all changes in the assets, liabilities, and equity of a company between two consecutive balance sheet dates.

Accepted Answer

A) True 
 B)False

Question 6

Blue Angel, Inc. generated sales of $420,000 in the year 2014. The accountant provided the following additional information:   Using the DuPont model, calculate the return on equity of the company.

Accepted Answer

A)  1.8% 
B)  5% 
C)  11.25% 
D)  0.8% 
A)  1.8% 
B)  5% 
C)  11.25% 
D)  0.8%

Question 7

Judith Corp. has current assets worth $50,000 and current liabilities worth $75,000. Current assets include inventory of $10,000. Calculate acid test ratio.

Accepted Answer

A)  1.500 
B)  0.533 
C)  0.625 
D)  0.667 
A)  1.500 
B)  0.533 
C)  0.625 
D)  0.667

Question 8

As per the research conducted by Churyk and Clinton, significantly fewer colons in the management discussion and analysis section of annual reports are an indication of financial statement deception.

Accepted Answer

A) True 
 B)False

Question 9

Operational freedom and reporting freedom are held in check by the principle of materiality.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is a systematic technique for categorizing words into content categories using special coding rules?

Accepted Answer

A)  DuPont analysis 
B)  content analysis 
C)  Altman's Z-score 
D)  content coding 
A)  DuPont analysis 
B)  content analysis 
C)  Altman's Z-score 
D)  content coding

Question 11

Which of the following the correct formula for calculating acid test ratio?

Accepted Answer

A)  Acid test ratio = (Current assets - Inventory) / Current liabilities 
B)  Acid test ratio = (Current assets - Interest expense) / Current liabilities 
C)  Acid test ratio = (Current assets - Current liabilities) / Current liabilities 
D)  Acid test ratio = Current assets / Current liabilities 
A)  Acid test ratio = (Current assets - Inventory) / Current liabilities 
B)  Acid test ratio = (Current assets - Interest expense) / Current liabilities 
C)  Acid test ratio = (Current assets - Current liabilities) / Current liabilities 
D)  Acid test ratio = Current assets / Current liabilities

Question 12

Since 2002, the FASB and the International Accounting Standards Board (IASB) have been working to merge U.S. GAAP with international financial reporting standards (IFRS). Which of the following terms is used to describe this process?

Accepted Answer

A)  merger 
B)  integration 
C)  convergence 
D)  unification 
A)  merger 
B)  integration 
C)  convergence 
D)  unification

Question 13

Which of the following is true of financial statements?

Accepted Answer

A)  They represent historical data. 
B)  They are prepared for management purposes. 
C)  They represent future estimates of the firm. 
D)  They provide a reasonable level of assurance to their users. 
A)  They represent historical data. 
B)  They are prepared for management purposes. 
C)  They represent future estimates of the firm. 
D)  They provide a reasonable level of assurance to their users.

Question 14

Which of the following is a limitation of computer-assisted audit tools?

Accepted Answer

A)  These tools cannot replace skilled forensic accountants, but rather allow them to focus their efforts on the highest-risk journal entries. 
B)  These tools cannot analyze 100% of the data, but rather can choose and analyze samples from the journal entry database. 
C)  The conclusions arrived at using these tools cannot be supported with substantial quantitative data. 
D)  The forensic accountant will have to manually review the general ledger even after using these tools. 
A)  These tools cannot replace skilled forensic accountants, but rather allow them to focus their efforts on the highest-risk journal entries. 
B)  These tools cannot analyze 100% of the data, but rather can choose and analyze samples from the journal entry database. 
C)  The conclusions arrived at using these tools cannot be supported with substantial quantitative data. 
D)  The forensic accountant will have to manually review the general ledger even after using these tools.

Question 15

Peaches Corp. has current assets worth $90,000 and current liabilities worth $75,000. Current assets include inventory of $10,000. Calculate the net working capital of the company.

Accepted Answer

A)  $80,000 
B)  $65,000 
C)  $15,000 
D)  $5,000 
A)  $80,000 
B)  $65,000 
C)  $15,000 
D)  $5,000

Question 16

Which of the following is true of Altman's Z-Score Boundaries?

Accepted Answer

A)  If a publicly traded non-manufacturing firm has a Z-score of 1.81, it predicts bankruptcy. 
B)  If a publicly traded manufacturing firm has a Z-score of 2.60, it indicates non-bankruptcy. 
C)  If a publicly traded manufacturing firm has a Z-score of 1.42, the firm is in the zone of ignorance. 
D)  The zone of ignorance for privately held manufacturing firms is 1.23 to 2.90. 
A)  If a publicly traded non-manufacturing firm has a Z-score of 1.81, it predicts bankruptcy. 
B)  If a publicly traded manufacturing firm has a Z-score of 2.60, it indicates non-bankruptcy. 
C)  If a publicly traded manufacturing firm has a Z-score of 1.42, the firm is in the zone of ignorance. 
D)  The zone of ignorance for privately held manufacturing firms is 1.23 to 2.90.

Question 17

What is content analysis?

Accepted Answer

Content analysis is a systematic techniq

Question 18

Which of the following is an accounting choice that violates GAAP?

Accepted Answer

A)  recording sales after they are realized, not before it 
B)  recording intangible assets 
C)  recording fictitious inventory 
D)  using estimates to determine provisions for bad debts 
A)  recording sales after they are realized, not before it 
B)  recording intangible assets 
C)  recording fictitious inventory 
D)  using estimates to determine provisions for bad debts

Question 19

Which of the following is Altman's conventional Z-score model for publicly traded manufacturing firms?

Accepted Answer

A)  Z = 0.717(X1) + 0.847(X2) + 3.107(X3) + 0.420(X4) + 0.998(X5) 
B)  Z = 1.4(X1) + 0.847(X2) + 3.3(X3) + 1.05(X4) + 0.998(X5) 
C)  Z = 6.65(X1) + 3.26(X2) + 6.72(X3) + 1.05(X4) 
D)  Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 0.6(X4) + 0.999(X5) 
A)  Z = 0.717(X1) + 0.847(X2) + 3.107(X3) + 0.420(X4) + 0.998(X5) 
B)  Z = 1.4(X1) + 0.847(X2) + 3.3(X3) + 1.05(X4) + 0.998(X5) 
C)  Z = 6.65(X1) + 3.26(X2) + 6.72(X3) + 1.05(X4) 
D)  Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 0.6(X4) + 0.999(X5)

Question 20

Research conducted by Churyk and Clinton (2008) identified certain "tells" or communication characteristics in the context of the management discussion and analysis section of annual reports, related to financial statement deception. Which of the following characteristics is an indicator of such deception?

Accepted Answer

A)  fewer words per sentences 
B)  fewer past-tense words 
C)  more optimistic words 
D)  more self-references 
A)  fewer words per sentences 
B)  fewer past-tense words 
C)  more optimistic words 
D)  more self-references

List and explain the three basic financial statements.

Which of the following accountants use a conservative reporting strategy?

Which of the following is true of the compound annual growth rate?

Which of the following is the correct formula for calculating sustainable growth rate?

The income statement explains all changes in the assets, liabilities, and equity of a company between two consecutive balance sheet dates.

Blue Angel, Inc. generated sales of $420,000 in the year 2014. The accountant provided the following additional information: Using the DuPont model, calculate the return on equity of the company.

Judith Corp. has current assets worth $50,000 and current liabilities worth $75,000. Current assets include inventory of $10,000. Calculate acid test ratio.

As per the research conducted by Churyk and Clinton, significantly fewer colons in the management discussion and analysis section of annual reports are an indication of financial statement deception.

Operational freedom and reporting freedom are held in check by the principle of materiality.

Which of the following is a systematic technique for categorizing words into content categories using special coding rules?

Which of the following the correct formula for calculating acid test ratio?

Since 2002, the FASB and the International Accounting Standards Board (IASB) have been working to merge U.S. GAAP with international financial reporting standards (IFRS). Which of the following terms is used to describe this process?

Which of the following is true of financial statements?

Which of the following is a limitation of computer-assisted audit tools?

Peaches Corp. has current assets worth $90,000 and current liabilities worth $75,000. Current assets include inventory of $10,000. Calculate the net working capital of the company.

Which of the following is true of Altman's Z-Score Boundaries?

What is content analysis?

Which of the following is an accounting choice that violates GAAP?

Which of the following is Altman's conventional Z-score model for publicly traded manufacturing firms?

Introduction to the World of Forensic Accounting

The Legal Environment of Forensic Accounting

Screening and Staging Engagements

Gathering Evidence Interviews and Observations

Fraud and White-Collar Crime

Conducting a Fraud Investigation

Transforming Data Into Evidence Part 1

Transforming Data Into Evidence Part 2

Professional Responsibilities

Fundamentals of Business Valuation

Special Topics

Filters

Exam 5: Financial Statements Analysis Reading Between the Lines

List and explain the three basic financial statements.

Which of the following accountants use a conservative reporting strategy?

Which of the following is true of the compound annual growth rate?

Which of the following is the correct formula for calculating sustainable growth rate?

The income statement explains all changes in the assets, liabilities, and equity of a company between two consecutive balance sheet dates.

Blue Angel, Inc. generated sales of $420,000 in the year 2014. The accountant provided the following additional information: Using the DuPont model, calculate the return on equity of the company.

Judith Corp. has current assets worth $50,000 and current liabilities worth $75,000. Current assets include inventory of $10,000. Calculate acid test ratio.

As per the research conducted by Churyk and Clinton, significantly fewer colons in the management discussion and analysis section of annual reports are an indication of financial statement deception.

Operational freedom and reporting freedom are held in check by the principle of materiality.

Which of the following is a systematic technique for categorizing words into content categories using special coding rules?

Which of the following the correct formula for calculating acid test ratio?

Since 2002, the FASB and the International Accounting Standards Board (IASB) have been working to merge U.S. GAAP with international financial reporting standards (IFRS). Which of the following terms is used to describe this process?

Which of the following is true of financial statements?

Which of the following is a limitation of computer-assisted audit tools?

Peaches Corp. has current assets worth $90,000 and current liabilities worth $75,000. Current assets include inventory of $10,000. Calculate the net working capital of the company.

Which of the following is true of Altman's Z-Score Boundaries?

What is content analysis?

Which of the following is an accounting choice that violates GAAP?

Which of the following is Altman's conventional Z-score model for publicly traded manufacturing firms?

Introduction to the World of Forensic Accounting

The Legal Environment of Forensic Accounting

Screening and Staging Engagements

Gathering Evidence Interviews and Observations

Fraud and White-Collar Crime

Conducting a Fraud Investigation

Transforming Data Into Evidence Part 1

Transforming Data Into Evidence Part 2

Professional Responsibilities

Fundamentals of Business Valuation

Special Topics

Filters