Question 1

Activities between affiliated entities such as subsidiaries must be disclosed in the financial statements of a corporation as

Accepted Answer

Related party transactions include activities between affiliated entities such as subsidiaries, and these must be disclosed in the financial statements to ensure transparency and provide a complete view of the company's financial dealings.

Question 2

Additional paid-in capital represents

Accepted Answer

Additional paid-in capital represents the amount investors have paid for shares above their nominal par value during public offerings or other forms of equity issuance. It does not relate to earnings, treasury stock, or the distinction between contributed and earned capital.

Question 3

Time-series analysis is most closely associated with

Accepted Answer

The answer of Time-series analysis is most closely associated with
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Question 4

A component of equity that arises when a parent company owns a majority of the common shares of a subsidiary company is known as

Accepted Answer

Noncontrolling interest represents the portion of equity in a subsidiary not attributable to the parent company, even when the parent owns a majority of the shares.

Question 5

The SEC requires disclosure of quarterly high and low market prices for

Accepted Answer

The SEC requires companies to disclose the quarterly high and low market prices for the past two years in their financial reports.

Question 6

Which of the following is not a component of contributed capital?

Accepted Answer

Contributed capital refers to the capital that is contributed to a corporation by its shareholders through the purchase of stock directly from the company, including preferred stock and additional paid-in capital. Treasury stock represents the shares that a company has repurchased from its shareholders and does not represent contributed capital. Earned capital, on the other hand, is generated from the company's operations and profits, not from contributions by shareholders, making it the correct answer.

Question 7

All of the following are examples of subsequent events that would be disclosed in the footnotes to the financial statements except

Accepted Answer

The answer of All of the following are examples of...

Question 8

On the balance sheet, treasury stock is presented as a

Accepted Answer

Treasury stock is presented as a contra shareholders' equity account on the balance sheet. This means it is subtracted from total shareholders' equity because it represents shares that the company has repurchased and holds, reducing the amount of equity attributable to shareholders.

Question 9

Cross-sectional analysis is most closely associated with

Accepted Answer

Cross-sectional analysis is most closely associated with intercompany comparisons, where financial metrics of one company are compared with those of others in the same industry at a specific point in time.

Question 10

In preparing a statement of changes in shareholders' equity, the company includes land given to a shareholder as a dividend. This transaction is included in the statement because it represents

Accepted Answer

The transaction represents a distribution to a shareholder that decreases equity. When a company gives land or any other asset as a dividend to shareholders, it is distributing its assets to them, which reduces the company's equity.

Question 11

Distributions to owners include all of the following except

Accepted Answer

Noncontrolling interests represent the portion of equity in a subsidiary not attributable to the parent company, and are not considered distributions to owners.

Question 12

Most long-term liabilities are reported on the balance sheet at their

Accepted Answer

Most long-term liabilities are reported on the balance sheet at their present value, which is the current value of future payments discounted at the market rate of interest.

Question 13

A negative balance for retained earnings due to cumulative net losses is called an)

Accepted Answer

A deficit in retained earnings occurs when a company has accumulated more losses than profits over time, leading to a negative balance in its retained earnings account. This is commonly referred to as a deficit.

Question 14

A subsequent event is an event that occurs

Accepted Answer

Subsequent events are those events that occur between the end of the accounting period and the date the annual report is issued. They can affect the financial statements if they provide additional information about conditions that existed at the date of the balance sheet.

Question 15

A deficit occurs when a company's

Accepted Answer

A deficit occurs when a company's cumulative dividends and losses exceed cumulative net income. In other words, the company has a negative retained earnings balance. Choice A is not correct because retained earnings are a component of stockholders' equity, not common stock. Choice B is not correct because comprehensive income includes both net income and other comprehensive income, and does not directly affect retained earnings. Choice D is not correct because assets minus liabilities is equal to stockholders' equity, which includes retained earnings, but does not indicate if a deficit exists.

Question 16

A reader of a set of financial statements would expect to be able to find in the statement of changes in shareholders' equity

Accepted Answer

The statement of changes in shareholders' equity includes information on increases from other comprehensive income, among other changes affecting shareholders' equity. It does not directly report on total assets, total liabilities, or net income, as these are covered in the balance sheet and income statement, respectively.

Question 17

Which of the following is included in shareholders' equity?

Accepted Answer

Accumulated other comprehensive income is included in shareholders' equity. It represents certain gains and losses that are not included in net income, reflecting changes in equity from non-owner sources.

Question 18

A reader might find information about gain contingencies in an annual report by examining

Accepted Answer

Footnote disclosures are typically where companies will provide information about gain contingencies, which refer to potential gains that may arise from future events such as lawsuits or insurance claims. This information is often disclosed in the footnotes because it may not be reflected on the balance sheet or income statement. A contingent account receivable, accrued revenue, or deferred revenue may not necessarily relate to gain contingencies.

Question 19

GAAP requires that all derivative financial instruments be reported at their

Accepted Answer

GAAP requires that all derivative financial instruments be reported at their fair value on the balance sheet. This means that any changes in the value of the derivative must be recognized in the financial statements as gains or losses in the period they occur. This requirement ensures that the financial statements provide investors and other users with accurate and relevant information about the company's financial position and performance.

Question 20

Which of the following is not a component of shareholders' equity?

Accepted Answer

Residual capital is not a standard term used to describe a component of shareholders' equity. Shareholders' equity typically includes noncontrolling interest, earned capital (retained earnings), and contributed capital (capital stock).

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