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Question 1
- “What type of audit report indicates that the financial statements present fairly the financial position, results of operations and the cash flows for the accounting period?”
A disclaimer of opinion. |
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An unqualified report. |
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A qualified report. |
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An adverse opinion. |
5 points
Question 2
- Which of the following items would not be discussed in the management discussion and analysis?
Commitments for capital expenditures. |
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The internal and external sources of liquidity. |
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The market value of all assets. |
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A breakdown of sales increases into price and volume components. |
5 points
Question 3
- What is a Form 10-K?
The annual report of a publicly held company which must be filed with the SEC. |
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The quarterly report of a publicly held company which must be filed with the SEC. |
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The bankruptcy report of a publicly held company which must be filed with the SEC. |
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The form required to report a change of auditor. |
5 points
Question 4
- What was one of the major impacts of the Sarbanes-Oxley Act of 2002 on external auditors?
External auditors are now required to establish and maintain an adequate internal control structure for their clients. |
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External auditors are now required to audit the internal control assessment of a client firm. |
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External auditors are now required to state their responsibility for the internal control structure of their clients. |
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None of the above. |
5 points
Question 5
- Which of the following statements is true?
GAAP-based financial statements are prepared according to the cash rather than the accrual basis of accounting. |
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Accounting choices and estimates can have a significant impact on the outcome of financial statement numbers. |
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The accrual method means that the expense is recognized after the cash is paid out. |
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The purpose of the accrual method is to attempt to match assets with liabilities in appropriate accounting periods. |
5 points
Question 6
- What types of information cannot be found in the financial statements?
“Reputation of the firm, morale of employees and prestige in the community.” |
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Nature and terms of off-balance sheet financing arrangements. |
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Disclosures about segments of an enterprise. |
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Disclosures about the fair value of financial instruments. |
5 points
Question 7
- What item is probably the least useful when analyzing financial statements?
Management discussion and analysis. |
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Public relations materials. |
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The statement of cash flows. |
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The notes to the financial statements. |
5 points
Question 8
- Which item below does not describe a balance sheet?
Assets = Liabilities + Stockholders’ Equity. |
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Financial position at a point in time. |
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Assets Liabilities = Stockholders’ Equity. |
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Assets + Liabilities = Stockholders’ Equity. |
5 points
Question 9
- Which of the following statements is false?
Annual reports must include three-year audited balance sheets and two-year audited income statements. |
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The balance sheet is prepared on a particular date. |
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Interim statements are generally prepared quarterly. |
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“When a parent company owns more than 50% of the voting stock of a subsidiary, the financial statements are consolidated for both entities.” |
5 points
Question 10
- What are current assets?
Assets purchased within the last year. |
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Assets which will be used within the next month. |
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Assets expected to be converted into cash within one year or operating cycle. |
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Assets are the net working capital of the firm. |
5 points
Question 11
- “Which of the following items could be included in the account “”cash and cash equivalents””?”
US Treasury bills. |
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Certificates of deposit. |
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Commercial paper. |
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All of the above. |
5 points
Question 12
- How are marketable securities valued on the balance sheet?
Historical cost. |
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At cost or fair value depending on how the securities are classified. |
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Market value. |
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At fair value with the difference between cost and fair value reported as revenue. |
5 points
Question 13
- How is accounts receivable reported on the balance sheet?
At their net realizable value. |
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At the actual amount less an allowance for doubtful accounts. |
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At the actual amount plus an allowance for doubtful accounts. |
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Both (a) and (b). |
5 points
Question 14
- The inventory of a retail company is comparable to which type of inventory of a manufacturing company?
Finished goods. |
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Work in process. |
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Supplies. |
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Raw materials. |
5 points
Question 15
- Which type of firm would carry little or no inventory?
A manufacturing firm. |
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A retail firm. |
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A service firm. |
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A wholesale firm. |
5 points
Question 16
- Which of the following statements is false?
Reserve accounts should only be set up when the amounts can be determined with 100% certainty. |
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Reserve accounts can be used to record declines in asset values. |
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Reserve accounts are set up for the purposes of estimating obligations. |
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Some firms have used reserve accounts to manipulate earnings. |
5 points
Question 17
- Which of the following accounts would be classified as current assets?
“Cash, accounts receivable, accounts payable.” |
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“Accounts receivable, inventory, marketable securities.” |
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“Accounts receivable, inventory, equipment.” |
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“Marketable securities, inventory, goodwill.” |
5 points
Question 18
- Which of the following statements is true?
“Land, buildings and equipment should be depreciated over the period of time they benefit the firm.” |
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Most companies use accelerated depreciation for financial reporting purposes. |
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Book value is equal to the original cost of a fixed asset plus any accumulated depreciation to date. |
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The process of depreciation is a method of allocating the cost of long-lived assets. |
5 points
Question 19
- Which items would be classified as intangible assets?
“Unearned revenue, patents, copyrights.” |
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“Goodwill, trademarks, franchises.” |
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“Land, goodwill, copyrights.” |
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“Deferred taxes, prepaid expenses, patents.” |
5 points
Question 20
- Which items would be classified as liabilities?
“Accounts payable, additional paid-in capital, pension liabilities.” |
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“Common stock, retained earnings, bonds payable.” |
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“Commitments and contingencies, obligations under leases, notes payable.” |
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“Deferred taxes, accrued expenses, treasury stock.” |