acct 1201 - ch. 5 learnsmart

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 (Gross profit + cost of goods sold = net sales revenue)

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

(O) Additional paid-in capital (O) Beginning balance of retained earnings (X) Cash received during the accounting period (O)Dividends (O) Common stock (O) Net income

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

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

Accumulated amortization is ______.

(O) a contra-asset account similar to accumulated depreciation (O) similar to depreciation except it is netted against intangible assets instead of tangible assets (X) an expense (X) a liability and reports the amount owed on mortgages

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

(X) Dividend payment (O) Sales of productive assets (O) Purchases of productive assets (O) Investments in other companies

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

(X) Estimated future stock prices and earnings (O) Select summarized financial data for a 5-year period (O) Management's discussion and analysis (O) Financial statements and supplemental data

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

(X) Internal Control Policies and Procedures Manual (O) Management's discussion and analysis (O) Financial statements (O) Auditor reports

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

(X) Management's discussion and analysis (X) Auditor's report (O) Press release (X) Financial statement notes

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

(X) Treasury Department (X) Internal Revenue Service (O) Independent Auditors (O) Management (O) SEC (O) Board of Directors (O) PCAOB

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.

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

Who uses accounting information?

- Government - Institutional investors - Managers - Private investors - Creditors

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 - directors

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

- 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

The purpose of an independent auditor's report is to _____.

- 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 notes to financial statements may include _____.

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

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

-Financing - statement of cash flows

Who are the external users of accounting information?

-Institutional investors -The current and potential creditors -Private investors

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 = Net Income / Revenues)

Match the section of the statement of cash flows with the appropriate descriptions.

Cash Flows from Operating Activities --> Cash flows associated with earning income Cash Flows from Investing Activities --> Cash flows associated with the purchase and sale of productive assets Cash Flows from Financing Activities --> Cash flows related to borrowings, stocks and dividend payments

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

Comparative

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

Corporate governance

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

Form 10-Q

Match the external users of financial information with the appropriate description.

Institutional investors --> Control the majority of publicly traded shares of US companies and invest on behalf of many individual investors Creditors --> Include banks, suppliers and other financial institutions that lend money to companies Private investors --> Venture capitalists who include the original investors in a company

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

Management

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

Net income

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

SEC

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

Match each regulator with its function.

Securities and Exchange Commission --> protects investors and maintains the integrity of the securities markets Financing Accounting Standards Board --> sets generally accepted accounting principles (GAAP) Public Company Accounting Oversight Board --> sets auditing standards for independent auditors

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

Statement of stockholders' equity

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

True

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

True

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

True; Many actors are involved in ensuring the integrity of financial statements, not just management.

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.

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

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

compare companies' pretax levels of income

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

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

governance

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

intangible assets on its balance sheet

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

An unqualified (clean) audit opinion, should help _____ the expected rate of return investors charge for providing capital.

lower

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

many sources

Return on assets (ROA) equals ____.

net income divided by average total assets

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

Net income divided by average assets equals _____.

return on assets (ROA)

Net income divided by average assets equals ______.

return on assets (ROA)

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