Chapter. 5 LearnSmart

Question 1

Who are the major actors in ensuring the integrity of financial statements of a publicly traded company?

Answer 1

• SEC
• PCAOB
• Board of Directors
• Management
• Independent Auditors

Question 2

Who has the responsibility to apply accounting standards when communicating with investors and creditors?

Answer 2

Management

Question 3

Who has the primary responsibility for making sure that a company‘s financial statements follow GAAP?

Answer 3

• chief executive officer (CEO)

- Chief financial officer (CFO)

Question 4

The —— —- ———- Is elected by stockholders and is responsible for ensuring that processes are in place for maintaining The integrity of the company’s accounting records.

Answer 4

Board of directors

Question 5

Voluntary disclosures of financial accounting information, such as press releases, maybe issued…

Answer 5

To guide market expectations.

Question 6

What are the principal components of the financial disclosures in a form 10-K?

Answer 6

•  Financial statements and supplemental data
• select summarized financial data for a 5 year period
• management’s discussion and analysis

Question 7

Public companies file their quarterly reports 9n the SEC’s ________.

Answer 7

Form 10-Q

Question 8

The notes to financial statements may include:

Answer 8

1. Description of the key accounting rules applied in the company’s statements.
2. Additional detail supporting reported numbers.
3. Relevant financial information not disclosed on the statements.

Question 9

US GAAP are…

Answer 9

The accounting rules developed by the FASB for use in the United States.

Question 10

To determine how transactions affect ratios, such as the effect of purchasing land for cash on a company’s current ratio, you need to…

Answer 10

know the journal entry and it’s effect on the ratio’s numerator and denominator and then evaluate the combined effect.

Question 11

Return on Assets (ROA)=

Answer 11

Net Income / Average total assets

Question 12

Earnings per Share (EPS)=

Answer 12

Net Income / average number of common shares

Question 13

What can be found under Cash Flows from Investing Activities?

Answer 13

• purchases of productive assets
• sales of productive assets
• investments in other companies

Question 14

Net Profit Margin is calculated by…

Answer 14

Net Income / Net Sales

Question 15

Gross Profit Percentage=

Answer 15

Gross Profit / Net Sales

• Gross Profit = Net Sales — Cost of Sales

Question 16

The ___________ in the annual report should be reviewed to determine the significant accounting rules used.

Answer 16

Notes or footnotes

Question 17

If a company reports Amortization Expense for the period, it must have _____.

Answer 17

Intangible assets on the balance sheet

Question 18

__________ financial statements report financial statements for the current period and one or more prior periods.

Answer 18

Comparative

Question 19

When determining the effects of a transaction on a financial ratio, the steps include:

Answer 19

1. Journalist the transaction to determine its effect on various accounts.
2. Determine which accounts belong to the financial statement sub totals or totals in the numerator (top) and denominator (bottom).
3. Evaluate the combined effects from step 2 on the ratio.

Question 20

Accumulated amortization is similar…

Answer 20

• Similar to depreciation except it is netted against intangible assets instead of tangible assets.
• a contra-asset account similar to accumulated depreciation.