Question 1

Explain why the notes are an integral part of the financial statements.

Accepted Answer

The notes must be read in order to understand the presentation on the face of the financial statements.Key information that can be found in the notes includes a summary of the firm's accounting policies and any changes that may have been made to those policies during the reporting period.Detail about particular accounts such as inventory, property, plant and equipment, investments, long-term debt, and equity accounts can be found in the notes.Information about acquisitions, divestitures, pension and stock option plans, leases, legal proceedings, income taxes, contingencies and commitments, quarterly results of operations and operating segments can also be found in the notes.

Question 2

Which of the following items is a discretionary expenditure?

Accepted Answer

A)  Union wages.
B)  Factory building to produce inventory.
C)  Advertising.
D)  Taxes. C

Question 3

The_________ is a document used to solicit shareholder votes.

Accepted Answer

Proxy statement

Question 4

Write an essay discussing the two key principles that are the foundation of the accrual basis of accounting.

Accepted Answer

The answer of Write an essay discussing the two key...

Question 5

The cash basis of accounting recognizes _________when cash is received and recognizes when cash is paid.

Accepted Answer

The answer of The cash basis of accounting recognizes _________when...

Question 6

The European Union began requiring publicly traded companies to use U.S.GAAP in 2005.

Accepted Answer

A) True 
 B)False

Question 7

The sharper and clearer the picture presented through the financial data and the closer that picture is to financial reality, the higher the_________ financial statements and reported earnings.

Accepted Answer

The answer of The sharper and clearer the picture presented...

Question 8

Which financial statement presents the results of operations?

Accepted Answer

A)  Balance sheet.
B)  Statement of financial position.
C)  Income statement.
D)  Statement of cash flows.

Question 9

Explain why the characteristics of comparability and consistency are important in financial reporting?

Accepted Answer

The answer of Explain why the characteristics of comparability and...

Question 10

What types of information may be missing or hard to find in the financial statements?

Accepted Answer

The answer of What types of information may be missing...

Question 11

Information that is significant enough to make a difference in a decision is considered to be immaterial.

Accepted Answer

A) True 
 B)False

Question 12

The_________ requires all public companies to file a Form 10-K report annually.

Accepted Answer

The answer of The_________ requires all public companies to file...

Question 13

External auditors are required to audit the internal control assessment of the company as well as the financial statements.

Accepted Answer

A) True 
 B)False

Question 14

Which financial statement provides information about operating, financing and investing activities?

Accepted Answer

A)  Statement of financial position.
B)  Statement of cash flows.
C)  Statement of stockholders' equity.
D)  Income statement.

Question 15

GAAP-based financial statements are prepared according to the accrual basis of accounting.

Accepted Answer

A) True 
 B)False

Question 16

Congress passed the Sarbanes-Oxley Act of 2002 in hopes of ending future accounting scandals and renewing investor confidence in the marketplace.

Accepted Answer

A) True 
 B)False

Question 17

What information would not be found in a firm's annual report?

Accepted Answer

A)  Notes to the financial statements.
B)  Financial Reporting Rulings.
C)  Auditor's report.
D)  High and low stock prices.

Question 18

According to Section 302 of the Sarbanes-Oxley Act, who must certify the accuracy of the financial statements of a public company?

Accepted Answer

A)  Public Company Accounting Oversight Board.
B)  SEC.
C)  External auditor.
D)  CEO and CFO.

Question 19

What organization has the authority to register, inspect, and discipline auditors of all publicly owned companies?

Accepted Answer

A)  Public Company Accounting Oversight Board.
B)  SOX.
C)  Congress.
D)  FASB.

Question 20

The FASB has congressional authority to set accounting policies.

Accepted Answer

A) True 
 B)False

Exam 1: Financial Statements: an Overview

Explain why the notes are an integral part of the financial statements.

Which of the following items is a discretionary expenditure?

The_________ is a document used to solicit shareholder votes.

Write an essay discussing the two key principles that are the foundation of the accrual basis of accounting.

The cash basis of accounting recognizes _________when cash is received and recognizes when cash is paid.

The European Union began requiring publicly traded companies to use U.S.GAAP in 2005.

The sharper and clearer the picture presented through the financial data and the closer that picture is to financial reality, the higher the_________ financial statements and reported earnings.

Which financial statement presents the results of operations?

Explain why the characteristics of comparability and consistency are important in financial reporting?

What types of information may be missing or hard to find in the financial statements?

Information that is significant enough to make a difference in a decision is considered to be immaterial.

The_________ requires all public companies to file a Form 10-K report annually.

External auditors are required to audit the internal control assessment of the company as well as the financial statements.

Which financial statement provides information about operating, financing and investing activities?

GAAP-based financial statements are prepared according to the accrual basis of accounting.

Congress passed the Sarbanes-Oxley Act of 2002 in hopes of ending future accounting scandals and renewing investor confidence in the marketplace.

What information would not be found in a firm's annual report?

According to Section 302 of the Sarbanes-Oxley Act, who must certify the accuracy of the financial statements of a public company?

What organization has the authority to register, inspect, and discipline auditors of all publicly owned companies?

The FASB has congressional authority to set accounting policies.