CH5

Question 1

Which of the following tasks does the Financial Accounting Standards Board (FASB) perform?

Answer 1

The development of generally accepted accounting principles.

Question 2

Which of the following are primarily responsible for the information provided in a company’s financial statements?

Answer 2

The chief executive officer (CEO) and the chief financial officer (CFO).

Question 3

Which of the following are the responsibility of the chief executive officer (CEO) and the chief financial officer (CFO)?

Answer 3

• Ensuring the accuracy and completeness of all reports provided to the Securities & Exchange Commission (SEC).
• The certification of the strength of the internal control system.
• The disclosure to the audit committee of any frauds they are aware of.

Question 4

Which of the following is the truths about the audit committee of the board of directors?

Answer 4

• They meet with the auditors to discuss management’s compliance with their financial reporting responsibilities.
• They are responsible for ensuring that processes are in place for maintaining the integrity of the financial statement preparation and reporting.
• They are responsible for hiring the company’s external auditors.

Question 5

Which of the following is an objective of the external audit of a company’s financial statements?

Answer 5

To provide credibility that the financial statements are fairly presented.

Question 6

Which of the following is not included as a primary part of the financial disclosure in Form 10-K?

Answer 6

• Summarized financial data for a 5-year period.
• Business operations and strategy.
• Four basic financial statements.

Question 7

Net income (equation)

Answer 7

(total net income/sale)*100

Question 8

Gross profit = X - Y or A+B (what is x and y)

Answer 8

Gross profit = Net Sales - Cost of sales

Gross profit =operating expenses + income from operations

Question 9

Gross profit percentage (equation)

Answer 9

Gross profit percentage = Gross profit/net sale

Question 10

ROA (return on assets equation)

Answer 10

Return on assets = Net Income/ Avg total asset

Question 11

Net profit margin(equation)

Answer 11

Net profit marginal= Net income/ net sale

Question 12

The Statement of Comprehensive Income includes items in which order?

Answer 12

Net income, Other comprehensive income items, Comprehensive income.

Question 13

Components of other comprehensive income can be reported in combination with the:

Answer 13

Income statement

Question 14

retained earnings

Answer 14

credit balance in its retained earnings account + net income - declared dividends

Question 15

Which of the following best describes operating income?

Answer 15

It is net sales minus cost of goods sold and operating expenses.

Question 16

Income before taxes (equation)

Answer 16

Income before taxes = net sales - cost of goods sold - operating expenses - interest expense +gain on sale

Question 17

Nonoperating income (expense) =

Answer 17

Nonoperating income (expense) = the total of interest expense + loss from the sale of investments

Question 18

Interest income is reported as nonoperating revenue. would not be used to calculate income from operations

Answer 18

-

Question 19

The earnings per share ($23.33) is net income ($280,000) divided by average number of shares of common stock outstanding during the year ([10,000 + 14,000] ÷ 2 = 12,000).

Answer 19

-

Question 20

Accumulated depreciation is a balance sheet account.

Answer 20

-

Question 21

the following statements regarding international financial reporting standards (IFRS) is true

Answer 21

• Common stock is titled as share capital.
• Property, plant, and equipment can be reported on the balance sheet at either fair value or historical cost.
• Development costs are capitalized.
• Paid-in capital is titled share premium.
• Cash payments for interest are reported on the cash flow statement as either an operating or financing cash flow.
• Reversal of inventory write-downs is required.

Question 22

The total asset turnover ratio (equation)

Answer 22

The total asset turnover ratio = net sales / average total assets

Question 23

Income from operations

Answer 23

Income from operations = net sales - cost of goods sold -operating expenses