Chapter 3. Balance Sheet Flashcards

1
Q
Which of the following are subsequent events that must be disclosed in the notes to the financial statements? 
A) Issuance of debt securities
B) Collections on account
C) Sale of a business
D) Event that affects a loss contingency
A

A) Issuance of debt securities
C) Sale of a business
D) Event that affects a loss contingency

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2
Q

______ Risk is the risk that a company may not effectively manage its business and might impair it ability to earn profits

A

Operational

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3
Q

The financial statement that displays a firm’s financial position on a particular date is the ________

A

Balance Sheet

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4
Q

Which of the following items are included in the professional opinions given in the auditor’s report
A) The accuracy of the financial statements
B) The Fairness of the financial statements
C) The effectiveness of management strategy
D) The effectiveness of internal control

A

B) The Fairness of the financial statements

D) The effectiveness of internal control

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5
Q

Times interest earned =

A

EBIT / interest expense

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6
Q

Acid-Test =

A

Quick Ratio / Current liabilities

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7
Q

Which of the following are included in the summary of significant accounting policies included in the notes to the financial statements
A) Method of recognizing contract revenue
B) Items included in cash and cash equivalents
C) Choice between LIFO and FIFO
D) Supporting calculations for income taxes

A

A) Method of recognizing contract revenue
B) Items included in cash and cash equivalents
C) Choice between LIFO and FIFO

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8
Q

A __________ ___________ is a significant development that occurs after a company’s fiscal year-end but before the financial statements are issued or available to be issued

A

Subsequent event

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9
Q

Which of the following is a subsequent event that must be disclosed in the notes to the financial statements
A) The issuance of debt or equity securities
B) Accounts receivable collected after the balance sheet date but before the issuance of financial statements
C) Inventory purchased after the balance sheet date
D) Investments sold after the balance sheet date

A

A) The issuance of debt or equity securities

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10
Q

What are related-party transactions

A

Transaction between you and company parties

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11
Q

Which of the following are required disclosures for related-party transactions.
A) Name of the related party
B) Amounts Due to or from related parties
C) Nature of the relationship
D) Intentions to continue the relationship with related parties

A

B) Amounts Due to or from related parties

C) Nature of the relationship

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12
Q

The readiness of a company to pay its short-term debts as they come due is referred to as _________ analysis

A

Liquidity

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13
Q

The debt to equity ratio is calculated by

A

Total liabilities / total owners

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14
Q

_________ analysis examines the relationship of items on the financial statements of one year

A

Vertical

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15
Q

Another term for net assets is _________

A

Equity

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16
Q

What is the role of the auditors attest function
A) To provide an opinion on the company’s success
B) To provide an opinion on the company’s future
C) To provide an opinion on managements strategies
D) To provide an opinion on the financial statements

A

D) To provide an opinion on the financial statements

17
Q

The type of analysis that uses ratio analysis or trend analysis of financial statements across multiple years is called ________ analysis

A

horizontal

18
Q

_______ analysis compares financial statements of 2 or more years, whereas ________ analysis examines the relationships between financial statement items of the same year

A

Horizontal, Vertical

19
Q

Which of the following valuation methods are used to display items on the balance sheet
A) Liquidation value
B) Historical cost
C) fair value

A

B) Historical cost

C) fair value

20
Q

Classifying items on the balance sheet as current and non-current assists financial statement users in assessing what aspects about a company
A) Profitability and future earnings
B) Earnings and marketability of the stock
C) Potential cash flows
D) Solvency and Liquidity

A

D) Solvency and Liquidity

21
Q

A common method of analysis is to express a relationship between the two financial statement items, such as net income divided by sales, and compare this relationship with previous years. This comparison is referred to as ______ analysis

A

Vertical

22
Q
Which of the following items are included in the numerator for the current ratio but are excluded from the numerator of the quick or acid-test ratio
A) Account Receivable
B) Prepaid Assets
C) Inventory
D) Short-term trading securities
A

B) Prepaid Assets

C) Inventory

23
Q

A company borrows funds for a project. If the interest rate charged for the borrowed funds is less than the rate of return on the project, this is referred to as financial ________

A

Leverage

24
Q

Favorable financial leverage occurs when a company
A) pays more in dividends than in interest
B) pays more in interest expense than it pays in dividends.
C) earns more interest income than it pays in interest expense
D) earns a return on borrowed funds that exceeds the cost of borrowing

A

D) earns a return on borrowed funds that exceeds the cost of borrowing

25
Q

A _______ is an unintentional mistake in the financial statements, whereas an ________ is an intentional distortion of the financial statements

A

error, irregularity

26
Q

An unqualified audit opinion represents which of the following.
A) The financial statements are qualified by the auditor to have certain errors
B) The financial statements are free from errors and irregularities
C) The financial statements are fairly presented in conformity with generally accepted accounting principles
D) The financial statements are certified to be accurate

A

C) The financial statements are fairly presented in conformity with generally accepted accounting principles

27
Q

When a receivable is supported by a formal agreement or note that specifies payment terms, it is called _________

A

Note receivable

28
Q

What is the criterion to determine if an investment qualifies as a cash equivalent
A) it is an investment in stock of another company that is held for active trading
B) it is a marketable security being held for sale
C) it is a highly liquid investment with a maturity date of 2 months or less from date of purchase
D) it is a short-term investment with a maturity date of 12 months or less

A

C) it is a highly liquid investment with a maturity date of 2 months or less from date of purchase

29
Q

Investments in debt and equity securities are classified into which the three categories
A) operating, investing, and financing securities
B) Short-term, long-term and sinking fund securities
C) financial assets, financial liabilities, and equity securities
D) held-to-maturity, trading, and available-for-sale securities

A

D) held-to-maturity, trading, and available-for-sale securities

30
Q
Which of the following will be given if an auditory believes that insufficient evidence has bee gathered to successfully express an opinion on the financial statements
A) Qualified report
B) adverse report
C) disclaimer
D) unqualified report
A

C) disclaimer

31
Q
Which of the following opinions is used when an auditor has an exception to the standard opinion but there is not sufficient seriousness to invalidate the financial statements as a whole
A) unqualified
B) disclaimer
C) qualified
D) adverse
A

C) qualified

32
Q

What situation would require an auditor to use an explanatory paragraph in the auditors report
A) lack of consistency due to a change in accounting principle
B) material mistakes in the financial statements
C) A loss that is not material in amount but is remote
D) a finding that the financial statements are not fairly presented

A

A) lack of consistency due to a change in accounting principle

33
Q
Which of the following opinions is necessary when the auditor finds exceptions that are so material that the financial statements may be misleading
A) disclaimer
B) adverse
C) qualified
D) unqualified
A

B) adverse

34
Q
Which of the following items requires supplemental disclosures in the notes to the financial statements
A) items that are immaterial
B) pension plans
C) leases
D) long-term debt
A

B) pension plans
C) leases
D) long-term debt

35
Q

The higher the debt to equity ratio is for a company then the ________ the risk of insolvency is for the company

A

Higher

36
Q
Which document is required to provide information on executive and director compensation
A) income statement
B) Balance sheet
C) proxy statement
D) notes to the financial statements
A

C) proxy statement

37
Q

The purpose of comparative financial statements is to allow users to
A) analyze curent year date
B) analyze relationships between financial statements
B) Detect and predict trends

A

B) Detect and predict trends

38
Q

What is the purpose of an auditor report
A) To provide users with assurance as to the accuracy of the financial statements
B) To provide users with a certification that the financial statements are free from error
C) To provide users witha professional opinion regarding the fairness of the financial statements

A

C) To provide users witha professional opinion regarding the fairness of the financial statements