MBA 617 Final Test

comparability

Accountants place considerable amounts of emphasis on consistency because it improves the ______ of the information reported to external shareholders.

Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash Flows

Which of the following represents the correct order of preparation of the financial statements?

True

The Sarbanes Oxley Act of 2002 (SOX) requires a company's CEO and CFO to take responsibility for and sign off on the accuracy of its financial statements.

Going Concern Assumption

The assumption that a business entity will continue operations for the foreseeable future is represented by which of the following concepts or assumptions?

Form 10-K

Public companies listed on the stock exchange in the U.S. are required to file which of the following forms to provide audited financial statements in the annual report to stockholders?

False

The Public Accounting Oversight Board (PCAOB), which governs the audit process of public companies, was created through the Securities Exchange Act of 1934.

False

Most publicly traded companies only issue financial statements that capture accounting information for a full year.

True

Basic accounting concepts (instead of accounting principles) provide guidance on accounting policy decisions for specific transactions and events.

True

Violations of the business entity concept are more common with small businesses than big, publicly traded businesses.

False

Statement of Financial Accounting Concepts No. 8 (SFAC 8) is a statement issued jointly by the FASB and the IASB.

Matching expenses with revenues

The matching principle is best represented by which of the following?

comparability

Accountants place considerable emphasis on consistency because it improves the ________ of the information reported to external parties.

True

The SEC was created through the Securities Act of 1933.

Useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.

According to the FASB, the objective of general-purpose financial reporting is to provide financial reporting information about the reporting entity that is:

Financial Accounting Standards Board (FASB)

GAAP in the US is set by which of the following organizations?

Assets, liabilities, equity, revenues, and expenses

Which of the following would generally be captured in monetary units on financial statements?

False

Under US GAAP, all assets owned and controlled by a company are reported on the balance sheet at the fair market value.

False

The concept of conservatism has been rejected by both the Financial Accounting Standards Board (FASB) and accounting managers in practice.

Exploiting the lack of stringent regulatory requirements at the time.

Ivar Kreuger was able to successfully continue his fraudulent scheme for years by not providing investors and creditors audited financial information. Kreuger justified this approach of nondisclosure by:

Matching expenses with revenues

The matching principle is best represented by which of the following:

Financial Accounting Standards Board (FASB)

Generally accepted accounting principles (GAAP) in the US is set by which of the following organizations:

True

Best accounting concepts (instead of accounting principles) provide guidance on accounting policy decisions for specific transactions and events.

The statement of financial position

The balance sheet is also known as _____.

Look at the Notes to the Financial Statements.

A large, public company included a consolidated balance sheet in its 10-k filing, which reported property, plant, and equipment net of accumulated depreciation. If a financial statement user wanted to know the details of the individual components of the property, plant, and equipment number and the details of the accumulated depreciation accounts the user is likely to:

True

A company always summarizes its significant accounting policies in the first note included in the Notes to the Financial Statements section of an annual report

True

When a cost is "capitalized", it is reported on the balance sheet as an asset

True

The word "receivable" is often used in asset accounts...the word "payable" is often used in liability accounts.

In order of liquidity

Under US GAAP, how are current assets ordered on the balance sheet?

Increase its profits

Per Milton Friedman, in his 1970 essay, "there is one and only one social responsibility of business - to use its resources and engage in activities designed to __________"

True

Stockholders' equity represents the difference between a company's assets and liabilities

An asset is always liquid

An asset has four key characteristics, which of the following is not one of those characteristics?

current, past, future

A liability is a _____ obligation caused by a ____ transaction or event that must be settled through a____ transfer of assets or provision of services.

False

When a corporation needs additional resources to expand its business operations, the only source of additional funding is to issue new shares of common stock.

True

A company always summarizes its significant accounting policies in the first note included in the Notes to the Financial Statements section of an annual report.

False

Some accounting transactions affect only one account.

False

Reporting on ESG measures in the US is standardized across companies in the same way financial reporting under GAAP is standardized.

False

The costs a merchandising company incurs when acquiring inventory are generally reported first as expenses on the income statement, and later as assets on the balance sheet

True

On December 31, 2023, Oxford Inc. had $100 million in total assets, which included $20 million in current assets and $10 million in accumulated depreciation. The company had $15 million in current liabilities and $45 million in noncurrent liabilities. What was the company's total stockholder's equity balance? $40 million

statement of financial position

The balance sheet is also known as the ________

expenses that have been incurred but not yet paid

An accrued expense is a liability account, which represents ______

The Notes to the Financial Statements

A large public company included a consolidated balance sheet in its 10K filing, which reported PPE net of accumulated depreciation. If a financial statement user wanted to know the details of the individual components of the PPE and the details of accumulated depreciation accounts, the user most likely would look to :

An asset is always liquid

An asset has 4 key characteristics. Which of the following is not one of those characteristics?

True

Stockholders Equity represents the difference between a companies assets and liabilities

Purchase of equipment

Which of the following transactions is most likely reflected in a company's investing activities section in the Statement of Cash Flows?

False

Service companies report revenue, cost of goods sold, gross profit, and operating income on their income statement.

Declaring dividends

Which of the following when considered on its own would cause a decrease in retained earnings?

Statement of Operations

Another name for an Income Statement is the:

The cost of goods sold has increased faster than sales revenue.

A merchandising company's CFO is analyzing a 3-year trend analysis of its income statement. If the gross profit percentage has decreased each year since the base year, which of the following is a reasonable explanation?

Total revenue (or sales)

When preparing a common-size income statement, each account on the income statement should be divided by:

True

The sum of the results of the statement of cash flows equals the difference between the beginning and ending cash balances on the balance sheet.

False

Operating income is another name for net income.

True

A company's management is often required to use judgment and estimates in deciding when to recognize revenue.

True

An income statement captures a company's activity over a period of time (ie. from January 1st to December 31st).

Indirect method

For publicly traded US companies, which method of preparation is most common for the Statement of Cash Flows?

Changes in stockholders' equity

All of the following activities are reported on the Statement of Cash flows except:

Statement of Operations

Another name for Income Statement is:

Gross profit

The difference between a company's sales and costs of goods sold is:

False

A statement of cash flows captures a company's cash information at a specific point in time (ie December 31st).

True

An income statement captures a company's activity over a period of time (ie January 1st to December 31st).

True

The sum of the results from the three sections of the statement of cash flows equals the difference between the beginning and ending cash balances on the Balance Sheet.

False

Common size financial statements are most useful for analyzing a company's performance across time; trend analysis is most useful for comparing a company's performance with that of its key competitors.

False

Service companies report revenue, costs of goods sold, gross profit, and operating income on their income statement.

Repurchasing shares of common stock

A company decided to take steps to reduce shareholder's equity as a method for improving return on equity. Which of the following steps would be most likely to accomplish that goal of decreasing shareholder's equity?

Inventory turnover ratio

ABC Inc. is a service business (instead of a manufacturer or merchandiser). Which of the following ratios is most likely to be least useful for ABC Inc?

True

The gross profit margin of a company in the retail grocery industry is likely lower than the gross profit margin of a company in the airplane manufacturing industry.

False

The Net Profit Margin is a calculation of the percentage of each sales dollar left to cover selling, general, and administrative expenses.

True

The asset turnover ratio for company A is higher than the asset turnover ratio for company B. Company A is doing a better job than company B of using its assets to generate revenue.

Analyze how effectively the assets are being used and seek ways to improve utilization.

The managers of ABC Inc. determined that the company's asset turnover ratio is 1.9. The company's most reasonable next step would be to:

Gross profit margin

Dupont Analysis decomposes a critical ratio into a relationship between three other ratios. Which is not one of those ratios?

Return on Equity (ROE)

A Dupont Analysis is used to decompose which ratio into three important parts?

A company's ability to pay its short-term obligations without relying on inventory sales.

The quick ratio or "acid-test" recognizes which of the following?

True

The asset turnover ratio for Company A is higher than the asset turnover ratio for Company B. Company A is doing a better job than Company B of using its assets to generate revenue.

True

The current ratio and the quick ratio both provide information about a company's ability to meet short term debt obligations.

True

A company calculates its current ratio as current assets divided by current liabilities. If a company has a current ratio below 1, it means the company has more current liabilities than current assets.

True

A company's quick ratio is generally lower than its current ratio.

True

The gross profit margin of a company in the retail grocery industry is likely lower than the gross profit margin of a company in the airplane manufacturing industry.

A company's ability to pay its short-term obligations without relying on inventory sales.

The quick ratio or "acid test ratio" recognizes which of the following?

Repurchasing shares of common stock

A company decided to take steps to reduce shareholders' equity as a method for improving return on equity. Which of the following steps would be most likely to accomplish the goal of decreasing shareholders' equity?

Both ratios measure the extent of a company's financial leverage.

The financial leverage ratio and the debt-to-equity ratio are similar in which of the following ways?

faster, slower

Accounts receivable turnover and accounts payable turnover provide information about how a company pays and receives cash. In this regard, a company would prefer to receive cash from accounts receivable ________ and to pay cash related to accounts payable ________.

False

When a ratio compares a balance sheet item and an income statement item, we generally use "average" amounts from both the balance sheet and the income statement.

True

A company's quick ratio is generally lower than its current ratio.

False

The Net Profit Margin is a calculation of the percentage of each sales dollar left to cover selling, general, and administrative expenses.

True

If a company uses an annual accounting period other than January 1 through December 31, it is generally because the company's business cycle does not conform to the calendar year.

SEC

The FASB gets its authority from which of the following organizations.

(Unqualified) opinion

Walmart's 10-k filing included a document titled, "Report of independent registered public accounting firm". This document details the audit firms:

True

One goal of the Statement of Retained Earnings is to calculate the end of period balance of Retained Earnings for use on the balance sheet.