A100: Final Exam Review

Which of the following is not an external users of financial accounting information?

• General public

• Banks

• Factory line manager.

• Investors

Factory line manager

Which of the following statements accurately describes equity investors and debt investors in a business? 

• Equity investors and debt investors both contribute to the business as owners and benefit from retained earnings.

• Equity investors and debt investors are only concerned with the business's profitability and do not have any direct financial interest in the company's operations.

• Equity investors are creditors who provide loans to the business and expect both principal and interest payments, while debt investors contribute to the business as owners and benefit from retained earnings. 

• Equity investors contribute to the business as owners and benefit from retained earnings, while debt investors are creditors who expect both principal and interest payments.

Equity investors contribute to the business as owners and benefit from retained earnings, while debt investors are creditors who expect both principal and interest payments

Which of the following statements accurately represents a key legal right of debt investors?

• Debt investors have no legal recourse to "call" the loan and demand payment in case of missed payments.

• Debt investors can only recover their funds by liquidating assets if the company files for bankruptcy.

• Debt investors have the legal right to demand both interest and principal payments, and they can "call" the loan if the company fails to make payments on time. 

• Debt investors can only demand payment of principal, not interest, if the company fails to make timely payments.

Debt investors have the legal right to demand both interest and principal payments, and they can "call" the loan if the company fails to make payments on time

What is the primary scope of the Securities and Exchange Commission (SEC) in the United States?

• Regulating and requiring financial reporting from public companies while exempting private companies from such regulations.

• Overseeing the financial reporting of all businesses, regardless of their public or private status.

• Applying strict regulations to ensure private companies' compliance with financial reporting requirements.

• Regulating both public and private companies' financial reporting.

Regulating and requiring financial reporting from public companies while exempting private companies from such regulations

Which organization is responsible for establishing and maintaining the Generally Accepted Accounting Principles (GAAP) for companies in the United States?

• The Securities and Exchange Commission (SEC).

• The International Financial Reporting Standards (IFRS). 

• The Financial Accounting Standards Board (FASB).

• The Internal Revenue Service (IRS).

The Financial Accounting Standards Board (FASB)

Which financial statement would you utilize to determine whether a company will be able to pay liabilities which are due in 30 days?

• Income statement.

• Statement of cash flows.

• Statement of stockholders' equity.

• Balance sheet.

Balance sheet

Atlantic Corporation reported the following amounts at the end of the first year of operations

 

Common stock	$200,000
Sales revenue	$800,000
Total assets	$600,000
Dividends declared	$40,000
Total liabilities	$320,000

 

What are the retained earnings of Atlantic at the end of the year, and what amount of expenses were incurred during the year?

• Retained earnings are $280,000 and expenses incurred totaled $480,000.

• Retained earnings are $280,000 and expenses incurred totaled $520,000.

• Retained earnings are $80,000 and expenses incurred totaled $720,000.

• Retained earnings are $80,000 and expenses incurred totaled $680,000.

Retained earnings are $80,000 and expenses incurred totaled $680,000

What are the categories of cash flows that appear on a statement of cash flows?

• Cash flows from operating, production, and internal activities.

• Cash flows from operating, investing, and financing activities.

• Cash flows from investing, financing, and service activities.

• Cash flows from financing, production, and growth activities.

Cash flows from operating, investing, and financing activities

Which of the following best describes liabilities and stockholders' equity?

• They both increase when assets increase.

• They are the sources of financing an entity's assets.

• They are the economic resources owned by a business entity

• They are reported on the income statement.

They are the sources of financing an entity's assets

Which financial statement would you use to determine a company's earnings performance during an accounting period?

• Income statement.

• Statement of cash flows.

• Statement of stockholders' equity.

• Balance sheet.

Income statement

The objective of an audit of financial statements is to

• Make suggestions as to the form or content of the financial statements.

• Express an opinion on the fairness with which the financial statements are prepared in accordance with generally accepted accounting principles (GAAP).

• Express an opinion on the attractiveness of the company’s financial performance for investors.

• Ensure there are no misstatements in the financial statements.

Express an opinion on the fairness with which the financial statements are prepared in accordance with generally accepted accounting principles (GAAP)

The primary user(s) of the auditor's report:

• The securities and exchange commission (SEC).

• The company’s audit committee.

• investors of the company.

• Management.

investors of the company

The primary responsibility for preventing fraud in a company lies with:

• the audit committee of the board of directors.

• the internal audit function.

• the company’s management.

• the external auditor.

the company’s management

Audit risk can be eliminated by:

• involving specialists in the audit.

• increasing audit testing.

• audit risk cannot be eliminated.

• involving specialists in the audit.

audit risk cannot be eliminated

Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements?

• Turnover of senior accounting personnel is low.

• Insiders recently purchased additional shares of the entity's stock.

• The rate of change in the entity's industry is slow.

• Management places substantial emphasis on meeting earnings projections.

Management places substantial emphasis on meeting earnings projections

Jackson Co. had gross income realized of $81,000. The company had deductions of $47,000 and a credit of $2,000. How much is Jackson's federal income tax if the company's tax rate is 21%?

•  $6,090

• $1,720

• Jackson doesn't have to pay corporate taxes.

• $5,140

$5,140

Why are regular or C Corporations subject to double taxation in the United States?

•  Because dividends paid by the corporation are shown as an expense on the Income Statement.

• Because their income is taxed at both the corporate level and again when received by stockholders.

• Because they are required to pay a higher corporate tax rate of 21%.

• Because they are the only type of business entity subject to federal income tax.

Because their income is taxed at both the corporate level and again when received by stockholders

Which type of bond interest is typically excluded from a corporation's gross income for tax purposes?

•  Interest received on investments in foreign government bonds.

• Interest received on investments in corporate bonds.

• Interest received on investments in state, county, and city bonds.

• Interest received on investments in federal government bonds.

Interest received on investments in state, county, and city bonds

What is the key difference between deductions and tax credits in the context of corporate taxation?

•  Deductions and tax credits work in the same way and have the same impact on a corporation's tax liability.

• Deductions reduce the tax liability by multiplying the deduction amount by the tax rate, while tax credits reduce the tax due on a dollar-for-dollar basis.

• Deductions reduce the tax due on a dollar-for-dollar basis, while tax credits reduce taxable income.

• Deductions are applied after the tax liability has been determined, while tax credits are subtracted to arrive at taxable income.

Deductions reduce the tax liability by multiplying the deduction amount by the tax rate, while tax credits reduce the tax due on a dollar-for-dollar basis

Which of the following entities is not a taxable entity for federal income tax purposes?

•  Confad Incorporated, an Oklahoma C corporation listed on the NASDAQ (i.e., one of the major stock exchanges in the U.S.)

• All choices are correct.

• PTS Limited, an Arizona partnership

• Mr. Bob Clark, a U.S. citizen and resident of the state of West Virginia

PTS Limited, an Arizona partnership

Which of the following best represents the main difference between debt and equity investors?

• Debt represents ownership in the company, while equity represents funds borrowed from external sources

• Debt represents funds borrowed from external, while equity represents ownership in the company

• Debt and equity are interchangeable terms used to describe funds borrowed by a company

• Debt and equity both represent ownership in the company, but they differ in the impact on financial statements

Debt represents funds borrowed from external, while equity represents ownership in the company

When considering debt financing for a company, what are the potential risks and benefits involved?

• Risks: Increased control by shareholders Benefits: Lower interest payments

• Risks: Lower interest payments Benefits: Increased control by shareholders

• Risks: Increased financial leverage. Benefits: potential for higher returns on investment

• Risks: Reduced bankruptcy risk Benefits: Increased financial leverage

Risks: Increased financial leverage. Benefits: potential for higher returns on investment

Which of the following does not describe an objective of financial accounting users?

• Information used to determine which products to produce

• Information regarding economic resources and claims to those resources

• Information useful in making investments and credit decisions

• All are financial accounting objectives

Information used to determine which products to produce

Which of the following best describes the purpose of Generally Accepted Accounting Principles (GAAP) in financial reporting?

• To offer flexibility in financial reporting, allowing companies to choose their preferred accounting methods

• To provide a standardized set of rules for businesses, to follow, ensuring consistency and comparability in financial statements

• To maximize profits and maximize expenses for a company, promoting financial success and growth

• To reduce the complexity of financial reporting and make it easier for businesses to manage their accounts

To provide a standardized set of rules for businesses, to follow, ensuring consistency and comparability in financial statements

Which of the following lusts the four required financial statements typically prepared by businesses?

• Income Statement, Balance Sheet, Cash Flow Statement, and Budget Statement

• Budget Statement, Income Statement, Statement of Cash Flows, and Inventory Statement

• Profit and Loss Statement, Cash Flow Statement, Equity Statement, and Inventory Statement

• Balance Sheet, Profit and Loss Statement, Cash Flow Statement, and Statement of Retained Earnings

Balance Sheet, Profit and Loss Statement, Cash Flow Statement, and Statement of Retained Earnings

Which of the

The basic definition of auditing essentially indicates that, overall, auditing is a process to:

• detect fraud

• examine individual transactions so that the auditor may certify as to their validity

• objectively obtain and evaluate evidence regarding assertions made by another party

• assure the consistent application of correct accounting procedures

objectively obtain and evaluate evidence regarding assertions made by another party

An audit of the financial statements of ABC Corporation is being conducted by an external auditor. The external auditor is expected to…

• Make a 100% examination of ABC’s records

• Certify the correctness of ABC’s financial statements

• Express an opinion as to the attractiveness of ABC for investment purposes

• Express an opinion as to the fairnesss of ABC’s financial statements

Certify the correctness of ABC’s financial statements

The actual level of audit risk:

• should be greater than or equal to acceptable audit risk

• can never be known with certainty

• is the same for all audit engagements

• can always be accurately assessed by the auditor

can never be known with certainty

Which of the following statements reflects an auditor’s responsibility for detecting fraud and errors?

• An auditor should design the audit to provide reasonable assurance of detecting fraud and errors that are material to the financial statements

• An auditor is not responsible for detecting fraud unless the application of GAAS would result in such detection

• An auditor should plan the audit to detect all errors and fraud that represent departures from GAAP

• An auditor is responsible fro detecting employee errors and simple fraud, but not for discovering fraudulent acts involving employee

An auditor should design the audit to provide reasonable assurance of detecting fraud and errors that are material to the financial statements