Question 1

The formula to determine income tax payable is:

Accepted Answer

A) taxable income (from the income tax return)multiplied by the income tax rate. 
B) taxable income(from the income statement)multiplied by the income tax rate. 
C) income before income tax expense (from the tax return)multiplied by the income tax rate. 
D) income before income tax expense (from the income statement)multiplied by the income tax rate.

Question 2

Recognizing revenue before it is earned is a major source of financial statement fraud.

Accepted Answer

A) True 
 B)False

Question 3

When calculating earnings per share, preferred dividends are:

Accepted Answer

A) added to net income in the numerator of the EPS calculation. 
B) added to common shares in the denominator of the EPS calculation. 
C) subtracted from common shares in the denominator of the EPS calculation. 
D) subtracted from net income in the numerator of the EPS calculation.

Question 4

The first paragraph of the combined audit report on financial statements and internal controls:

Accepted Answer

A) describes how the audit was performed in accordance with U.S. GAAP and auditing standards. 
B) identifies the company and financial statements audited. 
C) describes inherent limitations in a system of internal controls. 
D) describes a system of internal controls.

Question 5

Sales revenue less cost of goods sold is called:

Accepted Answer

A) gross profit. 
B) gross margin percentage. 
C) net profit. 
D) net operating profit.

Question 6

Which statement about a company's internal controls over financial reporting is FALSE?

Accepted Answer

A) Management must determine whether the internal controls over financial reporting are effective. 
B) Management is responsible for maintaining an adequate system of internal control over financial reporting. 
C) The internal controls over financial reporting are established by the outside auditors. 
D) The internal controls over financial reporting are assessed by management.

Question 7

Income tax payable is computed by multiplying income before income taxes, from the income statement, by the income tax rate.

Accepted Answer

A) True 
 B)False

Question 8

Income tax expense appears on the:

Accepted Answer

A) tax return. 
B) statement of stockholders' equity. 
C) income statement. 
D) balance sheet.

Question 9

A company reports basic earnings per share of $5.00 per share. The company has convertible preferred stock that can be converted into common stock. What will diluted earnings per share equal?

Accepted Answer

A) $5.00 per share 
B) more than $5.00 per share 
C) less than $5.00 per share 
D) There is not enough information

Question 10

On August 1, Steffen Computers, Inc. purchased thirty computer chips, on account, from a company located in Taiwan for 530,000 Taiwan dollars. On that date the Taiwan dollar is worth $0.034. On September 1, when the Taiwan dollar was worth $0.036, payment was made. The journal entry on September 1 by Steffen Computers, Inc. would include a: (Round your final answer to the nearest dollar.)

Accepted Answer

A) debit to Accounts Payable $19,080. 
B) debit to Foreign-Currency Transaction Loss -$1060. 
C) credit to Foreign-Currency Transaction Gain -$1060. 
D) credit to Cash $18,020.

Question 11

Hedging foreign currency transactions can be accomplished by:

Accepted Answer

A) maintaining equal amounts of receivables and payables in foreign currencies. 
B) purchasing future contracts. 
C) purchase foreign currencies to be received in the future. 
D) all of the above.

Question 12

The purpose of channel stuffing is to ensure that all customer orders are properly filled before the end of the seller's fiscal year.

Accepted Answer

A) True 
 B)False

Question 13

Comprehensive income includes net income plus:

Accepted Answer

A) Unrealized Gains on Investments in Available-for-Sale Securities. 
B) Foreign-Currency Transaction Gain. 
C) Realized Gains on Investments in Available-for-Sale Securities. 
D) Unrealized Gains on Investments in Trading Securities.

Question 14

Footnotes about a company's segments are useful because the notes reveal:

Accepted Answer

A) the different types of business activities and the different economic environments. 
B) the company's internal controls over financial reporting. 
C) the company's blueprint for competitive advantage. 
D) the outside auditor's audit report.

Question 15

Assume it is the first year of operations. When taxable income exceeds pretax accounting income, accountants record a(n):

Accepted Answer

A) Deferred Tax Asset. 
B) Deferred Tax Liability. 
C) Income Tax Payable. 
D) Prepaid Income Taxes.

Question 16

In an unqualified opinion, the auditing firm expresses that the company's:

Accepted Answer

A) financial statements are in conformity with U.S. GAAP. 
B) financial statements present fairly, in all material respects, the company's financial position as of the end of the accounting period and results of operations for a period of time. 
C) financial statements provide substantial evidence that the company is a safe investment. 
D) A and B

Question 17

Other Comprehensive Income is reported on the:

Accepted Answer

A) income statement. 
B) statement of comprehensive income. 
C) statement of retained earnings. 
D) balance sheet.

Question 18

The statement of management's responsibility for internal control indicates all of the following EXCEPT:

Accepted Answer

A) that management is responsible for establishing and maintaining an adequate system of internal control. 
B) that management has conducted an assessment of internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission. 
C) that management states that the internal controls of the company have been audited by the company's outside auditors and refers to their report. 
D) that management states that the internal controls of the company have been designed by the company's outside auditors.

Question 19

Income tax payable is the amount of tax to be paid to the government based on the income tax return.

Accepted Answer

A) True 
 B)False

Exam 11: Evaluating Performance: Earnings Quality, the Income Statement, Statement of Comprehensive Income

The formula to determine income tax payable is:

Recognizing revenue before it is earned is a major source of financial statement fraud.

When calculating earnings per share, preferred dividends are:

The first paragraph of the combined audit report on financial statements and internal controls:

Sales revenue less cost of goods sold is called:

Which statement about a company's internal controls over financial reporting is FALSE?

Income tax payable is computed by multiplying income before income taxes, from the income statement, by the income tax rate.

Income tax expense appears on the:

A company reports basic earnings per share of $5.00 per share. The company has convertible preferred stock that can be converted into common stock. What will diluted earnings per share equal?

Hedging foreign currency transactions can be accomplished by:

The purpose of channel stuffing is to ensure that all customer orders are properly filled before the end of the seller's fiscal year.

Comprehensive income includes net income plus:

Footnotes about a company's segments are useful because the notes reveal:

Assume it is the first year of operations. When taxable income exceeds pretax accounting income, accountants record a(n) :

In an unqualified opinion, the auditing firm expresses that the company's:

Other Comprehensive Income is reported on the:

The statement of management's responsibility for internal control indicates all of the following EXCEPT:

Income tax payable is the amount of tax to be paid to the government based on the income tax return.