ACT Chapter, Financial Accounting Ch 5, SB Ch. 5 - ACC211

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The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue?

$360,000

The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue?

$360,000 Net sales revenue - Cost of goods sold = Gross profit. To solve for sales, rearrange the equation as Gross profit + Cost of goods sold = Net sales revenue (= $144,000 + 216,000 = $360,000).

Public companies file their quarterly reports on the SEC's ______.

10Q

Revenues were $1,000,000, Cost of Goods Sold was $750,000, and Net Income was $120,000. Net profit margin equals ______.

12% Net profit margin equals Net Income divided by Revenues.

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

Accumulated amortization is ______. (Select all that apply.) a liability and reports the amount owed on mortgages a contra-asset account similar to accumulated depreciation similar to depreciation except it is netted against intangible assets instead of tangible assets an expense

Difference between annual report and 10-K

Both include the Report of Independent Accountants (Auditor's Opinion) The 10-K includes significantly more information than the annual report Both include the four basic financial statements

Which of the following are sections found in a statement of cash flows.

Cash Flows from Investing Activities Cash Flows from Operating Activities Cash Flows from Financing Activities

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

Chief financial officer Chief executive officer

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

Chief financial officer chief executive officer

Identify various sources of financial information for the investing public.

Companies' Websites Financial analysts' earnings forecasts SEC's EDGAR Service

____________financial statements report financial statement values for the current period and one or more other prior periods.

Comparative

Institutional investors

Control the majority of publicly traded shares of US companies and invest on behalf of many individual investors

What effect does the recording of research and development (R&D) costs have on the net profit margin?

Decreases it

Financing; statement of cash flows

Dividend payments would be found under Cash Flows from ______ Activities on the ______.

Identify various sources of financial information for the investing public.

Financial analysts' earnings forecasts Companies' Websites SEC's EDGAR Service

Which of the following are parts of a Form 10-K?

Financial statements Auditor reports Management's discussion and analysis

Which of the following are parts of a Form 10-K?

Financial statements Auditor reports Management's discussion and analysis

Dividend payments would be found under Cash Flows from ______ Activities on the ______.

Financing; statement of cash flows

Which of the following reports is filed annually and which is filed quarterly with the SEC?

Form 10-K is filed annually and Form 10-Q is filed quarterly.

Public companies file their quarterly reports on the SEC's ______.

Form 10-Q

Identify which of the following are nonoperating items on the income statement.

Gains on sale of fixed assets Provision for income taxes Income tax expense

Corporate _____ refers to procedures designed to ensure that the company is managed in the interests of the shareholders.

Governance

the International Financial Reporting Standards

IFRS are ______.

Companies' Websites Financial analysts' earnings forecasts SEC's EDGAR Service

Identify various sources of financial information for the investing public. (Select all that apply.) Companies' Websites Financial analysts' earnings forecasts SEC's EDGAR Service Financial analysts' EDGAR Service Financial analysts' XBRL Service

intangible assets on its balance sheet

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

Creditors

Include banks, suppliers and other financial institutions that lend money to companies

compare companies' pretax levels of income

Income before income tax expense is an important measure of financial performance as it allows investors ______.

Which of the following are major actors involved in ensuring the integrity of financial statements of a publicly-traded company?

Independent Auditors PCAOB Management SEC Board of Directors

Which of the following are major actors involved in ensuring the integrity of financial statements of a publicly-traded company? (Check all that apply.)

Independent Auditors Board of Directors SEC Management PCAOB

Who are the external users of accounting information?

Institutional investors The current and potential creditors Private investors

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

Intangible assets on its balance sheet

Which of the following would be found under Cash Flows from Investing Activities?

Investments in other companies Sales of productive assets Purchases of productive assets

many sources

Investors rely on ______ for information needed to make investment decisions.

Who has primary responsibility for preparing and making sure that a company's financial statements follow GAAP?

Management

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

Management

Which of the following are major actors involved in ensuring the integrity of financial statements of a publicly-traded company?

Management Board of Directors Independent Auditors SEC PCAOB

Which of the following are the principal components of the financial disclosures in a Form 10-K?

Management's discussion and analysis Financial statements and supplemental data Select summarized financial data for a 5-year period

Who uses accounting information?

Managers Creditors Government Institutional investors Private investors

Who uses accounting information?

Managers Private investors Institutional investors Creditors Government

Earnings per share (EPS) equals ______ divided by the average shares of common stock outstanding. (Assume no preferred stock has been issued.)

Net Income

Which line item on the statement of stockholders' equity is also found on the income statement?

Net income

Which of the following appears on the statement of stockholders' equity?

Net income Dividends Common stock Additional paid-in capital Beginning balance of retained earnings

Which of the following appears on the statement of stockholders' equity?

Net income Common stock Additional paid-in capital Beginning balance of retained earnings Dividends

return on assets (ROA)

Net income divided by average assets equals ______.

Which of the following is not a typical element of a company's annual report?

Press release

announce quarterly and annual earnings provide timely information for external users to limit the possibility of selective leakage of information

Press releases and conference calls are used by companies to ______. (Select all that apply.) announce quarterly and annual earnings announce immaterial disclosures provide timely information for external users provide cost-benefit constraints to limit the possibility of selective leakage of information

Who are the external users of accounting information?

Private investors The current and potential creditors Institutional investors

Form 10-Q

Public companies file their quarterly reports on the SEC's ______.

net income divided by average total assets

Return on assets (ROA) equals ______.

12%

Revenues were $1,000,000, Cost of Goods Sold was $750,000, and Net Income was $120,000. Net profit margin equals ______.

Financial regulatory changes are enforced by the ________ while financial reporting changes are recommended by the FASB.

SEC

Securities and Exchange Commission

SEC stands for the ______.

Public companies issuing securities in the United States are required to file a number of detailed financial reports with the ______

Securities and Exchange Commission

Which government agency is responsible for the functioning of stock markets in the US?

Securities and Exchange Commission

Which financial statement shows the changes in equity accounts during the accounting period?

Statement of stockholders' equity

Which of the following statements are true regarding an annual report and Form 10-K?

The 10-K includes significantly more information than the annual report Both include the four basic financial statements Both include the Report of Independent Accountants (Auditor's Opinion)

True

The SEC requires public companies to report their quarterly and annual results.

all important company news

The SEC's "Fair Disclosure" requires publicly traded companies to provide access to ______.

fair disclosure

The SEC's ______ requires companies provide all investors equal access to all company news and prohibits managers or other insiders from trading shares based on nonpublic information.

audit

The _____ committee of the board of directors must consist of non-management, independent directors with financial knowledge and is responsible for hiring the independent auditors.

notes

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

360,000

The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue?

net sales

The net profit margin ratio is calculated by dividing net income by ______.

revenues broken out by geographic region accounting policies applied segment information relevant information, not disclosed on the statements

The notes to financial statements may include ______. (Check all that apply.) revenues broken out by geographic region accounting policies applied segment information relevant information, not disclosed on the statements unaudited ratio analysis

reduce the risk that the company's financial condition is misrepresented in the financial statements provide assurance that the financial statements represent what they claim to represent

The purpose of an independent auditor's report is to ______. (Check all that apply.) report whether the company is a good investment reduce the risk that the company's financial condition is misrepresented in the financial statements provide assurance that the financial statements represent what they claim to represent

What is the purpose of the audit report?

To add credibility to the financial statements.

know the journal entry and its effect on the ratio's numerator and denominator and then evaluate the combined effect

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

True or false: Companies listed on US stock exchanges are required to file quarterly financial information with the SEC.

True

True or false: Comparative financial statements include separate columns for more than one period's results.

True

True or false: The SEC, FASB, external auditors, and management of companies are involved in ensuring the integrity of financial statements.

True

True or false: The statement of stockholders' equity indicates the changes in the various equity accounts.

True A column for each stockholders' equity account is shown with the increases and decreases for the period.

True or false: Comparative financial statements include separate columns for more than one period's results.

True Two or more years of results are reported in comparative financial statements so that comparisons can be made.

true

True or false: Companies listed on US stock exchanges are required to file quarterly financial information with the SEC.

True

True or false: Comparative financial statements include separate columns for more than one period's results.

True

True or false: The SEC, FASB, external auditors, and management of companies are involved in ensuring the integrity of financial statements.

True

True or false: The statement of stockholders' equity indicates the changes in the various equity accounts.

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

US GAAP are ______.

Private investors

Venture capitalists who include the original investors in a company

Assurance that the financial statements follow Generally Accepted Accounting Principles

What do independent auditors provide for companies who hire them?

determine if the accounts affected are included in the financial statement subtotals or totals in the ratio's numerator journalize the transaction to see what accounts are affected determine if the accounts affected are included in the financial statement subtotals or totals in the ratio's denominator

When determining the effect of a transaction on a financial ratio, the steps include ______. (Select all that apply.) post the transaction to the unadjusted trial balance determine if the accounts affected are included in the financial statement subtotals or totals in the ratio's numerator journalize the transaction to see what accounts are affected determine if the closing entries impact the numerator or denominator of the ratio determine if the accounts affected are included in the financial statement subtotals or totals in the ratio's denominator

Net income Beginning balance of retained earnings Additional paid-in capital Dividends Common stock

Which of the following appears on the statement of stockholders' equity? (Check all that apply.) Net income Cash received during the accounting period Beginning balance of retained earnings Additional paid-in capital Dividends Common stock

PCAOB Board of Directors Independent Auditors SEC Management

Which of the following are major actors involved in ensuring the integrity of financial statements of a publicly-traded company? (Check all that apply.) PCAOB Internal Revenue Service Board of Directors Independent Auditors SEC Management Treasury Department

Select summarized financial data for a 5-year period Financial statements and supplemental data Management's discussion and analysis

Which of the following are the principal components of the financial disclosures in a Form 10-K? (Select all that apply.) Select summarized financial data for a 5-year period Estimated future stock prices and earnings Financial statements and supplemental data Management's discussion and analysis

press release

Which of the following is not a typical element of a company's annual report? Financial statement notes Management's discussion and analysis Press release Auditor's report

Form 10-K is filed annually and Form 10-Q is filed quarterly.

Which of the following reports is filed annually and which is filed quarterly with the SEC? Form 10-K is filed annually and Form 8-K is filed quarterly. Form 10-Q is filed annually and Form 8-K is filed quarterly. Form 8-K is filed annually and Form 10-Q is filed quarterly. Form 10-K is filed annually and Form 10-Q is filed quarterly.

The 10-K includes significantly more information than the annual report Both include the four basic financial statements Both include the Report of Independent Accountants (Auditor's Opinion)

Which of the following statements are true regarding an annual report and Form 10-K? (Select all that apply.) The 10-K includes significantly more information than the annual report The annual report includes the four basic financial statements; the Form 10-K does not Both include the four basic financial statements Both include the Report of Independent Accountants (Auditor's Opinion) The annual report includes significantly more information than the Form 10-K

Purchases of productive assets Investments in other companies Sales of productive assets

Which of the following would be found under Cash Flows from Investing Activities? (Check all that apply.) Purchases of productive assets Dividend payments Investments in other companies Sales of productive assets

The current and potential creditors Private investors Institutional investors

Who are the external users of accounting information? (Check all that apply.) The current and potential creditors Managers and employees of the business Private investors Institutional investors

Chief executive officer Chief financial officer

Who has primary responsibility for making sure that a company's financial statements follow GAAP? (Check all that apply.) Chief executive officer The Public Company Accounting Oversight Board (PCAOB) The Securities and Exchange Commission (SEC) Chief financial officer

management

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

comparative

______ financial statements report financial statement values for the current period and one or more other prior periods.

Accumulated amortization is ______.

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

The notes to financial statements may include ______.

accounting policies applied revenues broken out by geographic region segment information relevant information, not disclosed on the statements

The SEC's "Fair Disclosure" requires publicly traded companies to provide access to ______

all important company news

The SEC's "Fair Disclosure" requires publicly traded companies to provide access to ______.

all important company news

IFRS and US GAAP ______.

are similar but have differences that are currently being resolved with the aim of having one set of standards

The _______ committee of the board of directors must consist of non-management, independent directors with financial knowledge and is responsible for hiring the independent auditors

audit

Nonoperating items are found _______ on a classified income statement

below Operating Income

The _______ of ______ is elected by the stockholders and is responsible for ensuring that processes are in place for maintaining the integrity of the company's accounting records.

board of directors

________ financial statements report financial statement values for the current period and one or more other prior periods.

comparative

Income before income tax expense is an important measure of financial performance as it allows investors ______.

compare companies' pretax levels of income

_________ refers to procedures designed to ensure that the company is managed in the interests of the shareholders.

corporate governance

The SEC's ______ requires companies provide all investors equal access to all company news and prohibits managers or other insiders from trading shares based on nonpublic information.

fair disclosure

Managers of pension funds, mutual funds, and other funds associated with companies are referred to as ______.

institutional investors

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

intangible assets on its balance sheet

The board of directors

is elected by the stockholders and is responsible for ensuring that processes are in place for maintaining the integrity of the company's accounting records.

When determining the effect of a transaction on a financial ratio, the steps include ______.

journalize the transaction to see what accounts are affected determine if the accounts affected are included in the financial statement subtotals or totals in the ratio's denominator determine if the accounts affected are included in the financial statement subtotals or totals in the ratio's numerator

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

know the journal entry and its effect on the ratio's numerator and denominator and then evaluate the combined effect

Investors rely on ______ for information needed to make investment decisions.

many sources

Return on assets (ROA) equals ______.

net income divided by average total assets

The net profit margin ratio is calculated by dividing net income by ______.

net sales

The _______________in the annual report should be reviewed to determine the significant accounting rules used

notes

Earnings per share (EPS) appear ______.

on the income statement

The SEC ______. (Check all that apply.) has created a code of ethics for all companies to follow oversees the US stock exchanges writes accounting rules for companies around the world oversees financial reporting by US public companies

oversees the US stock exchanges oversees financial reporting by US public companies

Institutional investors include ______.

pension funds charitable foundations mutual funds

Securities and Exchange Commission

protects investors and maintains the integrity of the securities markets

The purpose of an independent auditor's report is to ___________

provide assurance that the financial statements represent what they claim to represent reduce the risk that the company's financial condition is misrepresented in the financial statements

Corporate Governance

refers to procedures designed to ensure that the company is managed in the interests of the shareholders.

Net income divided by average assets equals ______.

return on assets (ROA) Net profit margin equals net income divided by net sales revenue.

The notes to financial statements may include ______.

revenues broken out by geographic region accounting policies applied relevant information, not disclosed on the statements segment information

Public Company Accounting Oversight Board

sets auditing standards for independent auditors

Financing Accounting Standards Board

sets generally accepted accounting principles (GAAP)

Accumulated amortization is ______.

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

IFRS are ______.

the International Financial Reporting Standards

US GAAP are ______.

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

Voluntary disclosures of financial accounting information, such as press releases, may be issued ______

to guide market expectations

Press releases and conference calls are used by companies to ______.

to limit the possibility of selective leakage of information provide timely information for external users announce quarterly and annual earnings


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