Question 1

Further information about financial data,accounting methods,and financial statements is included in what part of the annual report?

Accepted Answer

The notes to the financial statements typically provide further information about financial data, accounting methods, and financial statements. The balance sheet and summarized financial data provide a summary of financial information, and the unaudited condensed quarterly data only provides information for specific quarters, not necessarily a comprehensive view of the entire year's financial information.

Question 2

Which of the following misstatements would cause the asset turnover ratio to be overstated?

Accepted Answer

The answer of Which of the following misstatements would cause...

Question 3

Which of the following would portray an overly optimistic view of a company's net income?

Accepted Answer

The answer of Which of the following would portray an...

Question 4

Performance-based bonuses can give managers a personal incentive to:

Accepted Answer

Performance-based bonuses can motivate managers to increase sales, decrease expenses, and potentially misrepresent financial data to meet targets and earn bonuses.

Question 5

One of the main reasons that companies release early summaries of financial statements in press releases is:

Accepted Answer

Early summaries of financial statements in press releases make information available to external users in a more timely manner. This allows investors and other stakeholders to get a quick overview of the company's financial performance before the full financial statements are released. This can be important for making investment or business decisions. Additionally, companies still have to conform to GAAP when releasing early summaries of financial statements, so option A is not correct, and there is no evidence to support option B.

Question 6

In which of the following cases a ratio will decrease:

Accepted Answer

A ratio will decrease if the numerator (top number) decreases while the denominator (bottom number) increases, as this results in a smaller value.

Question 7

Creditors use accounting information to serve a contracting role.
BT: Knowledge

Accepted Answer

Creditors use accounting information to assess the financial health of an organization before extending credit. Thus, accounting information plays a crucial role in the contracting relationship between creditors and debtors.

Question 8

Which of the following misstatements would cause the debt-to-assets ratio to be understated?

Accepted Answer

The answer of Which of the following misstatements would cause...

Question 9

A company has assets of $10 million and liabilities of $7 million.Liabilities include $4 million in accounts payable,$2 million in long-term notes payable and $1 million in other non-current liabilities.If a financial web site uses non-current liabilities rather than total liabilities to calculate the company's debt-to-assets ratio,the web site will report a ratio of:

Accepted Answer

Debt-to-assets ratio is calculated by dividing total liabilities by total assets. However, in this case, the financial website is using non-current liabilities instead of total liabilities. Non-current liabilities include long-term notes payable and other non-current liabilities, which add up to $3 million ($2 million + $1 million). So, the ratio would be:
Debt-to-assets ratio = Non-current liabilities / Total assets
Debt-to-assets ratio = $3 million / $10 million
Debt-to-assets ratio = 0.3
Therefore, the correct choice is C with the above-stated explanation.

Question 10

Which of the following sources of information is most likely to contain unreliable information?

Accepted Answer

Investors' discussion on internet chat rooms are often not verified and can be influenced by personal biases and opinions, making them less reliable than the other options.

Question 11

Important public sources of financial information about a company other than its financial statements do not include:

Accepted Answer

Internal management reports are not considered public sources of financial information as they are not disclosed to the general public. The other options are all publicly available sources of financial information about a company.

Question 12

The primary purpose of external financial reporting is to release information that is useful to directors.
BT: Knowledge

Accepted Answer

The primary purpose of external financial reporting is to release information that is useful to stakeholders such as shareholders, investors, creditors, and regulators, not just directors.

Question 13

Which of the following ensures that management and financial decisions are to benefit the shareholders:

Accepted Answer

The Board of Directors is responsible for making decisions that benefit the shareholders as they are elected by the shareholders to oversee the management of the company and to act in their best interests. Corporate management, creditors, and bankers may have their own interests or priorities that do not align with the shareholders'.

Question 14

The asset turnover ratio measures:

Accepted Answer

The asset turnover ratio measures the sales revenue generated by efficient management of assets. It indicates how efficiently a company is using its assets to generate revenue. A higher ratio indicates better efficiency in utilizing assets. Option A and D are incorrect because the asset turnover ratio does not directly measure the profit or the ability to earn profit for shareholders. Option B is incorrect because financing risk is not directly related to the asset turnover ratio.

Question 15

The financial results for a public company are generally first reported in a:

Accepted Answer

The answer of The financial results for a public company...

Question 16

According to the changes in financial reporting which of the following is required to communicate with the external auditors and ensure that they are able to effectively perform their work?

Accepted Answer

The audit committee of the board of directors is responsible for overseeing the financial reporting process, communicating with external auditors, and ensuring they are able to effectively perform their work. This is required under the changes in financial reporting. The board of directors, CEO and corporate officers, and audit committee of the management may also play a role in financial reporting, but they are not specifically responsible for communicating with external auditors.

Question 17

Which of the following misstatements would cause the net profit margin ratio to be overstated?

Accepted Answer

A) Capitalizing costs that should have been expensed would lead to an overstatement of assets and an understatement of expenses, thus overstating the net profit margin ratio.
B) Failing to adjust for amortization in the current period would understated expenses, therefore overstating the net profit margin ratio.
C) Failing to accrue income taxes of the current period would understate expenses, leading to an overstated net profit margin ratio. Therefore, all of the above choices would cause the net profit margin ratio to be overstated.

Question 18

If a publicly traded company is trying to maximize its perceived performance,as reported to decision makers external to the corporation,the company is most likely to understate which of the following on its balance sheet?

Accepted Answer

Understating liabilities on the balance sheet can make the company appear more financially stable and less risky to external decision makers. This can lead to a higher perception of performance and potentially attract more investors. However, this practice is unethical and unlawful as it provides a misleading picture of the company's financial position.

Question 19

In which of the following cases a ratio will increase:

Accepted Answer

If the top number increases and the bottom number stays the same, the ratio will increase. This is because the numerator of the ratio is getting larger while the denominator is staying constant.

Question 20

In addition to examining the company's financial statements and report whether they were presented fairly without any misstatement what else is required of the external auditors by the recent changes in financial reporting?

Accepted Answer

The recent changes in financial reporting require external auditors to not only examine the financial statements but also to review and test the effectiveness of the company's internal controls. This is to ensure that the financial statements are reliable and not affected by any material misstatements or fraud. The other options, reporting misstatements or irregularities to the press, reviewing the effectiveness of the board of directors, and testing the marketing department's effectiveness, are not requirements of external auditors by recent changes in financial reporting.

Quiz 5: Fraud,internal Control,and Cash