Deck 2: Introduction to Financial Statements and Other Financial Reporting Topics

Question 1

In terms of debits and credits, which of the following accounts have the same normal balances?

A)Accounts payable, accounts receivable, notes payable
B)Dividends, accounts receivable, notes payable
C)Advertising expense, selling expense, accounts receivable
D)Land, building, accounts payable
E)Common stock, notes payable, land

Answer 1

C

Question 2

At the end of the fiscal year, an adjusting entry is made that increases both interest expense and interest payable.This entry is an application for which accounting principle?

A)Full disclosure
B)Materiality
C)Matching
D)Going concern
E)Realization

Answer 2

C

Question 3

Which of these statements is not true?

A)Asset, liability, and stockholders' equity accounts are referred to as permanent accounts.
B)Revenue, expense, and dividend accounts are described as temporary accounts.
C)Temporary accounts are closed at the end of the period to retained earnings.
D)The balance sheet will not balance until the temporary accounts are closed to retained earnings.
E)With double-entry, each transaction is recorded twice.

Answer 3

E

Question 4

Which of the following is not a true statement relating to the Treadway Commission?

A)The Treadway Commission is the popular name for the National Commission on Fraudulent Reporting.
B)The Treadway Commission has released reports detailing internal control systems.
C)Management's Report on Internal Control over Financial Reporting and the independent public accounting from report to the shareholders and board of directors often refer to criteria established on internal control by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
D)The Treadway Commission has issued a number of recommendations for the prevention of fraud on financial reports, ethics, and effective internal controls.
E)The Treadway Commission is a voluntary-sector organization formed to support the Sarbones-Oxley Act.

Question 5

Smith Company had retained earnings of $60,000 at the end of the current year.For the current year, income was $30,000 and dividends $10,000.What was the balance in retained earnings at the end of the prior year?

A)$30,000
B)$40,000
C)$60,000
D)$30,000
E)$70,000

Question 6

Which of the following is a temporary account?

A)Advertising expense
B)Land
C)Building
D)Accounts payable
E)Bonds payable

Question 7

Which of the following statements is not true?

A)A qualified opinion or an adverse opinion may bring into question the reliability of the financial statements.
B)A disclaimer of opinion indicates that one should not look to the auditor's report as an indication of the reliability of the statements.
C)In some cases, outside accountants are associated with financial statements when they have performed less than an audit.
D)A review is substantially less in scope than an examination in accordance with generally accepted auditing statements.
E)The accountant's report expresses an opinion on reviewed financial statements.

Question 8

The responsibility for the preparation and integrity of financial statements rests with management.

Question 9

Tiffin Company had retained earnings of $50,000 at the end of last year.For the current year, income was $20,000 and dividends $15,000.What is the balance in retained earnings at the end of the current year?

A)$85,000
B)$45,000
C)$55,000
D)$60,000
E)none of the answers are correct

Question 10

Which of the following is not an objective of the SEC's integrated disclosure system?

A)To coordinate the Form 10-K requirements with those of the annual report
B)To lessen the impact of the FASB
C)To expand the management discussion of liquidity, capital resources, and results of operations
D)To improve the quality of disclosure
E)To standardize information requirements

Question 11

If liabilities total $70,000 and stockholders' equity totals $50,000, then total assets must be:

A)$20,000.
B)$80,000.
C)$120,000.
D)$30,000.
E)$30,000.

Question 12

Which of the following statements is not correct concerning summary annual reports?

A)A summary annual report omits much of the financial information included in an annual report.
B)When a company issues a summary annual report, the proxy materials it sends to shareholders must include a set of fully audited statements and other required financial disclosures.
C)A summary annual report generally has more nonfinancial pages than financial pages.
D)A summary annual report is adequate for reasonable analysis.
E)The concept of a summary annual report was approved by the Securities and Exchange Commission.

Question 13

In addition to the balance sheet, the income statement, and the statement of cash flows, a complete set of financial statements must include:

A)an auditor's opinion.
B)a ten-year summary of operations.
C)a note disclosure of such items as accounting policies.
D)historical common-size (percentage) summaries.
E)a list of corporate officers.

Question 14

Which of the following is a type of audit opinion that a firm would usually prefer?

A)Uqualified opinion
B)Qualified opinion
C)Adverse opinion
D)Clear opinion
E)None of the answers are correct.

Question 15

Who is responsible for the preparation and integrity of financial statements?

A)A cost accountant
B)Management
C)An auditor
D)A bookkeeper
E)The FASB

Question 16

Which of the following is not a type of audit opinion?

A)Unqualified opinion
B)Qualified opinion
C)Adverse opinion
D)Clean opinion
E)Disclaimer of opinion

Question 17

Financial statements of legally separate entities may be issued to show financial position, income, and cash flow as they would appear if the companies were a single entity.

Question 18

Which of these statements is not true?

A)Transactions must be recorded in a journal.
B)All transactions could be recorded in the general journal.
C)Companies use a number of special journals to record most transactions.
D)Special journals are designed to improve record- keeping efficiency.
E)The form of the journals are the same from industry to industry.

Question 19

A disclaimer of opinion is necessary when the exceptions to fair presentation are so material that a qualified opinion is not justified.

Question 20

Which of the following is a permanent account?

A)Dividends
B)Advertising expense
C)Building
D)Selling expense
E)Insurance expense

Question 21

The assets for the balance sheet must equal the liabilities and stockholders' equity.

Question 22

The statement of retained earnings reconciles the beginning retained earnings balance to the retained earnings balance at the end of the current period.

Question 23

A corporation is considered to be a legal entity separate and distinct from the stockholders.

Question 24

The sequence of accounting procedures completed during each accounting period is called the accounting cycle.

Question 25

Retained earnings always shows a positive balance.

Question 26

The retained earnings account is the link between the balance sheet and the statement of cash flows.

Question 27

A partnership is a business owned by two or more individuals.Each owner is personally responsible for the debts of the partnership.

Question 28

After posting, the general ledger accounts contain the same information as in the journals, but the information has been summarized by account.

Question 29

Contingent liabilities are recorded as a liability only if the loss is considered substantial and the amount is reasonably determinable.

Question 30

A summary annual report is a condensed annual report that omits much of the financial information included in a typical annual report.

Question 31

T-accounts have a left, or credit, side and a right, or debit, side.

Question 32

The principal financial statements of a corporation are the balance sheet, income statement, and statement of cash flows.

Question 33

At any point in time, assets must equal the contribution of the creditors only.

Question 34

Several accounts could be involved in a single transaction, but the debits and credits must still be equal.

Question 35

Accounts store the monetary information from the recording of transactions.

Question 36

A balance sheet shows the financial condition of an accounting entity for a particular period of time.

Question 37

The income statement is a summary of revenues and expenses and gains and losses, ending with net income, for a particular period of time.

Question 38

A sole proprietorship is a legal entity separate from its owner.

Question 39

Transactions must be external to the company.

Question 40

The statement of cash flows consists of two sections: cash flows from operating activities and cash flows from financing activities.

Question 41

The point of cash receipt for revenue and cash disbursement for expenses is important under the accrual basis when determining income.

Question 42

For consolidating, the FASB recognizes risks, rewards, decision-making ability and the primary beneficiary.

Question 43

The accountant's report expresses an opinion on reviewed financial statements.

Question 44

Sometimes financial statements are presented without an accompanying accountant's report.

Question 45

The financial statements of the parent and the subsidiary are consolidated for all subsidiaries unless control is temporary or does not rest with the majority.

Question 46

The proxy is the solicitation sent to stockholders for the election of directors and for the approval of other corporation actions.

Question 47

An adverse opinion states that, except for the effects of the matter(s) to which the qualification relates, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity in conformity with generally accepted accounting principles.

Question 48

The accrual basis needs numerous adjustments at the end of the accounting period.

Question 49

Ethics can be a particular problem with financial reports.

Question 50

It is generally recognized that the market is more efficient when dealing with small firms that are not trading on large organized stock markets.

Question 51

Accepted accounting principles leave ample room for arriving at different results in the short run.

Question 52

A review has substantially less scope than an examination in accordance with generally accepted auditing standards.

Question 53

From the point of view of analysis, the unqualified opinion without an explanatory paragraph or explanatory language carries the highest degree of reliability.

Question 54

For consolidated statements, all transactions between entities being consolidated (i.e., intercompany transactions) must be eliminated.

Question 55

The responsibility for the preparation and integrity of financial statements rests with the auditors.

Question 56

A company must have majority voting shares of the other company in order to consolidate.

Question 57

In practice, some of the required information in the 10-K is incorporated by reference.

Question 58

The market will not be efficient if it does not have access to relevant information or if fraudulent information is provided.

Question 59

One is unlikely to regard a qualified opinion or an adverse opinion as casting serious doubts on the reliability of the financial statements.

Question 60

A summary annual report generally has more nonfinancial pages than financial pages.

Question 61

Accounting for a business combination must be accounted for using the purchase method.

Question 62

Most companies consolidate the parent's and subsidiary's accounts summed.

Question 63

The auditor will issue a qualified opinion when he/she has not performed an audit sufficient in scope to form an opinion.

Question 64

The efficient market hypothesis (EMH) relates to the ability of capital markets to generate prices for securities that reflect worth.

Question 65

Not all reports to the SEC are made available on EDGAR.

Question 66

There are three methods of accounting for a business combination.

Question 67

For public companies reporting to the SEC, the 10-K, 10-Q, 8-K, and proxy can be found at http://www.sec.gov.

Question 68

For a business combination, the purchase method views the business combination as the acquisition of one entity by another.The firm doing the acquiring records the identifiable assets and liabilities at fair value at the date of acquisition.

Question 69

For public companies reporting under Sarbanes-Oxley, the auditor reports on the firm's internal controls in addition to the audit report.

Question 70

When a subsidiary is not consolidated, it is accounted for as an investment on the parent's balance sheet.

Question 71

The audit opinion of a public company is similar to an opinion for a private company except for the public company comments will be added as to the effectiveness of internal control over financial reporting.