Question 1

Which one of the following statements is true?

Accepted Answer

Managerial accounting focuses on providing information to managers for use in planning and controlling operations and making decisions.

Question 2

Which of the following statements is true?

Accepted Answer

The SEC has enacted rules to help ensure financial literacy among audit committee members through the Sarbanes-Oxley Act. A is false because shopping for favorable audit opinions is considered unethical and may be a violation of the auditor's independence. B is false because the SEC does require formal reporting of auditor switches through Form 8-K. D is false because auditors have legal liability to those who rely on the financial statements.

Question 3

A statement that financial statement information "is the responsibility of the company" issuing the statements is found in the

Accepted Answer

The statement that financial statement information "is the responsibility of the company" issuing the statements is typically found in the management letter. This is a section of the annual report or other financial documents where management acknowledges its responsibility for preparing the financial statements and ensuring they are accurate and comply with accounting standards.

Question 4

Which one of the following is an equity investor?

Accepted Answer

A person who purchases common stock of a corporation is an equity investor because they own a portion of the company and are entitled to a share of its profits and losses.

Question 5

A debt investor is

Accepted Answer

A debt investor is a person who provides money to a company with the expectation that it will be paid back with interest. This is usually done through the purchase of bonds or other debt securities issued by the company.

Question 6

Equity investments are bought and sold

Accepted Answer

Equity investments are traded in stock exchanges such as NASDAQ. Independent auditors do not buy or sell equity investments, and the SEC is a regulatory body for securities, not a marketplace for buying and selling them. The statement "only on the first day of each year" is incorrect, as equity investments can be bought and sold on any trading day.

Question 7

GAAP is an acronym for

Accepted Answer

GAAP stands for Generally Accepted Accounting Principles, which refer to a set of standard guidelines and principles that companies use to prepare and present their financial statements. These guidelines ensure consistency, transparency, and accuracy in financial reporting, allowing investors and other stakeholders to make informed decisions based on the company's financial performance. Option A, B, and D are incorrect because they do not accurately reflect what GAAP stands for.

Question 8

As used in accounting, SEC is an abbreviation for

Accepted Answer

SEC stands for Securities and Exchange Commission, which is a U.S. government agency responsible for regulating and overseeing the securities industry, enforcing securities laws, and protecting investors.

Question 9

CPA is an abbreviation for

Accepted Answer

CPA stands for Certified Public Accountant, which is a professional accounting designation recognized in the United States and other countries. This certification is obtained through rigorous training, education, and testing, and is required to perform certain accounting and financial services. Options B, C, and D are not accurate descriptions of what CPA stands for.

Question 10

The board of directors

Accepted Answer

The board of directors is responsible for making important corporate decisions such as hiring and firing management, setting company policy, and determining the overall direction of the company. They do not provide money to the company nor are they responsible for daily accounting and human resources tasks. While they may consider future profits, their primary responsibility is the long-term success of the company.

Question 11

An explanation about the assumptions, estimates, and choices of alternative accounting methods used in the financial statements is found in the

Accepted Answer

The assumptions, estimates, and choices of alternative accounting methods used in the financial statements are typically disclosed in the footnotes to the financial statements. This information is important for users of the financial statements as it helps to provide context and understanding for the numbers presented in the primary financial statements. The auditor's report provides an opinion on the financial statements as a whole, but does not typically include detailed explanations of accounting methods and estimates. The statement of shareholders' equity shows changes in shareholders' equity over time, but does not typically provide information about accounting methods. The president's letter to the shareholders may provide high-level commentary on the company's performance, but is unlikely to delve into detailed explanations of accounting methods and estimates.

Question 12

A bank that loans money to a company is called

Accepted Answer

A creditor is a person or entity who lends money to another party. Therefore, a bank that loans money to a company is a creditor. A supplier provides goods or services to a company, an equity investor invests money in a company in exchange for ownership, and a shareholder owns a portion of the company's stock.

Question 13

As a potential creditor, you are interested in a company's ability to pay loan interest and principal as they come due. Which of the following would be of the greatest interest to you in your analysis?

Accepted Answer

As a potential creditor, your main concern is the company's ability to pay off its obligations. The statement of cash flows provides information on the company's cash inflows and outflows, which can help you determine if they have enough cash to meet their debt obligations. The statement of shareholders' equity and income statement provide important information but may not be as relevant to a creditor's analysis. The Statement of Financial Accounting Standards is not directly related to a company's ability to pay off its debts.

Question 14

Debt investments

Accepted Answer

Debt investments may be secured with collateral, which gives the investor some level of protection if the borrower defaults on the loan. The other options are incorrect because dividends are typically paid to shareholders of equity investments, debt investments do not appear on the income statement, and debt investments are obligated to make regular interest payments and repayment of the principal, rather than returning payments at the discretion of the board of directors.

Question 15

Public stock exchanges

Accepted Answer

Public stock exchanges provide a forum for buying and selling of equity interests in other companies.

Question 16

The advantage to the user of financial accounting statements that are audited by independent certified public accountants is assurance that the

Accepted Answer

Independent certified public accountants provide assurance that financial accounting statements are produced in accordance with generally accepted accounting principles (GAAP), which ensures the reliability and consistency of financial reporting. However, auditing does not provide assurance about future solvency, profitability, tax payments, or other aspects of a company's operations.

Question 17

Annual reports of public companies

Accepted Answer

The answer of Annual reports of public companies
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Question 18

A statement that "the financial statements were prepared in accordance with generally accepted accounting principles" is found in the

Accepted Answer

The statement that "the financial statements were prepared in accordance with generally accepted accounting principles" is typically found in the auditor's report. This statement indicates that the financial statements have been prepared according to standard accounting practices and guidelines.

Question 19

The independence of the auditor is subject to question when the

Accepted Answer

The answer of The independence of the auditor is subject...

Question 20

An equity investor is

Accepted Answer

An equity investor provides money to a company, but unlike a creditor, they are not expecting to be paid back with interest. Instead, they become a part-owner of the company and may be entitled to receive periodic cash payments in the form of dividends. Therefore, option D is the best choice.

Quiz 1: Financial Accounting and Its Economic Context