Question 1

A U.S.parent company's foreign retained earnings are not adjusted for currency movements to reflect each year's operating profits or losses.

Accepted Answer

U.S. parent companies must adjust their foreign subsidiaries' retained earnings for currency movements to accurately reflect each year's operating profits or losses in their consolidated financial statements, according to U.S. GAAP and IFRS. This ensures that the financial statements present a true and fair view of the company's financial position.

Question 2

The 2002 law that established the Public Company Accounting Oversight Board (PCAOB)was called ________.
A) the McCain-Feingold Act
B) the Harkins-Oxley Act
C) the Sarbanes-Harkins Act
D) the Sarbanes-Oxley Act

Accepted Answer

The law that established the PCAOB in 2002 is known as the Sarbanes-Oxley Act, also known as SOX. Option A (McCain-Feingold Act) is the Bipartisan Campaign Reform Act of 2002, which was aimed at regulating campaign financing. Option B (Harkins-Oxley Act) and Option C (Sarbanes-Harkins Act) are both incorrect as those names do not exist.

Question 3

The stockholder's report includes ________.
A) an estimated interest cost report
B) an estimated dividend report
C) a break-even sales report
D) a statement of retained earnings

Accepted Answer

A stockholder's report typically includes a statement of retained earnings, which shows the amount of earnings that have been retained in the company rather than paid out as dividends. This statement is important for investors to track the company's overall financial health and growth potential. Option A and B are not typically included in a stockholder's report, while break-even sales report (option C) is more relevant to internal management reports.

Question 4

A firm's annual stockholders' report ________.
A) is only accessible to the shareholders of the firm
B) summarizes and documents the firm's financial activities during the past year
C) documents the list of all investors who bought the firm's shares during the past year
D) summarizes and documents the firm's financial plan and budgets during the past year

Accepted Answer

A firm's annual stockholders' report summarizes and documents the firm's financial activities during the past year, including financial statements, auditor's report, and management's discussion and analysis. It is accessible to all shareholders and provides important information about the firm's performance. The report does not document the list of investors or financial plans and budgets.

Question 5

Total assets less net fixed assets equals ________.
A) gross assets
B) current assets
C) depreciation
D) liabilities and equity

Accepted Answer

Total assets less net fixed assets equals current assets, as net fixed assets are long-term assets that are not easily converted into cash. Therefore, subtracting net fixed assets from total assets gives us the current assets.

Question 6

The rule-setting body,which authorizes generally accepted accounting principles is the ________.
A) IFRS
B) FASB
C) SEC
D) Federal Reserve System

Accepted Answer

FASB (Financial Accounting Standards Board) is the rule-setting body that authorizes generally accepted accounting principles in the United States. IFRS (International Financial Reporting Standards) is a set of accounting standards used internationally, but not in the United States. SEC (Securities and Exchange Commission) is a regulatory agency that oversees the securities industry, including financial reporting by publicly traded companies. The Federal Reserve System is the central banking system of the United States and does not have a direct role in setting accounting principles.

Question 7

Operating profit is ________.
A) gross profit minus operating expenses
B) sales revenue minus cost of goods sold
C) earnings before depreciation and taxes
D) sales revenue minus depreciation expense

Accepted Answer

Operating profit is the profit earned after deducting operating expenses (such as rent, salaries, and utilities) from the gross profit (sales revenue minus cost of goods sold).

Question 8

The federal regulatory body governing the sale and listing of securities is called the ________.
A) IRS
B) FASB
C) GAAP
D) SEC

Accepted Answer

The Securities and Exchange Commission (SEC) is the federal regulatory agency that oversees the sale and listing of securities to ensure compliance with relevant laws and regulations. The Internal Revenue Service (IRS) is responsible for collecting taxes and enforcing tax laws, while the Financial Accounting Standards Board (FASB) is a private organization that sets accounting standards. GAAP (Generally Accepted Accounting Principles) refers to the set of accounting principles and guidelines that companies use to prepare financial statements.

Question 9

The original price per share received by the firm on a single issue of common stock is equal to the sum of the common stock and paid-in capital in excess of par accounts divided by the number of shares outstanding.

Accepted Answer

This equation is known as the "original issue price" formula and is used to calculate the price at which a company initially sold its common stock to investors.

Question 10

The statement of cash flows reconciles the net income earned during a given year,and any cash dividends paid,with the change in retained earnings between the start and end of that year.

Accepted Answer

The statement of cash flows reconciles the changes in cash and cash equivalents during a given year, not retained earnings.

Question 11

Accounting practices and procedures used to prepare financial statements are called ________.
A) SEC
B) IFRS
C) GAAP
D) IRB

Accepted Answer

GAAP (Generally Accepted Accounting Principles) are the accounting practices and procedures that are commonly used to prepare financial statements in the United States. Option A refers to the Securities and Exchange Commission, which is a federal agency responsible for regulating securities markets. Option B refers to International Financial Reporting Standards, which are accounting standards used in many countries outside of the United States. Option D does not have any relevance to accounting practices and procedures.

Question 12

The statement of cash flows provides insight into a firm's operating,investment,and financing cash flows and reconciles them with changes in its cash and marketable securities during the period of concern.

Accepted Answer

The statement of cash flows provides a breakdown of a company's cash inflows and outflows from its operating, investment, and financing activities, and reconciles them with changes in its cash and marketable securities balance during the period being reported on.

Question 13

Net profit after taxes is ________.
A) gross profits minus operating expenses
B) sales revenue minus cost of goods sold
C) EBITDA minus interest
D) EBIT minus interest and taxes

Accepted Answer

Net profit after taxes is the amount of profit a company has left over after deducting all of its expenses including interest and taxes (EBIT minus interest and taxes). Option A is incorrect because it refers to gross profit, which does not account for operating expenses. Option B is incorrect because it refers to gross margin. Option C refers to EBITDA, which excludes interest and taxes.

Question 14

A(n)________ provides a financial summary of a firm's operating results during a specified period.
A) income statement
B) balance sheet
C) statement of cash flows
D) statement of retained earnings

Accepted Answer

An income statement, also known as a profit and loss statement or P&L, provides a summary of a company's revenues and expenses over a specific period of time, such as a quarter or a year. It shows whether the company made a profit or a loss during that period.

Question 15

The Financial Accounting Standards Board (FASB)Standard No.52 mandates that U.S.-based companies translate their foreign-currency-denominated assets and liabilities into dollars using the current rate (translation)method.

Accepted Answer

This statement is true. FASB Standard No.52 requires U.S.-based companies to use the current rate (translation) method to translate their foreign-currency-denominated assets and liabilities into dollars.

Question 16

The stockholders' annual report must include ________.
A) common-size financial statements
B) an income statement
C) an advance tax statement
D) the margin of safety report

Accepted Answer

The stockholders' annual report must include an income statement, as it provides essential information regarding the company's profitability for the year. Common-size financial statements, as well as margin of safety reports, may be included in the report for additional transparency but are not required. An advance tax statement is not typically included in the stockholders' annual report.

Question 17

A U.S.parent company's foreign equity accounts are translated into dollars using the historical rate or average rate based on the company's discretion.

Accepted Answer

A U.S. parent company's foreign equity accounts are translated using the historical exchange rate, not at the company's discretion between historical or average rates.

Question 18

Gross profit is ________.
A) operating profits minus depreciation
B) operating profits minus cost of goods sold
C) sales revenue minus operating expenses
D) sales revenue minus cost of goods sold

Accepted Answer

Gross profit is calculated by subtracting the cost of goods sold from sales revenue. It represents the amount of revenue that exceeds the direct costs of producing the goods or services sold.

Question 19

The 2002 Sarbanes-Oxley Act was designed to ________.
A) limit the compensation that could be paid to corporate CEOs
B) eliminate the many disclosure and conflict-of-interest problems of corporations
C) provide uniform international accounting standards
D) provide the guidelines to minimize the tax

Accepted Answer

The 2002 Sarbanes-Oxley Act was passed to eliminate many of the disclosure and conflict-of-interest problems of corporations. The act requires greater financial disclosure, more independent audit committees, and increased criminal penalties for executives who engage in fraud. It was designed to improve corporate governance and restore investor confidence in the wake of accounting scandals such as Enron and WorldCom. The act did not deal with CEO compensation, international accounting standards, or tax guidelines.

Question 20

The Public Company Accounting Oversight Board (PCAOB)________.
A) is a not-for-profit corporation that oversees auditors of public corporations
B) is a not-for-profit corporation that oversees managers of public corporations
C) is a for-profit corporation that oversees auditors of public corporations
D) is a for-profit corporation that oversees managers of public corporations

Accepted Answer

The PCAOB is a not-for-profit corporation that oversees auditors of public corporations. It was created by the Sarbanes-Oxley Act of 2002 to protect the interests of investors and further the public interest in the preparation of informative, true, and fair audit reports.

Quiz 3: Financial Statements and Ratio Analysis

A U.S.parent company's foreign retained earnings are not adjusted for currency movements to reflect each year's operating profits or losses.

The 2002 law that established the Public Company Accounting Oversight Board (PCAOB) was called ________.

The stockholder's report includes ________.

A firm's annual stockholders' report ________.

Total assets less net fixed assets equals ________.

The rule-setting body,which authorizes generally accepted accounting principles is the ________.

Operating profit is ________.

The federal regulatory body governing the sale and listing of securities is called the ________.

The original price per share received by the firm on a single issue of common stock is equal to the sum of the common stock and paid-in capital in excess of par accounts divided by the number of shares outstanding.

The statement of cash flows reconciles the net income earned during a given year,and any cash dividends paid,with the change in retained earnings between the start and end of that year.

Accounting practices and procedures used to prepare financial statements are called ________.

The statement of cash flows provides insight into a firm's operating,investment,and financing cash flows and reconciles them with changes in its cash and marketable securities during the period of concern.

Net profit after taxes is ________.

A(n) ________ provides a financial summary of a firm's operating results during a specified period.

The Financial Accounting Standards Board (FASB)Standard No.52 mandates that U.S.-based companies translate their foreign-currency-denominated assets and liabilities into dollars using the current rate (translation)method.

The stockholders' annual report must include ________.

A U.S.parent company's foreign equity accounts are translated into dollars using the historical rate or average rate based on the company's discretion.

Gross profit is ________.

The 2002 Sarbanes-Oxley Act was designed to ________.

The Public Company Accounting Oversight Board (PCAOB) ________.