Finance 320 Exam 1 WVU

Which of the following statements is correct?

A. Liabilities are future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

B. Stockholders’ Equity includes the residual interest in the net assets of an entity that remains after deducting short-term liabilities.

C. Assets are probable future economic benefits to be obtained or control by a particular entity as a result of future transactions or events.

Liabilities are future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

Which of the following is true with regards to the footnotes included in financial statements?
I. They include detailed information and analysis on the major income statement and balance sheet items.
II. They are not required under U.S. GAPP
III. They are used to cite the sources of data used in forecasts.

I. They include detailed information and analysis on the major income statement and balance sheet items.

Which component is not likely to be included in the statement of stockholder’s equity?
A. Retained earnings
B. Preferred shares
C. Total assets

Total assets

Which of the following items would not be found on the income statement
A. Earnings Before Interest and Taxes
B. Goodwill

C. Interest Expense

Goodwill

Which of the following sources of financial information about the first is not audited?
A. Management Discussion and Analysis (MD & A)
B. Income Statement and Balance Sheet
C. Financial Statement Footnotes

Management Discussion and Analysis (MD & A)

All of the following statements represent the description of the role of the external auditor expect:
A. Hired by management, the auditor must help the CFO prepare Financial Statements in accordance with GAAP in order to improve the accountability of the firm’s operations
B. The auditor must identify those circumstances in which GAAP principles have not been consistently observed in the current period in relation and the preceding period

C. The auditor is supposed to be independent and to serve the stockholders and the other users of the financial statements.

Hired by management, the auditor must help the CFO prepare Financial Statements in accordance with GAAP in order to improve the accountability of the firm’s operations

Which of the following would be found on a firm’s balance sheet:
I. Net income
II. Total Assets
III. Accounts payable
IV. Costs of Goods Sold

Total Assets and Accounts Payable

Interim reports most likely:
A. are issued semi-annually or quarterly
B. include a full set of financial statements and notes
C. are audited

are issued semi-annually or quarterly

Which of the following will disclose accounting policies, methods, and estimates used in the financial statements?

A. Management commentary

B. Notes to the financial statements

C. Auditor’s report

notes to the financial statements

Which of the following indicates that the company’s financial performance and position are in accordance with the accounting standards?

A. Unqualified opinion

B. Qualified opinion

C. Adversed opinion

Unqualified opinion

Which of the following statements best describes the role of footnotes as a source of financial information?

A They provide information on the results of operations, including discussion of trends in sales and categories of expense, and on capital resources and liquidity, including discussion of cash flow trends and the outlook based on known trends.

B They provide information on oil and gas reserves reported by oil and gas companies, the impact of changing prices, sales revenue, operating income and other information for major business segments.

C They provide information about the accounting methods, assumptions, and estimates used by management to develop the data reported in the financial statements.

They provide information about the accounting methods, assumptions, and estimates used by management to develop the data reported in the financial statements.

All of the following actions are allowed under U.S. Generally Accepted Accounting Principles

(GAAP) except:

A Carrying preferred stock at its originally issued par value of $90, while its current market value is $70.

B Charging retained earnings in order to satisfy a potential lawsuit payment.

C Recording treasury stock at its repurchase price.

Charging retained earnings in order to satisfy a potential lawsuit payment.

Whatson Toy is a company selling toys in the United States. In 20x6, Whatson sold toys for $1,150,000 in cash. The raw materials were purchased on credit for $500,000. The supplier required Whatson to pay the $500,000 in January 20x7 for the raw materials it received in 20x6. In addition to the purchase and sale of the toys, Whatson paid $50,000 in cash for salaries and taxes in 20x6. How much is Whatson’s profit and cash flow in 20x6?

A $600,000 and $650,000

B $600,000 and $1,100,000

C $650,000 and $600,000

$600,000 and $1,100,000

Which of the following statements is most accurate about the responsibilities of an auditor for a publicly traded firm in the United States? The auditor must:

A express an opinion about the effectiveness of the company's internal control systems.

B state that the financial statements are prepared according to generally accepted accounting principles.

C ensure that the financial statements are free from error, fraud, or illegal acts.

express an opinion about the effectiveness of the company's internal control systems.

During the process data phase of financial statement analysis, an analyst will most likely develop a:

A cash flow statement

B statement of purpose

C common-size balance sheet

common-size balance sheet

Providing information about the performance and financial position of companies so that users can make economic decisions best describes the role of:

A auditing.

B financial reporting.

C financial statement analysis.

financial reporting.

Which of the following best describes the role of financial statement analysis?

A To provide information about a company’s performance

B To provide information about a company’s changes in financial position

C To form expectations about a company’s future performance and financial position

To form expectations about a company’s future performance and financial position

The role of financial statement analysis is best described as:

A providing information useful for making investment decisions.

B evaluating a company for the purpose of making economic decisions.

C using financial reports prepared by analysts to make economic decisions.

evaluating a company for the purpose of making economic decisions.

A company’s current financial position would best be evaluated using the:

A balance sheet.

B income statement.

C statement of cash flows.

balance sheet.

A company’s profitability for a period would best be evaluated using the:

A balance sheet.

B income statement.

C statement of cash flows.

income statement.

The financial statement that presents a shareholder’s residual claim on assets is the:

A balance sheet.

B income statement.

C cash flow statement.

balance sheet.

A company’s profitability over a period of time is best evaluated using the:

A balance sheet.

B income statement.

C cash flow statement.

income statement.

The income statement is best used to evaluate a company’s:

A current financial position.

B sources of cash flow.

C financial results from business activities.

financial results from business activities.

Accounting policies, methods, and estimates used in preparing financial statements are most likely

found in the:

A auditor’s report.

B management commentary.

C notes to the financial statements.

notes to the financial statements.

Information about management and director compensation would least likely be found in the:

A auditor’s report.

B proxy statement.

C notes to the financial statements.

auditor’s report

Information about a company’s objectives, strategies, and significant risks would most likely be

found in the:

A auditor’s report.

B management commentary

C notes to the financial statements.

management commentary

Which of the following best describes why the notes that accompany the financial statements are required? The notes:

A permit flexibility in statement preparation.

B standardize financial reporting across companies.

C provide information necessary to understand the financial statements.

provide information necessary to understand the financial statements.

Which of the following audit opinions indicates that the financial statements contain significant misrepresentations and do not accurately reflect a company’s financial position?

A. Unqualified Opinion

B. Qualified Opinion

C. Adverse Opinion

Adverse Opinion

An auditor determines that a company’s financial statements are prepared in accordance with

applicable accounting standards except with respect to inventory reporting. This exception most

likely results in an audit opinion that is:

A Adverse.

B Qualified.

C Unqualified.

Qualified.

An independent audit report is most likely to provide:

A absolute assurance about the accuracy of the financial statements.

B reasonable assurance that the financial statements are fairly presented.

C a qualified opinion with respect to the transparency of the financial statements.

reasonable assurance that the financial statements are fairly presented.

Interim financial reports released by a company are most likely to be:

A monthly.

B unaudited.

C unqualified.

unaudited

Which of the following sources of information used by analysts is found outside a company’s annual

report?

A Auditor’s report

B Peer company analysis

C Management’s discussion and analysis

Peer company analysis

Ratios are an input into which step in the financial statement analysis framework?

A Process data.

B Collect input data.

C Analyze/interpret the processed data.

Analyze/interpret the processed data.

Which phase in the financial statement analysis framework most likely involves

producing updated reports and recommendations?

A Follow-up

B Analyze/interpret the processed data

C Develop and communicate conclusions and recommendations

Follow-up

Inherent risks in an investment are most appropriately evaluated in which step of the financial

statement analysis framework?

A Develop and communicate conclusions/recommendations

B Articulate the purpose and context of analysis

C Process data

Articulate the purpose and context of analysis

Which of the following most likely results in an increase of owners’ equity?

A Share repurchase

B Cash dividend

C New equity issuance

New equity issuance

In the phase of "Articulate the purpose and context of the analysis," which of the following is NOT a

key source of information?

A. Communication with client or supervisor on needs and concerns.

B. Adjusted financial statements.

C. Institutional guidelines related to developing a specific work product.

Adjusted financial statements.

Which phase directly involves the creation of common-size statements and graphs for the financial

analysis?

A. Articulate the purpose and context of the analysis.

B. Follow-up.

C. Process data.

Process data.

Which of the following statements least accurately describes a role of financial

statement analysis?

A. Use the information in financial statements to make economic decisions.

B. Provide reasonable assurance that the financial statements are free of

material errors.

C. Evaluate an entity’s financial position and past performance to form

opinions about its future ability to earn profits and generate cash flow.

Provide reasonable assurance that the financial statements are free of

material errors.

A firm’s financial position at a specific point in time is reported in the:

A. balance sheet.

B. income statement.

C. cash flow statement.

balance sheet.

Information about accounting estimates, assumptions, and methods chosen for

reporting is most likely found in:

A. the auditor’s opinion.

B. financial statement notes.

C. Management’s Discussion and Analysis.

financial statement notes.

If an auditor finds that a company’s financial statements have made a specific

exception to applicable accounting principles, she is most likely to issue a:

A. dissenting opinion.

B. cautionary note.

C. qualified opinion.

qualified opinion.

Information about elections of members to a company’s Board of Directors is

most likely found in:

A. a 10-Q filing.

B. a proxy statement.

C. footnotes to the financial statements.

a proxy statement.

Which of these steps is least likely to be a part of the financial statement

analysis framework?

A. State the purpose and context of the analysis.

B. Determine whether the company’s securities are suitable for the client.

C. Adjust the financial statement data and compare the company to its

industry peers.

Determine whether the company’s securities are suitable for the client.

Which of the following items would typically be reported in Other Comprehensive Income (OCI) and not in net income?

A. Gain on sale of manufacturing equipment

B. Unrealized gains on available-for-sale securities

C. Interest expense from bonds payable

Unrealized gains on available-for-sale securities

Under U.S. GAAP, how is Other Comprehensive Income (OCI) typically presented?

A. As a separate component of equity in the balance sheet

B. As a combined figure with net income in the income statement

C. As a separate statement that is part of the financial statements

As a separate statement that is part of the financial statements

On a company's balance sheet, retained earnings are adjusted annually after closing the books for the fiscal year. If a company decides to issue a dividend after a profitable year, which of the following statements accurately describes the subsequent accounting treatment and its impact on he balance sheet?

A. Issuing a dividend will increase total stockholders' equity, reflecting the distribution of profits to shareholders.

B. Issuing a dividend will decrease retained earnings and total stockholders' equity, reflecting the payout of accumulated profits.

C. Issuing a dividend will have no impact on total stockholders' equity as it is a reallocation of profits from retained earnings to liabilities until paid.

Issuing a dividend will decrease retained earnings and total stockholders' equity, reflecting the payout of accumulated profits.

When analyzing a company's financial statements, an investor notices detailed explanations regarding the recognition of revenue from long-term contracts and the estimation of warranty liabilities. Where would such explanatory information most likely be found?

A. In the Management's Discussion and Analysis (MD&A) section, which includes detailed analyses of the company's operational results and financial condition.

B. In the business segments note, which includes detailed breakdowns of revenues and operating income by each significant segment of the business.

C. In the footnotes to the financial statements, which provide detailed information about the accounting policies, methods, and estimates used in preparing the financial statements.

In the footnotes to the financial statements, which provide detailed information about the accounting policies, methods, and estimates used in preparing the financial statements.