,Test Questions and Solutions
Chapter 1
True-False
1. A firm’s annual report contains only two pieces of information: the financial
statements and the notes to the financial statements.
2. The SEC regulates U.S. companies that issue securities to the public and
requires the issuance of a prospectus for any new security offering.
3. The FASB has congressional authority to set accounting policies.
4. The European Union began requiring publicly traded companies to use U.S.
GAAP in 2005.
5. External auditors are required to audit the internal control assessment of the
company as well as the financial statements.
6. Congress passed the Sarbanes-Oxley Act of 2002 in hopes of ending future
accounting scandals and renewing investor confidence in the marketplace.
7. The Management Discussion and Analysis is of potential interest to the analyst
because it contains information that cannot be found in the financial data.
8. Information that is significant enough to make a difference in a decision is
considered to be immaterial.
9. The time period assumption assumes a two year time frame with interim
reporting occurring daily and weekly.
10. GAAP-based financial statements are prepared according to the accrual basis
of accounting.
Fill in the Blank
1. The requires all public companies to file a Form 10-K report
annually.
,2. A corporate annual report contains financial statements.
3. is responsible for the preparation of the financial statements,
including the notes, and the attests to the fairness of the
presentation.
4. The was passed in 2002 and was one of the most sweeping
corporate reforms since the Securities Act of 1934.
5. The is a document used to solicit shareholder votes.
6. The Assumption is the assumed unit of measurement when
preparing financial statements.
7. The cash basis of accounting recognizes when cash is received and
recognizes when cash is paid.
8. The sharper and clearer the picture presented through the financial data and the
closer that picture is to financial reality, the higher the financial
statements and reported earnings.
9. One of the generally accepted accounting principles that provide the foundation
for preparing financial statements is the principle.
10. Management exercises control over the budget level and timing of
expenditures.
Multiple Choice
1. What information would not be found in a firm’s annual report?
a. Notes to the financial statements.
b. Financial Reporting Rulings.
c. Auditor’s report.
d. High and low stock prices.
2. Which agency requires the filing of Form 10-Ks, Form 10-Qs and Form 8-Ks?
a. FASB.
b. IASB.
c. SEC.
d. GAAP.
, 3. Which of the following statements is true?
a. Foreign firms registered with the SEC may file reports based on IFRS.
b. U.S. firms registered with the SEC may file reports based on IFRS.
c. The European Union requires firms to report based on GAAP.
d. Foreign firms registered with the SEC may file reports based on IFRS
only if they reconcile all amounts to GAAP.
4. Which financial statement presents the results of operations?
a. Balance sheet.
b. Statement of financial position.
c. Income statement.
d. Statement of cash flows.
5. Which financial statement shows the assets, liabilities and stockholders’ equity
of the firm on a particular date?
a. Statement of stockholders’ equity.
b. Statement of cash flows.
c. Earnings statement.
d. Balance sheet.
6. Which financial statement provides information about operating, financing and
investing activities?
a. Statement of financial position.
b. Statement of cash flows.
c. Statement of stockholders’ equity.
d. Income statement.
7. What information can be found on a statement of stockholders’ equity?
a. A reconciliation of the cash account and the retained earnings account.
b. A reconciliation of the beginning and ending balances of all accounts that
appears in the stockholders’ equity section of the balance sheet.
c. A reconciliation of the operating, investing and financing activities of a
firm.
d. A reconciliation of net profit or loss and the cash account.
8. What basic financial statements can be found in a corporate annual report?
a. Balance sheet, income statement, statement of shareholders' equity, and
statement of cash flows.
b. Balance sheet, auditor's report and income statement.
c. Earnings statement and statement of retained earnings.
Chapter 1
True-False
1. A firm’s annual report contains only two pieces of information: the financial
statements and the notes to the financial statements.
2. The SEC regulates U.S. companies that issue securities to the public and
requires the issuance of a prospectus for any new security offering.
3. The FASB has congressional authority to set accounting policies.
4. The European Union began requiring publicly traded companies to use U.S.
GAAP in 2005.
5. External auditors are required to audit the internal control assessment of the
company as well as the financial statements.
6. Congress passed the Sarbanes-Oxley Act of 2002 in hopes of ending future
accounting scandals and renewing investor confidence in the marketplace.
7. The Management Discussion and Analysis is of potential interest to the analyst
because it contains information that cannot be found in the financial data.
8. Information that is significant enough to make a difference in a decision is
considered to be immaterial.
9. The time period assumption assumes a two year time frame with interim
reporting occurring daily and weekly.
10. GAAP-based financial statements are prepared according to the accrual basis
of accounting.
Fill in the Blank
1. The requires all public companies to file a Form 10-K report
annually.
,2. A corporate annual report contains financial statements.
3. is responsible for the preparation of the financial statements,
including the notes, and the attests to the fairness of the
presentation.
4. The was passed in 2002 and was one of the most sweeping
corporate reforms since the Securities Act of 1934.
5. The is a document used to solicit shareholder votes.
6. The Assumption is the assumed unit of measurement when
preparing financial statements.
7. The cash basis of accounting recognizes when cash is received and
recognizes when cash is paid.
8. The sharper and clearer the picture presented through the financial data and the
closer that picture is to financial reality, the higher the financial
statements and reported earnings.
9. One of the generally accepted accounting principles that provide the foundation
for preparing financial statements is the principle.
10. Management exercises control over the budget level and timing of
expenditures.
Multiple Choice
1. What information would not be found in a firm’s annual report?
a. Notes to the financial statements.
b. Financial Reporting Rulings.
c. Auditor’s report.
d. High and low stock prices.
2. Which agency requires the filing of Form 10-Ks, Form 10-Qs and Form 8-Ks?
a. FASB.
b. IASB.
c. SEC.
d. GAAP.
, 3. Which of the following statements is true?
a. Foreign firms registered with the SEC may file reports based on IFRS.
b. U.S. firms registered with the SEC may file reports based on IFRS.
c. The European Union requires firms to report based on GAAP.
d. Foreign firms registered with the SEC may file reports based on IFRS
only if they reconcile all amounts to GAAP.
4. Which financial statement presents the results of operations?
a. Balance sheet.
b. Statement of financial position.
c. Income statement.
d. Statement of cash flows.
5. Which financial statement shows the assets, liabilities and stockholders’ equity
of the firm on a particular date?
a. Statement of stockholders’ equity.
b. Statement of cash flows.
c. Earnings statement.
d. Balance sheet.
6. Which financial statement provides information about operating, financing and
investing activities?
a. Statement of financial position.
b. Statement of cash flows.
c. Statement of stockholders’ equity.
d. Income statement.
7. What information can be found on a statement of stockholders’ equity?
a. A reconciliation of the cash account and the retained earnings account.
b. A reconciliation of the beginning and ending balances of all accounts that
appears in the stockholders’ equity section of the balance sheet.
c. A reconciliation of the operating, investing and financing activities of a
firm.
d. A reconciliation of net profit or loss and the cash account.
8. What basic financial statements can be found in a corporate annual report?
a. Balance sheet, income statement, statement of shareholders' equity, and
statement of cash flows.
b. Balance sheet, auditor's report and income statement.
c. Earnings statement and statement of retained earnings.
