Quiz for Module 3

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

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

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

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

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

Financial statements Management's discussion and analysis Auditor reports

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

Institutional investors Government Private investors Creditors Managers

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

True

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

compare companies' pretax levels of income

Accounting regulators consider ______ before requiring new financial statement disclosures.

cost-effectiveness

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

creditors

The gross profit percentage is the ratio to watch if you are worried about increased competition. If the company lowers its prices to retain market share without lowering its cost of goods sold, its gross profit percentage will ______.

decrease

Publicly-traded corporations' financial statement disclosures _______.

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

Earnings per share (EPS) appear ______.

on the income statement

Press releases and conference calls are used by companies to ______. (Select all that apply.)

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

Using the following information from Florist 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% Gross profit percentage equals 40% (= ($10,000 - $6,000)/$10,000)

What does the gross profit percentage tell you?

A higher ratio means that more is available to cover operating expenses.

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

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

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

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

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 Reason: 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).

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

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

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

True or false: GAAP permits only one accounting method to choose from in computing amounts on the financial statements requiring all companies to 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 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 Reason: The direct method reports the total cash inflow or cash outflow from each main type of transaction. The indirect method starts with net income and adjusts it by eliminating the effects of transactions that do not involve cash.

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

Financing; statement of cash flows

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

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

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

Net Income

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

Notes

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

Press release

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 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 Management's discussion and analysis Financial statements and supplemental data

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

Statement of stockholders' equity

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

True

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

True

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

Voluntary

IFRS and US GAAP ______.

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

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

banks suppliers commercial credit companies

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 to the final sale ______.

below Gross Profit on the income statement

Nonoperating items are found _______ on a classified income statement

below Operating Income

When considering new accounting rules and disclosures, "cost effectiveness" requires the ______.

benefits of the new rules or disclosures outweigh the costs

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

An unqualified audit opinion ______.

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

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

intangible assets on its balance sheet

The best place to determine revenues by geographic region is the ______.

notes to the financial statements

A classified income statement is useful to financial statement users because it ______. (Check all that apply.)

presents income statement items in meaningful categories separates cost of goods sold from other operating expenses, which allows the calculation of gross profit

The notes to the financial statements typically provide detail support of ______. (Select all that apply.)

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

The notes to financial statements may include ______. (Check all that apply.)

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

Accumulated amortization is ______. (Select all that apply.)

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

US GAAP are ______.

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

Net cash flows provided by operating activities will be ______ when using the direct method compared to the indirect method.

the same

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

to guide market expectations

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

transactions that are non-operating or infrequently occurring

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

unqualified