Question 1

Intercompany comparison is used to evaluate a company's performance against key competitors within related industries or fields.

Accepted Answer

Intercompany comparison involves comparing a company's performance with its competitors within the same industry or related fields. Therefore, the statement is true.

Question 2

The elements of the income statement, revenues, expenses, gains and losses are measured by changes in cash inflows and outflows.

Accepted Answer

The elements of the income statement are measured by accrual accounting, which records revenues and expenses when they are earned or incurred, regardless of cash inflows or outflows. Gains and losses may also be recorded through non-cash transactions such as changes in fair value of assets or liabilities.

Question 3

Derivative financial instruments must be reported as either assets or liabilities on the balance sheet and be measured at their net realizable value.

Accepted Answer

Derivative financial instruments must be reported on the balance sheet as either assets or liabilities, but they are measured at fair value, not net realizable value.

Question 4

Mark to Market is another name for fair value accounting which has becoming increasingly popular with U.S. GAAP for the valuation of gains and losses associated with assets and liabilities.

Accepted Answer

The answer of Mark to Market is another name for...

Question 5

The ordering of the financial statements are similar under U.S. GAAP and IFRS, assets are listed based upon liquidity, current and then long term.

Accepted Answer

Under U.S. GAAP, assets are typically listed in order of liquidity, starting with current assets. Under IFRS, the order can vary, but often non-current assets are listed first.

Question 6

Which statement is false?

Accepted Answer

The balance sheet provides a snapshot of the financial position of an entity at a point in time, but it does not necessarily show the true value of the entity as the value of some assets may be subjective and subject to change over time.

Question 7

What is the three step process necessary to report the elements of the balance sheet?

Accepted Answer

The three step process necessary to report the elements of the balance sheet is to first identify the assets, liabilities, and equity of the company, then measure their values using appropriate accounting principles, and finally report these values in the balance sheet. Option A and B are both incorrect because measuring is done before recording, and option D includes a step (review) that is not necessary in the reporting process.

Question 8

Under IFRS "capital and reserves" includes capital stock, additional paid-in capital, and retained earnings.

Accepted Answer

Under IFRS, "capital and reserves" includes capital stock, additional paid-in capital, and retained earnings.

Question 9

The elements of the financial statements are defined in FASB Statement of Financial Accounting Concepts No. 8.

Accepted Answer

The answer of The elements of the financial statements are...

Question 10

The SEC requires listed companies to report changes in shareholder's equity as a separate disclosure, whereas smaller companies can report changes in a supporting schedule or as note in the financial statements.

Accepted Answer

This statement is true. The SEC requires listed companies to report changes in shareholder's equity as a separate disclosure in their financial statements, while smaller companies have the option to report changes as a supporting schedule or a note.

Question 11

The cash surrender value of a life insurance policy would be considered a long-term investment.

Accepted Answer

The cash surrender value of a life insurance policy is an accumulation of premiums paid and earned interest over time. This accumulation takes place over a period of time, generally more than a year, and is therefore considered a long-term investment.

Question 12

A distribution to owners includes paying dividends, repurchasing common shares, transferring assets to the company, rendering services, and incurring liabilities.

Accepted Answer

A distribution to owners typically includes paying dividends and repurchasing common shares, but it does not include transferring assets to the company, rendering services, or incurring liabilities.

Question 13

A balance sheet shows the

Accepted Answer

A balance sheet is a financial statement that shows the financial position of a company at a given point in time, including its assets, liabilities, and equity. It is not a statement of income or cash flows, and it does not reflect fair value (which is a concept used in other areas of accounting and finance).

Question 14

Accounts Payable Turnover in Days and Inventory Turnover in Days are considered liquidity capability ratios.

Accepted Answer

Accounts Payable Turnover in Days and Inventory Turnover in Days are efficiency ratios, not liquidity ratios. They measure how effectively a company manages its payables and inventory, respectively.

Question 15

What statement does not report the changes in financial position of the company?

Accepted Answer

The balance sheet reports the financial position of a company at a specific point in time, not the changes in financial position.

Question 16

In order for an asset to be capitalized it must meet one of these three criteria: control, acquisition, and future benefit.

Accepted Answer

An asset must meet the criteria of control, future economic benefit, and past event (acquisition is not a separate criterion) to be capitalized.

Question 17

GAAP requires disclosures relating to asset allocation and revenue recognition, any deviations from the acceptable norm must be disclosed.

Accepted Answer

GAAP (Generally Accepted Accounting Principles) requires disclosures related to asset allocation methods and revenue recognition policies. Any deviations from the acceptable norm must also be disclosed. These disclosures ensure that financial statements are transparent and provide relevant information to users.

Question 18

Trademarks or acquired brand names are not amortized but are reviewed annually for impairment.

Accepted Answer

Trademarks and acquired brand names are not amortized over time like other intangible assets. Instead, they are reviewed annually for impairment, meaning their value is assessed to see if it has decreased due to factors such as market competition or changes in consumer behavior. If the value has decreased, the asset may need to be written down on the balance sheet.

Question 19

The balance sheet reports the financial position of a company at a specific date in time whereas the other three financial statements report changes in the financial position of the company.

Accepted Answer

The balance sheet provides a snapshot of a company's financial position at a specific point in time, whereas the income statement, cash flow statement, and statement of changes in equity report changes in the financial position over a period of time.

Question 20

FASB's definition of fair value is characterized as a measure of market-based entry value, which would be the amount a company paid to acquire the asset.

Accepted Answer

FASB's definition of fair value is not necessarily characterized as the amount a company paid to acquire the asset, but rather it is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This may or may not be the same as the amount originally paid to acquire the asset.

Quiz 4: The Balance Sheet and the Statement of Shareholders Equity