Chapter 3 - Smartbook

Which of the following are required SEC disclosures?

- Director compensation - Executive stock option information - Executive compensation

The SEC requires disclosures on compensation for which of the following?

- Executives - Directors

The Management Discussion and Analysis section of the financial statements includes a perspective on which of the following?

- Operations - Liquidity - Capital resources

Current assets include which of the following?

- Short Term Investments (1 year or less) - Cash - Cash equivalents

Short-term investments are sometimes called which of the following?

- Temporary investments - Short-term marketable securities

Schwinn is a company that makes bicycles. Which of the following items would be included in Schwinn's inventory?

- bicycle chains - bicycle tires - finished bicycles

The account that represents the amount of money owed by customers is called _________________ ______________________.

Accounts Receivable

The full-disclosure principle requires that financial statements report which of the following?

All material relevant information.

A prepaid expense represents a ____________ recorded when an expense is paid in advance.

Asset

Current include cash and other items that will be converted to cash or consumed within the coming year.

Assets

Book Value of a company formula:

Assets - liabilites = Book Value

The current versus noncurrent classification applies to what in the financial statements?

Assets and liabilities

The role of a ____________ is to attest to the fairness of the financial statements they have examined.

Auditor

The financial statement that displays a firm's financial position on a particular date is the ________________ _______________________.

Balance Sheet

The financial statement that provides information about liquidity and long-term solvency is the _______________

Balance Sheet

The full-disclosure principle requires financial statements to provide all _______________ __________________ information regarding the company.

Blank 1: material Blank 2: relevant

A company's total assets minus its total liabilities as shown on the balance sheet is known as the _____________ value.

Book

In a balance sheet, how are assets classified?

Current and noncurrent.

True or false: Default risk refers to how adept a company is at withstanding various events that might impair its ability to earn profits.

False Operational risk relates to how adept a company is at withstanding events that may affect ability to earn profits.

True or False: The balance sheet will directly measure the company's market value.

False The balance sheet measures the company's book value because many assets are not recorded at fair value.

____________________ consist of assets that a retail or wholesale company acquires for resale or goods that manufacturers produce for sale.

Inventory

What is considered a short-term investment?

Investments to be sold in 12 months.

Obligations to other entities are classified as __________________ on the balance sheet.

Liabilities

What refers to the riskiness of a company with regard to the amount of liabilities in its capital structure?

Long-term solvency

An analysis provided by the company's management is included in the

Management Discussion and Analysis.

Who is responsible for the information in the annual report?

Management of the company.

What does a liability represent?

Obligations owed to other entities

Classifying items on the balance sheet as current and noncurrent assists financial statement users in assessing what aspects about a company?

Solvency and liquidity.

SEC requirements provide for disclosures on executive and director compensation, particularly concerning _____________________ options.

Stock

Accounts receivable represents which of the following?

The amount owed by customers.

Which of the following is true regarding disclosure notes?

They explain or elaborate on data presented in the financial statements.

What is the purpose of additional financial disclosures in an annual report?

To assist in understanding the financial statements.

What is the role of the auditor?

To attest to the fairness of the financial statements.

What is the role of the auditor's attest function?

To provide an opinion on the financial statements.

True or False: The operating cycle for most firms is 1 year or less.

True Most firms have an operating cycle of less than 1 year because they can make and sell the goods within a short period of time.

Which of the following financial statements shows a firm's financial position on a particular date?

balance sheet

A company's assets minus its liabilities shown on the balance sheet is referred to as its ______ value.

book

The risk that a company will not be able to pay its obligations when they come due is referred to as ________________ risk.

default

Additional _____________ are critical to understanding financial statements and to evaluating a firm's performance.

disclosures or notes

Additional __________________ are critical to understanding financial statements and to evaluating a firm's performance.

disclosures or notes

What is the principle that requires that financial statements provide all material relevant information concerning the entity?

full-disclosure

Responsibility for the financial statements and other information found in the annual report lies with ________________.

management, managers, or manager

The time period necessary to convert cash to raw materials, convert raw materials into finished products, sell the products, and collect on the account receivable is referred to as the _______________ cycle.

operating

Default risk refers to the ability of a company to

pay its obligations when they come due.

Which of the following items represents an expense paid in advance that creates benefits used in the future?

prepaid expense

Which document is required to provide information on executive and director compensation?

proxy statement

A ratio used to measure liquidity is the

quick ratio.

If a company has a large amount of long-term debt in its capital structure, this will affect the firm's ______.

solvency

The ability to pay its long-term debts as they become due is referred to as ______ of the company.

solvency