Chapter 5&12

___ disclosure is an additional note that goes beyond the minimum level of required GAAP and SEC disclosures

voluntary

one of the main purposes of the first note to the financial statements is to disclose

which of the alternative accounting methods was used to measure the effects of transactions

Which of the following would be classified as discontinued operations? (Check all that apply.)

-Abandoning a product line -Closing the largest of the company's three stores

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

-Board of Directors -Management -SEC -Independent Auditors -PCAOB

Which of the following statements are true regarding an annual report and Form 10-K? (Select all that apply.)

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

Which two below must personally certify that each report filed with the SEC does not contain any untrue material statement or omit a material fact and that the financial statements are fairly stated in all material respects. (Select all that apply.)

-CEO -CFO

Which two below must personally certify that each report filed with the SEC does not contain any untrue material statement or omit a material fact and that the financial statements are fairly stated in all material respects. (Select all that apply.)

-CFO -CEO

Which of the following are sections found in a statement of cash flows? (Check all that apply.)

-Cash flows from operating activities -Cash flows from investing activities -Cash flows from financing activities

Who has a legal responsibility for ensuring the accuracy of accounting information reported in a company's financial statements?

-Chief Executive Officer -Chief Financial Officer -Accounting managers -Accounting Staff

Who has the primary responsibility for making sure that a company's financial statements follow GAAP? (Check all that apply.)

-Chief Financial Officer -Chief Executive Officer

Which of the following are parts of a Form 10-K? (Select all that apply.)

-Financial statements -Auditors reports -Management's discussion and analysis

Which of the following are principle components of the financial disclosures in a form 10-K? (Select all that apply.)

-Management's discussion and analysis -financial statements and supplemental data -business description

Select all that apply: The quality of financial reporting for publicly traded companies is improved through ____. (Check all that apply.)

-Obtaining an external audit -evaluating and reporting on the effectiveness of internal controls

Who uses accounting information? (Check all that apply.)

-Private investors -Creditors -Institutional investors -Managers

Identify which of the following are nonoperating items on the income statement. (Select all that apply.)

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

Puffin Turnovers, Inc.'s total asset turnover was 1.5 while Muffin Tops, Inc.'s total asset turnover was 0.9. Which of the following are true about Puffin compared with Muffin? (Check all that apply.)

-Puffin generated sales more efficiently. -Puffin had more sales for each dollar of assets.

Which of the following are free services available for users to access a company's financial information on the web? (Select all that apply)

-SEC's EDGAR -company's website

Which of the following cash transactions are classified as cash inflows from investing activities? (Check all that apply.)

-Sale of building -Sale of held-to-maturity investments -Sale of equipment

Which of the following must the CEO and CFO personally certify about financial reports filed with the SEC? (Check all that apply.)

-There are no significant internal control weaknesses -They do not contain any untrue material statements or omit material facts -They are presented fairly in all material respects

Which of the following must the CEO and CFO personally certify about financial reports filed with the SEC? (Check all that apply)

-They do not contain any untrue material statements or omit material facts -They are presently fair in all material respects -There are no significant internal control weaknesses

The SEC requires which of the following of publicly traded companies? (Select all that apply)

-They must have their internal control systems audited by an independent CPA -They must have their financial statements audited by an independent registered public accountant

The increased use of data analytics in performing audits of publicly-traded companies has ____. (Check all that apply.)

-allowed auditors to examine the whole population of client entries -improved the likelihood of detecting misstatements

Free services available for users to access a company's financial information on the Web include ___. (Select all that apply.)

-company's Website -EDGAR

Which of the following describes the acceptable methods that may be used to prepare the statement of cash flows? (Check all that apply.)

-direct method -indirect method

Who are the external users of accounting information? (Check all that apply.)

-institutional investors -private investors -the current and potential creditors

Publicly-traded corporations financial statement disclosures ___.

-may go beyond what is required by GAAP and the SEC -are required by GAAP and the SEC -may include information that is not reported in the financial statements

The total asset turnover ratio

-means greater efficiency when the ratio increases -tells you how well assets are used to generate sales

Institutional investors include ___. (Select all that apply.)

-mutual funds -pension funds -charitable foundations

Institutional investors include ____. (Select all that apply.)

-mutual funds -pension funds -charitable foundations

Which of the following appears on the statement of stockholders' equity? (Check all that apply.)

-net income -dividends -beginning balance of retained earnings -additional paid-in capital -common stock

The quality of financial reporting for publicly traded companies is improved through ___. (Check all that apply.)

-obtaining an external audit -evaluating and reporting on the effectiveness of internal controls

the notes to financial statements may include information about __ that are not included in the financial statements

-purchase commitments -possible legal obligations

Which of the following would be found under Cash Flows from Investing Activities? (Check all that apply.)

-purchases of productive assets -investments in other companies -sales in productive assets

The purpose of an independent auditor's report is to: (Check all that apply)

-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 the financial statements may include ___.

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

The notes to the financial statement typically provide detailed support of ___.

-revenues by geographic location -business segments -makeup of property, plant, and equipment

Short-term, highly-liquid investments that are purchased within three months of maturity can be considered equivalent to cash because they are _____

-so near maturity that their value is unlikely to change -readily convertible to known amounts of cash

Cash equivalents are reported on the _____. (Check all that apply.)

-statement of cash flows -balance sheet

Lenders or creditors include ___. (Select all that apply.)

-suppliers -commercial credit companies -banks

Puffin Pastry, Inc. had Net Sales Revenue of $90,000 and Net income of $10,000 during the year. At January 1, its total assets were $100,000, and its net fixed assets were $40,000. At December 31, its total assets were $200,000, and its fixed assets were $80,000. Puffin's asset turnover ratio equals Blank______.

0.60

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

12%

What do independent auditors provide for companies who hire them?

Assurance that the financial statements follow GAAP

___ income is reported on an additional statement or combined with the income statement and is calculated as Net Income plus other gains/losses on items such as foreign currency translation and derivatives. (Enter one word per blank.)

Comprehensive

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

Form 10-Q

The Gross Profit Percentage equals ___.

Gross profit divided by Net Sales

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

Net income

Net income divided by average assets equals

Return on Assets (ROA)

net income divided by average assets equals

Return on Assets (ROA)

SEC stands for the ___.

Securities and Exchange Commission

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

Securities and Exchange Commission

Which method of preparing the statement of cash flows is more widely used and why?

The indirect method is because it is less expensive to implement.

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

all important company news.

Financial ___ gather information through conversations with company executives and visits to company facilities and competitors. They use the information to report earning forecasts to assist in investment decisions. (Enter one word per blank.)

analysts

Earnings forecasts ___.

are provided by financial analysts to assist in investment decisions.

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. (Enter one word per blank.)

audit

Up Against The Wall, Inc. discontinued its wallpaper operations in the Southeast. Up Against The Wall will report the loss on the sale of operations and the related net operating loss from the beginning of the year through the final sale ___.

below Gross Profit on the income statement

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. (Enter one word per blank.)

board of directors

The direct method presents a summary of all operating transactions that result in either a debit or credit to Blank______. (Enter one word per blank.)

cash

___ financial statements report financial statement values for the current period and one or more other prior periods. (Enter one word per blank.)

comparative

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

compare companies' pretax levels of income

institutional investors

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

Suppliers, banks, commercial credit companies and other financial institutions that lend money are referred to as ____.

creditors

___ has allowed external auditors to audit entire populations of transactions instead of relying on smaller statistical samples.

data analytics

Financial statement formats and disclosures ___.

differ slightly among companies

Financial statement formats and disclosures ____.

differ slightly among companies

The asset turnover ratio is calculated by ______.

dividing net sales by average total assets

___ forecasts that predict companies' EPS are provided by financial analysts to assist in investment decisions.

earnings

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

True or false: GAAP permits only one accounting method to choose from in computing amounts on the financial statement requiring all companies use the straight-line method of depreciation.

false

True or false: When presenting the operating activities section of the statement of cash flows, the direct method starts with the net income and adjusts it by eliminating the effects of transactions that do not involve cash. The indirect method reports the total cash inflow or cash outflow from each main type of transaction.

false

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

financing; statement of cash flows

An unqualified audit opinion ____.

gives investors assurance that the company's financial statements comply with GAAP

An amount is considered ___ if it is not large enough to influence the decision of financial statement users. (Enter one word per blank.)

immaterial

creditors

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

The trade-off between net profit margin and total asset turnover plays out in a number of different business strategies. For example, a low-cost strategy ____ the total asset turnover, but ____ the net profit margin. (Enter only one word per blank.)

increases, decreases

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

institutional investors

Financial analysts ___.

make earnings forecasts to assist in investment decisions

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

management

___ amounts are large enough to influence the decision of financial statement users. (Enter one word per blank.)

material

The format of financial statements and the volume of disclosures reported ___.

may vary from one company to another

When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is

net income

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

net income

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. (Enter only one word per blank.)

notes or footnotes

The best place to determine revenues by geographic location is the

notes to the financial statements

Earnings per share (EPS) appear ___.

on the income statement

Comprehensive income may be shown on ___.

the income statement by adding or subtracting special items, such as changes in foreign currency exchange rates and certain investments

On the income statement, Operating Income differs from Income Taxes in that ____ are subtracted from Operating Income to arrive at Income before Income Taxes

transactions that are non-operating or infrequently occurring

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 executives and the accounting staff have legal responsibility for the accuracy of accounting information prepared by the accounting staff.

true

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

true

A(n) ___ audit opinion indicates that the financial statements are presented in accordance with GAAP. (Enter one word per blank.)

unqualified

Private investors include ___.

venture capitalists

private investors

venture capitalists who include the original investors in a company

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

ABC Company reports net income of $120,000, sales of $1,200,000, and average total assets of $960,000. The asset turnover is

1.25 times

Using the following information from Forest Gumps' financial statements, calculate the gross profit percentage. Net sales of $10,000; cost of goods sold of $6,000; operating expense of $2,000; Net income of $1,000.

40%

CFO stands for___.

Chief Financial Officer and oversees the accounting and financing side of the business

The decomposition of the ROA into the net profit margin and total asset turnover is referred to as the Blank______ analysis.

DuPont

The service sponsored by the SEC that provides free, quick access to public companies' SEC filings is called ___.

EDGAR

Which business strategy emphasizes a high total asset turnover?

Low-cost strategy

What is the purpose of the audit report?

To add credibility to the financial statements

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

True

The starting point for preparing the operating activities section using the indirect method is ___.

net income

the ROA decomposition or DuPont analysis breaks down the return on assets into two factors. These two factors are ___.

net profit margin and total asset turnover

Venture capitalists are ___.

private investors

EDGAR is ____.

sponsored by the SEC and provides free, quick access to public companies' SEC filings