Principles of Managerial Finance - Quiz 1 Flashcards
The Financial Accounting Standards Board (FASB) is the federal regulatory body that governs the sale and listing of securities.
FALSE
GAAP is the accounting profession’s rule-setting body.
FALSE
Generally accepted accounting principles are authorized by the Financial Accounting
Standards Board (FASB).
TRUE
The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight
Board (PCAOB) which is a not-for-profit corporation that oversees auditors of public
corporations
TRUE
The Sarbanes-Oxley Act of 2002 was passed to eliminate many of the disclosure and conflict of-interest problems of corporations.
TRUE
The Sarbanes-Oxley Act of 2002 established the Private Company Accounting Oversight
Board (PCAOB) which is a for-profit corporation that oversees CEOs of public corporations.
FALSE
Publicly owned corporations with more than $10 million assets and 2,000 or more
stockholders are required by the Securities and Exchange Commission (SEC) to a form known as
a 10-K annually
TRUE
The letter to stockholders is the primary communication from management in an annual
report.
TRUE
Common stock dividends paid to stockholders equal the earnings available for common
stockholders divided by the number of shares of common stock outstanding.
FALSE
The income statement is a financial summary of a firm’s operating results during a specified
period while the balance sheet is a summary statement of a firm’s financial position at a given
point in time.
TRUE
The common stock entry in balance sheet is the par value of common stock.
TRUE
Paid-in capital in excess of par represents the proceeds in excess of par value received from
the original sale of common stock.
TRUE
Earnings per share represents amount earned during the period on each outstanding share of
common stock.
TRUE
Net fixed assets represent the difference between gross fixed assets and the amount of
depreciation expense from the most recent year.
FALSE
Earnings per share results from dividing earnings available for common stockholders by the
number of shares of common stock authorized.
FALSE
Retained earnings represent the cumulative total of all earnings, net of dividends, that have
been retained and reinvested in the firm since its inception.
TRUE
The balance sheet is a statement which balances a firm’s assets (what it owns) against its debt
(what it owes) and its equity (what is provided by owners).
TRUE
The amount paid in by the original purchasers of common stock is shown by two entries in
the firm’s balance sheet—common stock and paid-in capital in excess of par on common stock.
TRUE
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.
TRUE
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.
FALSE
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.
TRUE
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.
FALSE
A U.S. parent company’s foreign retained earnings are not adjusted for currency movements
to reflect each year’s operating profits or losses.
FALSE
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.
TRUE
A firm’s annual stockholders’ report ________.
B) summarizes and documents the firm’s financial activities during the past year
The rule-setting body, which authorizes generally accepted accounting principles is the
________.
B) FASB
Accounting practices and procedures used to prepare financial statements are called
________.
C) GAAP
The federal regulatory body governing the sale and listing of securities is called the
________.
D) SEC
The stockholders’ annual report must include ________.
B) an income statement
The 2002 Sarbanes-Oxley Act was designed to ________.
B) eliminate the many disclosure and conflict-of-interest problems of corporations
The 2002 law that established the Public Company Accounting Oversight Board (PCAOB)
was called ________.
D) the Sarbanes-Oxley Act
The Public Company Accounting Oversight Board (PCAOB) ________.
A) is a not-for-profit corporation that oversees auditors of public corporations
The stockholder’s report includes ________.
D) a statement of retained earnings
Total assets less net fixed assets equals ________.
B) current assets
A(n) ________ provides a financial summary of a firm’s operating results during a specified
period.
A) income statement
Gross profit is ________.
D) sales revenue minus cost of goods sold
Operating profit is ________.
A) gross profit minus operating expenses
Net profit after taxes is ________.
D) EBIT minus interest and taxes
Operating profit is known as ________.
B) earnings before interest and taxes
Earnings available for common stockholders is calculated as net profits ________.
B) after taxes minus preferred dividends
Which of the following is a current liability?
C) notes payable
Which of the following represents a current asset?
C) marketable securities
Which of the following is a fixed asset?
A) land
The net value of fixed assets is also called its ________.
C) book value
Retained earnings on the balance sheet represents the ________.
D) cumulative total of all earnings reinvested in the firm
The ________ represents a summary statement of a firm’s financial position at a given point
in time.
B) balance sheet
The statement of cash flows ________.
C) provides insight into a firm’s operating, investment, and financing cash flows
