Question 1

The amount paid in by the original purchasers of common stock is shown by two entries in the firm's balance sheet-common stock and paid-in capital in excess of par on common stock.

Accepted Answer

This is true. Common stock represents the initial investment made by shareholders, while paid-in capital in excess of par on common stock represents any amount paid by shareholders above the par value of the stock.

Question 2

Common stock dividends paid to stockholders is equal to the earnings available for common stockholders divided by the number of shares of common stock outstanding.

Accepted Answer

Common stock dividends paid to stockholders is not necessarily equal to the earnings available for common stockholders divided by the number of shares of common stock outstanding. The board of directors determines the amount of dividend paid to common stockholders, which may or may not be equal to the earnings available.

Question 3

Publicly owned corporations are those which are financed by the proceeds from the treasury securities.

Accepted Answer

Publicly owned corporations are those which have publicly traded stocks and are owned by shareholders, not the government. The financing for such corporations comes from the sale of stocks to investors, not treasury securities.

Question 4

GAAP is the accounting profession's rule-setting body.

Accepted Answer

GAAP (Generally Accepted Accounting Principles) is a collection of commonly-followed accounting rules and standards for financial reporting. The rule-setting bodies are the Financial Accounting Standards Board (FASB) in the United States and the International Accounting Standards Board (IASB) for International Financial Reporting Standards (IFRS).

Question 5

The income statement is a financial summary of a firm's operating results during a specified period while the balance sheet is a summary statement of a firm's financial position at a given point in time.

Accepted Answer

The income statement shows a firm's revenues and expenses over a specific period, often a quarter or year, while the balance sheet shows the firm's assets, liabilities, and equity at a specific point in time, typically at the end of a quarter or year.

Question 6

The Financial Accounting Standards Board (FASB)is the federal regulatory body that governs the sale and listing of securities.

Accepted Answer

The Financial Accounting Standards Board (FASB) is not responsible for governing the sale and listing of securities. That responsibility falls under the jurisdiction of the U.S. Securities and Exchange Commission (SEC). FASB's role is to establish and improve accounting standards used by companies when preparing financial statements.

Question 7

Generally accepted accounting principles are authorized by the Financial Accounting Standards Board (FASB).

Accepted Answer

Generally accepted accounting principles (GAAP) are authorized and regulated by the Financial Accounting Standards Board (FASB).

Question 8

Paid-in capital in excess of par represents a firm's book value received from the original sale of common stock.

Accepted Answer

Paid-in capital in excess of par represents the amount received from the sale of common stock that is above the par value of the shares, not the firm's book value. The firm's book value includes all equity components, not just the excess over par from stock sales.

Question 9

Retained earnings represent the cumulative total of all earnings,net of dividends,that have been retained and reinvested in the firm since its inception.

Accepted Answer

Retained earnings are the total of all earnings that have not been paid out as dividends and have been used to reinvest in the company.

Question 10

The McCain-Feingold Act of 2002 was passed to eliminate many of the disclosure and conflict-of-interest problems of corporations.

Accepted Answer

The McCain-Feingold Act, officially known as the Bipartisan Campaign Reform Act of 2002, was primarily aimed at regulating the financing of political campaigns, including limiting the use of soft money and regulating the airing of political ads, rather than addressing corporate disclosure and conflict-of-interest issues directly.

Question 11

The balance sheet is a statement which balances a firm's assets (what it owns)against its debt (what it owes)or its equity (what is provided by owners).

Accepted Answer

The statement accurately describes the purpose and content of a balance sheet.

Question 12

Earnings per share represents amount earned during the period on each outstanding share of common stock.

Accepted Answer

Earnings per share is calculated by dividing the company's net income by the total number of outstanding common shares. It represents the amount earned on each share of common stock during the period.

Question 13

Publicly owned corporations with more than $5 million assets are required by the Securities and Exchange Commission (SEC)and individual state securities commissions to provide their stockholders with an annual stockholders' report.

Accepted Answer

Publicly owned corporations with more than $5 million assets are indeed required by the SEC and state securities commissions to give stockholders an annual stockholders' report.

Question 14

The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight Board (PCAOB)which is a not-for-profit corporation that oversees auditors of public corporations.

Accepted Answer

The statement is correct. The Sarbanes-Oxley Act of 2002 created the PCAOB to regulate and oversee the audits of public companies in order to protect investors and ensure the integrity of financial reporting.

Question 15

Earnings per share results from dividing earnings available for common stockholders by the number of shares of common stock authorized.

Accepted Answer

Earnings per share (EPS) is calculated by dividing the earnings available for common stockholders by the number of shares of common stock outstanding, not the number authorized.

Question 16

Net fixed assets represent the difference between gross fixed assets and accumulated depreciation of fixed assets.

Accepted Answer

Net fixed assets is calculated by deducting the accumulated depreciation from the gross fixed assets.

Question 17

The Sarbanes-Oxley Act of 2002 was passed to eliminate many of the disclosure and conflict-of-interest problems of corporations.

Accepted Answer

The Sarbanes-Oxley Act of 2002 was indeed passed to address issues related to corporate disclosures and conflicts of interest. It introduced new regulations and requirements regarding financial reporting and accountability in order to restore public trust in corporate America after a series of high-profile scandals.

Question 18

The common stock entry in balance sheet is the par value of common stock.

Accepted Answer

The common stock entry on a balance sheet represents the par value of all issued shares of common stock, which is a nominal value assigned to the shares.

Question 19

The Sarbanes-Oxley Act of 2002 established the Private Company Accounting Oversight Board (PCAOB)which is a for-profit corporation that oversees CEOs of public corporations.

Accepted Answer

The PCAOB was established to oversee audit firms that audit public companies, not the CEOs of public corporations. It is not a for-profit corporation but an independent non-profit organization.

Question 20

The president's letter,the first component of the stockholders' report,is the primary communication from management to a firm's employees.

Accepted Answer

The president's letter, the first component of the stockholders' report, is the primary communication from management to a firm's stockholders, not employees.

Quiz 3: Financial Statements and Ratio Analysis