Question 1

Every financial statement should have "who,what,and when" in its heading.These are:

Accepted Answer

The name of the company is necessary for identification, the type of financial statement indicates the purpose of the statement, and the time period or date is crucial for contextualizing the data. Option A is incorrect because financial statements are typically not reported to the SEC, and the type of financial statement should be included instead. Option B is incorrect because it lacks the type of financial statement, which is important for understanding the purpose of the statement. Option D is incorrect because financial statements are typically not reported to the IRS, and the purpose of the statement should be indicated instead.

Question 2

Which of the following is true regarding a company's fiscal year?

Accepted Answer

A company's fiscal year does not always correspond to the calendar year, as it can start and end at any point in the year. The fiscal year is usually chosen to correspond to a company's slow period, allowing for better financial planning and budgeting. The Financial Accounting Standards Board does not assign a year end to each company, as the choice of fiscal year is determined by the company itself. Therefore, the only true statement is that it usually corresponds to a company's slow period.

Question 3

Investors are often interested in the amount of net income distributed as dividends.In which section of the financial statements would investors look to find this amount?

Accepted Answer

The statement of retained earnings provides information on the portion of net income that is retained in the business and the portion distributed as dividends, making it the correct place for investors to find the amount of net income distributed as dividends.

Question 4

Which of the following would be acceptable as an alternative term used for the income statement?

Accepted Answer

The income statement is also known as the statement of operations because it shows the revenues and expenses of a company over a period of time.

Question 5

Which of the following business organizations has only one owner?

Accepted Answer

A sole proprietorship is a business organization that has only one owner. The owner has complete control over the business, and the profits and losses are directly attributed to them. The other options (corporation, public company, and partnership) involve two or more owners.

Question 6

In the U.S. ,generally accepted accounting principles are established:

Accepted Answer

Generally accepted accounting principles (GAAP) are established by the Financial Accounting Standards Board (FASB), an independent organization recognized by the Securities and Exchange Commission (SEC) for setting accounting standards in the United States. The Public Company Accounting Oversight Board (PCAOB) is responsible for overseeing the work of auditors of public companies, while the American Institute of Certified Public Accountants (AICPA) is a professional organization for CPAs and provides guidance and support to its members. The 1933 Securities Act primarily addresses registration and disclosure requirements for securities offerings.

Question 7

Which of the following is true about the format of financial statements?

Accepted Answer

The answer of Which of the following is true about...

Question 8

The purpose of a statement of retained earnings is to:

Accepted Answer

A statement of retained earnings is used to report how the profits of a company have been distributed to stockholders or retained in the business. It shows the beginning balance of retained earnings, the net income or loss from the current period, the dividends paid to stockholders, and the ending balance of retained earnings. It helps investors and stakeholders understand how a company is using its profits and making decisions about investing in the business.

Question 9

What would a financial statement user learn from reading the auditors' report?

Accepted Answer

The auditors' report provides an independent opinion on whether the financial statements are presented fairly in accordance with GAAP. It does not provide information on stock purchases, dividends, or future expansion plans.

Question 10

Internal users of financial data include:

Accepted Answer

Internal users of financial data refer to those who are inside the company and utilize financial information to make organizational decisions. Management is the primary internal user of financial data as they need it to measure the financial performance of the company, track the financial resources, and decide the future direction of the business. While investors, creditors, and regulatory authorities are external users of financial data who use it to assess the financial health, profitability, and compliance of the company.

Question 11

Which of the following is not a difference between notes payable and accounts payable?

Accepted Answer

Notes payable are reported as liabilities on the balance sheet, not as stockholders' equity. The other options are differences between notes payable and accounts payable.

Question 12

An investor might look at a company's financial statements to determine all of the following,except:

Accepted Answer

The financial statements of a company can provide information about its earnings, dividends, and cash flow, which can help an investor make informed decisions about whether to invest in the company. However, the financial statements do not provide information about the financial soundness of the company's owners.

Question 13

Which of the following is not an expense?

Accepted Answer

Dividends are not an expense, but rather a distribution of profits to shareholders. A) Wages of employees, B) Interest incurred on a loan, and D) Corporate income tax are all expenses that a company incurs in order to generate revenue and operate its business.

Question 14

In the statement of cash flows,what amount is represented by letter L?

Accepted Answer

The answer of In the statement of cash flows,what amount...

Question 15

During 2013,a company's assets increase by $56,000 and its liabilities increase by $38,000.If no dividend is paid and no further capital is contributed,net income for 2013 was:

Accepted Answer

The increase in assets ($56,000) must equal the increase in liabilities ($38,000) plus the net income (NI). Therefore, NI = $56,000 - $38,000 = $18,000. No dividend payment or additional capital contribution is mentioned in the problem, so they can be ignored.

Question 16

A creditor might look at a company's financial statements to determine if the:

Accepted Answer

A creditor is interested in the company's ability to repay its debts, which can be determined by examining its financial statements. This includes analyzing factors such as cash flow, profitability, and debt levels. The creditor wants to ensure that the company has sufficient resources to meet its financial obligations, including debt payments.

Question 17

A company's quarterly income statements show that in the last three quarters both sales revenue and net income have been falling.Which of the following conclusions drawn by users are valid,given this information?

Accepted Answer

The only valid conclusion that can be drawn from the given information is that the owners may conclude that the company will be less likely to distribute dividends. This is because when net income is falling, the company may find it difficult to maintain or increase dividend payments to its shareholders. The other options are not valid conclusions as they make assumptions that are not necessarily supported by the information provided. Creditors may be more concerned about the company's ability to repay the loan if its income is falling, investors may not find the company attractive if its financial performance is declining, and customers are obligated to pay their debts to the company regardless of its financial performance.

Question 18

In the U.S. ,public companies have to be audited by independent auditors using rules approved by the:

Accepted Answer

Public companies in the U.S. are required to be audited by independent auditors using rules approved by the Public Company Accounting Oversight Board (PCAOB), which was established under the Sarbanes-Oxley Act of 2002 to oversee the accounting industry and ensure the accuracy and reliability of financial statements. The other options listed are regulatory bodies or standards-setting organizations in the accounting field, but they do not have sole authority over the auditing of public companies.

Question 19

The WC Company borrowed $26,500 from a bank during 2013.

Accepted Answer

Borrowing money from a bank is a financing activity, which involves obtaining funds from lender(s) or issuing debt securities. Therefore, the $26,500 would be listed as $26,500 under financing activities on the statement of cash flows.

Question 20

Which of the following actions would be considered unethical?

Accepted Answer

The cousin of one of the business owners is hired to perform the annual audit is unethical because it is a conflict of interest.

Quiz 1: Business Decisions and Financial Accounting