Deck 5: Communicating and Interpreting Accounting Information

Question 1

The form 10-K is the annual report that publically traded companies must file with the Securities & Exchange Commission (SEC).

Answer 1

True
Explanation: The form 10-K is the annual report that publically traded companies must file with the SEC.

Question 2

The Securities & Exchange Commission (SEC)oversees the work of the Financial Accounting Standards Board (FASB).

Answer 2

True
Explanation: The SEC has delegated the responsibility for setting GAAP to the FASB.

Question 3

Intangible assets are reported on the balance sheet as a current asset.

Answer 3

False
Explanation: Current assets include cash, accounts receivable, inventories, etc. Intangible assets are reported as noncurrent assets.

Question 4

Inventories are reported on the balance sheet as a current asset.

Question 5

The board of directors is responsible for maintaining the integrity of a company's financial statements and financial reporting.

Question 6

Independent auditors are advisors who analyze financial statements and other economic information to formulate forecasts and stock recommendations.

Question 7

In order for financial information to be consistent,similar accounting methods need to be used from one period to the next.

Question 8

Financial analysts utilize a company's financial reports to assist them in making earnings projections and earnings per share projections.

Question 9

For financial information to be relevant it must be verifiable and accurate.

Question 10

A listing of a company's directors and officers is a financial statement disclosure.

Question 11

The Securities & Exchange Commission requires publically traded companies to have their financial statements audited by their internal auditors.

Question 12

The form 10-Q contains an unaudited set of quarterly financial statements containing a condensed income statement and balance sheet.

Question 13

The Public Company Accounting Oversight Board (PCAOB)sets auditing standards for independent auditors.

Question 14

Recent stock price information is a financial statement disclosure.

Question 15

The primary responsibility for the information in a corporation's financial statements lies with the chief executive officer (CEO)and the chief financial officer (CFO).

Question 16

The Financial Accounting Standards Board (FASB)oversees the work of the Public Company Accounting Oversight Board (PCAOB).

Question 17

In order for financial information to be relevant,it should be timely and accurate.

Question 18

External users of accounting information include decision makers such as investors,creditors,and financial analysts.

Question 19

In order for financial information to be reliable,it should be timely and verifiable.

Question 20

The mission of the Securities & Exchange Commission (SEC)is to develop generally accepted accounting principles.

Question 21

The return on assets ratio will increase when sales increase.

Question 22

Intangible assets are reported on the balance sheet as a noncurrent asset and include goodwill.

Question 23

Which of the following is not a responsibility of the chief executive officer (CEO)and the chief financial officer (CFO)?

A)The responsibility to oversee the financial statement external audit.
B)To ensure the accuracy and completeness of all reports provided to the Securities & Exchange Commission (SEC).
C)The certification of the strength of the internal control system.
D)The disclosure to the auditor committee of any frauds they are aware of.

Question 24

Net sales less cost of goods sold is reported on the income statement as income from continuing operations.

Question 25

Common stock and additional-paid in capital are both reported on the balance sheet as a component of shareholders' equity.

Question 26

Which of the following are primarily responsible for the information provided in a company's financial statements?

A)The internal and external auditors.
B)The Securities & Exchange Commission (SEC) and the external auditors.
C)The chief executive officer (CEO) and the chief financial officer (CFO).
D)The external auditors and the board of directors.

Question 27

The return on assets ratio is calculated by dividing income from continuing operations by average total assets.

Question 28

The return on assets ratio is affected by both the net profit margin ratio and the asset turnover ratio.

Question 29

Common stock and additional-paid in capital represent the capital contributed by shareholders.

Question 30

For accounting information to be useful,it must be which of the following?

A)It must be consistent and comparable.
B)It must be relevant and reliable.
C)It must be comparable and reliable.
D)It must be relevant and consistent.

Question 31

Which of the following tasks does the Securities & Exchange Commission (SEC)not perform?

A)Overseeing the work of the Financial Accounting Standards Board (FASB).
B)Overseeing the work of the Public Company Accounting Oversight Board (PCAOB).
C)The responsibility for protecting investors and maintaining the integrity of the securities markets.
D)The development of generally accepted accounting principles.

Question 32

The summary of significant accounting policies is a required financial statement disclosure.

Question 33

Additional-paid in capital is reported on the balance sheet as a component of shareholders' equity.

Question 34

Conservatism requires that special care must be taken to avoid which of the following?

A)Overstating assets and liabilities and understating revenues and expenses.
B)Understating assets and liabilities and overstating revenues and expenses.
C)Overstating assets and revenues and understating liabilities and expenses.
D)Understating assets and revenues and overstating liabilities and expenses.

Question 35

Which of the following statements is false?

A)The board of directors meets with the external auditors to discuss management's compliance with their financial reporting obligations.
B)The external auditors are selected by the Securities & Exchange Commission (SEC).
C)The Securities & Exchange Commission (SEC) requires publically traded companies to have their financial statements audited by an independent accountant.
D)The external auditors assume some responsibility with respect to the fairness of the financial statements.

Question 36

Discontinued operations and extraordinary items are reported on the income statement as a component of income from continuing operations.

Question 37

Which of the following tasks does the Financial Accounting Standards Board (FASB)perform?

A)Overseeing the work of the Securities & Exchange Commission (SEC).
B)Overseeing the work of the Public Company Accounting Oversight Board (PCAOB).
C)The responsibility for protecting investors and maintaining the integrity of the securities markets.
D)The development of generally accepted accounting principles.

Question 38

Which of the following describes the conservatism constraint?

A)A business should avoid overstating assets and revenues and avoid understating expenses and liabilities.
B)The benefits of accounting for and reporting information should outweigh the costs.
C)If the dollar amounts involved are large enough to influence a user's decisions the data is considered to be relevant.
D)The conservatism constraint produces a higher net income and stockholders' equity.

Question 39

Which of the following is not true about the board of directors?

A)They are elected by stockholders.
B)They ensure the accuracy and completeness of all reports provided to the Securities & Exchange Commission (SEC).
C)They are responsible for ensuring that processes are in place for maintaining the integrity of the financial statements.
D)They are responsible for hiring the company's external auditors.

Question 40

Which of the following is an objective of the external audit of a company's financial statements?

A)To provide a forecast of the company's future earnings.
B)To assure no fraud has been committed by the company's management.
C)To provide credibility and assurance that the financial statement information conforms with generally accepted accounting principles in all material respects.
D)To detect all accounting errors made by the accounting system and employees.

Question 41

The Nellie Company has provided the following information:
Operating expenses were $115,000;
Gross profit was $629,000;
Cost of goods sold was $470,000
Interest expense was $17,000;
Extraordinary loss was $29,000;
Income tax expense was $199,000.
What was Nellie's income before taxes?

A)$514,000
B)$54,000
C)$497,000
D)$298,000

Question 42

Which of the following statements is false?

A)The common stock account has a credit balance.
B)The additional paid-in capital account has a credit balance.
C)Contributed capital consists of common stock and additional paid-in capital.
D)The par value of a stock represents the stock's fair value.

Question 43

The Willie Company has provided the following information:
Operating expenses were $345,000;
Income from operations was $215,000;
Net sales were $1,100,000;
Interest expense was $71,000;
Discontinued operations loss was $87,000;
Income tax expense was $58,000.
What was Willie's cost of gross profit?

A)$540,000
B)$469,000
C)$618,000
D)$560,000

Question 44

Which of the following are the criteria used to determine whether an item is extraordinary?

A)It is unusual in nature and occurs frequently.
B)It is unusual in nature and occurs infrequently.
C)It is unusual in nature or occurs infrequently.
D)It is infrequent in occurrence only.

Question 45

The Callie Company has provided the following information:
Operating expenses were $231,000;
Cost of goods sold was $376,000;
Net sales were $940,000;
Interest expense was $32,000;
Gain on sale of a building was $76,000;
Income tax expense was $151,000.
What was Callie's income before taxes?

A)$564,000
B)$188,000
C)$377,000
D)$232,000

Question 46

What account is credited when a corporation issues stock at an amount over the stock's par value?

A)Gain on sale of stock
B)Loss on sale of stock
C)Additional paid- in capital
D)Retained earnings

Question 47

Which of the following is true about gross profit (gross margin)?

A)It is net sales minus operating expenses.
B)It is net sales minus cost of goods sold.
C)It is the same as income from continuing operations.
D)It is net sales minus cost of goods sold and operating expenses.

Question 48

Which of the following would not be a component of income from operations?

A)Gross profit
B)Selling and administrative expenses
C)Dividend income
D)Research and development expense

Question 49

The Securities and Exchange Commission's (SEC)report that is required to be filed if any special event occurs is which of the following?

A)Form 10K
B)Form 8K
C)Form 10Q
D)Form 8Q

Question 50

Which of the following is not reported as an operating expense on the income statement?

A)Administrative expenses
B)Research and development expense
C)Interest expense
D)Selling expenses

Question 51

Which of the following would not be classified as a current asset?

A)Accounts receivable
B)Patents
C)Merchandise inventory
D)Cash

Question 52

In what order are current assets usually reported on the balance sheet?

A)From the most liquid to the least liquid.
B)From the least liquid to the most liquid.
C)In alphabetical order of accounts.
D)From the largest balance to the smallest balance.

Question 53

Which of the following best describes income from operations?

A)It includes the results of discontinued operations.
B)It includes extraordinary items.
C)It is sales minus cost of goods sold and income tax expense.
D)It is net sales minus cost of goods sold and operating expenses.

Question 54

The Willie Company has provided the following information:
Operating expenses were $345,000;
Income from operations was $215,000;
Net sales were $1,100,000;
Interest expense was $71,000;
Discontinued operations loss was $87,000;
Income tax expense was $58,000.
What was Willie's income before taxes?

A)$144,000
B)$57,000
C)$215,000
D)$539,000

Question 55

Contributed capital consists of which of the following two accounts?

A)Common stock and Additional paid in capital
B)Common stock and Retained earnings
C)Additional paid in capital and Retained earnings
D)Retained earnings and Cash

Question 56

The Nellie Company has provided the following information:
Operating expenses were $115,000;
Gross profit was $629,000;
Cost of goods sold was $470,000
Interest expense was $17,000;
Extraordinary loss was $29,000;
Income tax expense was $199,000.
What was Nellie's operating income?

A)$514,000
B)$54,000
C)$497,000
D)$298,000

Question 57

Which of the following is false?

A)Relevance is the characteristic of accounting information that says the information would make a difference in a user's decision.
B)Accounts receivable would normally be classified as a current asset.
C)Accumulated depreciation would normally appear on the income statement.
D)The matching principle holds that all expenses incurred in the generation of revenue should be recognized in the same period as the revenue is earned.

Question 58

The Callie Company has provided the following information:
Operating expenses were $231,000;
Cost of goods sold was $376,000;
Net sales were $940,000;
Interest expense was $32,000;
Gain on sale of a building was $76,000;
Income tax expense was $151,000.
What was Callie's gross profit?

A)$564,000
B)$188,000
C)$333,000
D)$232,000

Question 59

The Callie Company has provided the following information:
Operating expenses were $231,000;
Cost of goods sold was $376,000;
Net sales were $940,000;
Interest expense was $32,000;
Gain on sale of a building was $76,000;
Income tax expense was $151,000.
What was Callie's income from operations?

A)$333,000
B)$188,000
C)$156,000
D)$232,000

Question 60

Which of the following journal entries is correct when common stock is sold for cash at a price greater than par value?

A) Cash
$\quad$ Common stock
$\quad$ Gain on sale of stock
B) Cash
Additional paid-in capital
$\quad$ Common Stock
C) Cash
$\quad$ Common Stock
D) Cash
$\quad$ Common stock
$\quad$ Additional paid-in capital

Question 61

Which of the following would not be included within the operations section of a cash flow statement?

A)Cash paid for research and development.
B)Cash paid for insurance.
C)Cash paid for interest expense.
D)Cash paid to legalize a patent.

Question 62

Which of the following transactions results in a decrease in the return on assets ratio?

A)Increasing the sales price of the products sold.
B)An increase in the net profit margin ratio.
C)Purchasing land by signing a long-term note payable.
D)Collecting cash from an account receivable.

Question 63

Which of the following statements is false?

A)Relevant information has the ability to influence an investor's decision.
B)Reliable information is accurate, verifiable and unbiased.
C)Consistency refers to the use of the same accounting principles from one period to the next.
D)Comparability refers to the use of conservatism within different time periods by a particular business.

Question 64

Huron has provided the following year-end balances:
Cash,$25,000
Patents,$7,900
Accounts receivable,$9,300
Property,plant,and equipment,$98,700
Prepaid insurance,$3,600
Accumulated depreciation,$10,000
Inventory,$37,000
Trademarks,$12,600
Goodwill,$11,000
How much are Huron's net noncurrent assets?

A)$122,300.
B)$120,200.
C)$123,800.
D)$112,300.

Question 65

Where are stock issues in exchange for cash reported on a statement of cash flows?

A)Operating activities
B)Financing activities
C)Investing activities
D)Stockholder activities

Question 66

Superior has provided the following information for its recent year of operation:
The common stock account balance at the beginning of the year was $20,000 and the year-end balance was $25,000.
The additional paid-in capital account balance increased $2,500 during the year.
The retained earnings balance at the beginning of the year was $75,000 and the year-end balance was $91,000.
Net income was $26,000.
How much were Superior's dividend declarations during its recent year of operation?

A)$10,000.
B)$42,000.
C)$26,000.
D)The dividend declarations can't be determined given the above information.

Question 67

In which of the following classifications would cash dividend payments to stockholders be reported?

A)Operating activities
B)Financing activities
C)Investing activities
D)Stockholder activities

Question 68

Which of the following would not be included on an income statement?

A)Accumulated depreciation
B)Insurance expense
C)Cost of goods sold
D)Extraordinary loss

Question 69

Which of the following would not be added to net income in the determination of net cash flow from operations?

A)An increase in accounts payable.
B)A decrease in accounts receivable.
C)A decrease in prepaid expenses.
D)An increase in inventory.

Question 70

Centex,Inc.issued 50,000 shares of its $1 par value common stock for $20 per share.The journal entry to record the stock issue would include which of the following?

A)A credit to cash for $1,000,000.
B)A credit to additional paid-in capital for $1,000,000.
C)A credit to additional paid-in capital for $50,000.
D)A credit to common stock for $50,000.

Question 71

Huron has provided the following year-end balances:
Cash,$25,000
Patents,$7,900
Accounts receivable,$9,300
Property,plant,and equipment,$98,700
Prepaid insurance,$3,600
Accumulated depreciation,$10,000
Inventory,$37,000
Trademarks,$12,600
Goodwill,$11,000
How much are Huron's current assets?

A)$85,900.
B)$71,300.
C)$74,900.
D)$102,100.

Question 72

Which of the following statements is false when a company sells inventory costing $700 for $1,200?

A)Cost of goods sold increases $700.
B)Gross profit increases $500.
C)Stockholders' equity increases $500.
D)Net sales increases $500.

Question 73

Which of the following would not typically be disclosed in the notes to the financial statements?

A)Additional detail regarding reported numbers.
B)A summary of significant accounting policies.
C)Revenues reported by business segments.
D)The net income earned by the business to date.

Question 74

Which of the following statements is false?

A)Accumulated depreciation is a contra-account on the balance sheet.
B)A stock's par value represents the minimum selling price of the stock.
C)Retained earnings is the accumulated net income less the accumulated dividends declared.
D)Research and development costs for a patent are reported on the balance sheet.

Question 75

Where are acquisitions of previously issued stock for cash reported on a statement of cash flows?

A)Operating activities
B)Financing activities
C)Investing activities
D)Stockholder activities

Question 76

Superior has provided the following information for its recent year of operation:
The common stock account balance at the beginning of the year was $20,000 and the year-end balance was $25,000.
The additional paid-in capital account balance increased $2,500 during the year.
The retained earnings balance at the beginning of the year was $75,000 and the year-end balance was $91,000.
Net income was $26,000.
How much did Superior sell its common stock for during the year?

A)$5,000.
B)$2,500.
C)$7,500.
D)$25,000.

Question 77

Which of the following statements is false when a company sells inventory costing $900 for $1,500 cash?

A)Current assets increase $600.
B)Gross profit increases $1,500.
C)Stockholders' equity increases $600.
D)Net sales increases $1,500.

Question 78

Which of the following statements is true?

A)Accumulated depreciation is the amount of depreciation on the income statement for the current year only.
B)Current liabilities are debts expected to be paid within the next year.
C)Current assets are resources of a company that might include cash and copyrights.
D)Patents, copyrights, and research and development expense are classified as intangible assets on the balance sheet.

Question 79

A company issued 1,000 shares of $10 par value common stock in exchange for $15,000.Which of the following correctly describes the impact of this transaction on the financial statements?

A)A $15,000 gain is reported on the income statement.
B)Contributed capital in the amount of $10,000 is reported on the balance sheet.
C)Common stock is reported on the balance sheet at $15,000.
D)Additional paid-in capital of $5,000 is reported on the balance sheet.

Question 80

Which of the following statements regarding earnings per share is false?

A)It can be reported on the income statement.
B)It increases when net income increases.
C)It is based on the average number of common shares outstanding.
D)It would not be affected by an extraordinary loss.