Question 1

Notes to financial statements provide

Accepted Answer

Notes to financial statements provide additional information and explanations about items shown in the financial statements. They may include details about specific transactions, accounting policies, and other relevant information. This helps readers of the financial statements to better understand the financial position, performance, and cash flows of the company.

Question 2

Dividends that are paid to owners would affect both the

Accepted Answer

Dividends paid to owners affect the balance sheet by reducing the company's cash (an asset) and retained earnings (part of equity). They also appear on the statement of cash flows under financing activities, showing the outflow of cash to the owners. Dividends do not affect the income statement as they are not considered an expense but a distribution of profits.

Question 3

What is the responsibility of the International Accounting Standards Board?

Accepted Answer

The International Accounting Standards Board (IASB) is primarily responsible for promoting uniform accounting standards among different countries to ensure transparency, accountability, and efficiency in the global financial markets. It does not settle disputes, enforce standards through legal channels, or develop a uniform currency.

Question 4

Certain U.S. accounting standards have been, and will be, amended to aid in the international convergence process. The process of changing these standards usually involves

Accepted Answer

The process of changing U.S. accounting standards to aid in international convergence typically involves evaluating and comparing existing U.S. standards with international standards, and selecting the best option for adoption. This process does not involve a vote of Congress or acceptance by the IRS, and it does not require rejecting all existing standards and starting anew.

Question 5

U.S. companies that have subsidiaries in foreign countries can file their financial statements with the SEC by using?

Accepted Answer

U.S. companies must file their financial statements with the SEC using GAAP, as it is the required accounting standard in the United States.

Question 6

For foreign companies that issue securities in the United States to raise capital, the SEC

Accepted Answer

The answer of For foreign companies that issue securities in...

Question 7

The four major financial statements of a corporation consist of the

Accepted Answer

The four major financial statements of a corporation are the income statement, balance sheet, statement of cash flows, and statement of changes in shareholders' equity. These statements provide a comprehensive overview of a company's financial performance and position.

Question 8

What is the correct presentation of the income statement?

Accepted Answer

Revenues - expenses + gains - losses = Net Income. This is the correct presentation of the income statement because it shows the total amount of revenue earned by the company, minus the total amount of expenses incurred by the company, plus the total amount of gains earned by the company, minus the total amount of losses incurred by the company, which equals the net income of the company.

Question 9

Conversion to IFRS reporting by all U.S. companies would be best accomplished with a transition plan for all of the following reasons except

Accepted Answer

Careful planning should not be used for manipulation of the IFRS for financial benefit. A transition plan should be put in place for other reasons such as ensuring an orderly and cost-effective process, allowing time for convergence efforts, and creating a multi-year plan for implementation.

Question 10

What important topics are discussed in the Management Discussion and Analysis section of the financial statements?

Accepted Answer

The Management Discussion and Analysis (MD&A) section of financial statements covers a wide range of topics including business risk factors, insights into key decisions and future developments, as well as strategic motives. This section is designed to give readers a comprehensive view of the company's performance and strategy from management's perspective.

Question 11

Which statement measures and reports the financial results of a company's performance for a period of time?

Accepted Answer

The income statement measures and reports the financial results of a company's performance over a specific period of time, including revenues, expenses, and net income.

Question 12

What financial statement is considered the cornerstone of financial reporting?

Accepted Answer

The balance sheet is considered the cornerstone of financial reporting because it provides a snapshot of a company's financial condition at a specific point in time, showing assets, liabilities, and shareholders' equity.

Question 13

The FASB Accounting Standards Codification includes six levels or components. Which of the following is not one of those levels?

Accepted Answer

The FASB Accounting Standards Codification includes the levels: Area, Topic, Subtopic, Section, Subsection, and Paragraph. Sub-paragraphs are not a recognized level in the Codification structure.

Question 14

The accounting equations is

Accepted Answer

The correct accounting equation is Assets - Liabilities = Shareholders' Equity, which represents a company's financial position by showing that what it owns (assets) minus what it owes (liabilities) equals the owners' residual interest (shareholders' equity).

Question 15

Which of the following is not a major standard-setting body responsible for the establishment of U.S. and international GAAP Generally Accepted Accounting Principles)?

Accepted Answer

The PCAOB (Public Company Accounting Oversight Board) is not responsible for setting GAAP. It oversees the audits of public companies to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The FASB (Financial Accounting Standards Board) sets the GAAP for the United States, while the IASB (International Accounting Standards Board) issues the IFRS (International Financial Reporting Standards), which are used in many countries around the world. The SEC (Securities and Exchange Commission) has the legal authority to establish financial reporting standards for publicly traded companies, but it largely delegates the responsibility of setting GAAP to the FASB.

Question 16

The agreement in 2002 by the FASB and IASB to develop high quality, compatible accounting standards that could be used by both domestic and cross-border financial reporting was called the

Accepted Answer

The agreement between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) in 2002 to work together to develop compatible accounting standards that could be used for both domestic and cross-border financial reporting is known as the Norwalk Agreement. This was named after the location in Norwalk, Connecticut, where the agreement was made.

Question 17

What is the correct order of presentation for the statement of cash flows?

Accepted Answer

The correct order of presentation for the statement of cash flows is Operating, Investing, Financing. This order is in accordance with generally accepted accounting principles (GAAP) and the International Financial Reporting Standards (IFRS).

Question 18

Which of the following documents includes all of the accounting standards?

Accepted Answer

None of these documents individually includes all of the accounting standards. Regulation S-X outlines the form and content of financial statements required by the SEC, the FASB Conceptual Framework provides an underlying structure for the development of accounting standards, and Statements of Financial Accounting Standards were issued by FASB to provide guidance on specific accounting topics, but have been superseded by the Accounting Standards Codification as the authoritative source of GAAP.

Question 19

Prior to 2009, which of the following types of FASB Pronouncements carried the highest authority within GAAP by establishing the methods and procedures required on specific accounting issues?

Accepted Answer

Statements of Financial Accounting Standards (SFAS) were issued by the Financial Accounting Standards Board (FASB) to provide guidance on specific accounting and financial reporting topics. Prior to 2009, SFAS were considered to have the highest authority within Generally Accepted Accounting Principles (GAAP) in the United States, establishing the methods and procedures required on specific accounting issues.

Question 20

Which of the following statements regarding the requirement to follow U.S. GAAP in financial reporting is true?

Accepted Answer

U.S. GAAP (Generally Accepted Accounting Principles) is a set of accounting standards and principles that are not enforced by law but through professional standards organizations such as the American Institute of Certified Public Accountants (AICPA). The AICPA's Code of Professional Conduct requires its members to follow these standards, thereby enforcing compliance among professionals.

Quiz 1: The Demand for and Supply of Financial Accounting Information