Exam 1: Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

An audit by an independent external auditor usually does not involve which of the following?

Management operates the productive capacity of the firm to generate earnings.

Maeve Irwin is the CEO of Maeve's Spa. At the end of its accounting period, December 31, 2013, Maeve's Spa has assets of £450,000 and liabilities of £125,000. Using the equation that holds for equality of assets to liabilties and shareholders' equity, determine the following amounts: a)Shareholders’ Equity as of December 31, 2013. b)Shareholders’ Equity as of December 31, 2014, assuming that assets increased by £65,000 and liabilities increased by £35,000 during 2014£.

Management, under the oversight of the firm's governing board (or boards), sets the firm's strategies. Such strategies might include:

The _____ matches revenues with the costs associated with earning those revenues and is not sensitive to the timing of expenditures.

Net income that is not paid to shareholders as dividends increases _____.

The following information is based on the financial statements of Hadley Company, a large manufacturer.Annual revenues are $65,387 million and net expenses (including income taxes) are $62,313 million.During the year, the firm collected $64,995 million in cash from customers and had cash outflows associated with payments to suppliers and vendors of $56,411 million. REQUIRED: a.Calculate net income and net cash flow for the year. b.How can cash collected from customers be less than revenues? c.How can cash payments to suppliers and vendors be less than expenses?

The _____ shows the relation between net income and cash flows from operations, and changes in assets and liabilities that involve cash flows.

The intermingling of performance of one period with that of preceding or succeeding periods is characteristic of which basis of accounting? $\text { Cash basis}\quad\quad\text { Accrual basis }$

The income statement and statement of cash flows provide information about the _____, respectively, of a firm during a period.

Compute the missing amounts affecting the change in cash for Year 1 in each of the 5 independent cases that follow.Amounts are in thousands. $\begin{array}{llllll}&\text { CASE A }&\text { CASE B }&\text { CASE C }&\text { CASE D }&\text { CASE E }\\\hline\text { INFLOWS OF }\\\text { CASH: }\\\text { Operations } & \$ 600 & \$ 450 & \$ 650 & \$(390) & \text { E } \\\text { New financing } & 200 & 120 & \mathbf{C} & 400 & \$ 400 \\\text { Sale of noncurrent } & 190 & 50 & 0 & 160 & 50 \\\text { assets } & & & & &\\\text { OUTFLOWS OF }\\\text { CASH: }\\\text { Dividends } & 150 & 150 & 300 & 0 & 175 \\\text { Reduction in } & 110 & 0 & 100 & 70 & 75 \\\text { financing } & & & &\\\begin{array}{l}\text { Acquisition of } \\\text { noncurrent assets }\end{array} & 650 & \text { B } & 900 & 180 & 200 \\\text { Change in cash } &\text { A } & 50 & (60) & \text { D } & 100\end{array}$

Explain the roles, duties, and responsibilities of managers and governing boards of reporting entities.

The _____ is the government agency that enforces the securities laws of the U.S., including those that apply to financial reporting.

_____ captures the qualitative notion that financial reports need not include items that are so small as to be meaningless to users of the reports.

Which of the following is/are not true regarding the operations of a charitable organization?

The _____ shows assets, liabilities and shareholders' equity as of a specific date, similar to a snapshot.

Concerns over the quality of financial reporting have led, and continue to lead, to government initiatives in the United States.For example, the _____, among other things, established the Public Company Accounting Oversight Board (PCAOB), which is responsible for monitoring the quality of audits of SEC registrants.This Act requires the PCAOB to register firms conducting independent audits of SEC registrants; establish or adopt acceptable auditing, quality control, and independence standards; and provide for periodic inspections of the registered auditors.