ACG 5026 Midterm Exam Questions and
Complete Solutions
Three general uses of accounting ✅Financial reporting and external performance
evaluations
Managerial decision making
Managerial planning, control & internal performance evaluations
Corporate Advantages ✅Limited liability
Ability to raise capital
Ability to separate ownership from management
Transferability of ownership
Corporate Disadvantages ✅Double taxation (corporate profits and dividends/capital
gains
Paperwork and formalities
What are the three basic business activities ✅Operational
Investing
Financing
How did cash (on the balance sheet) change? Look at... ✅Statement of Cash Flows
How did equity (on the balance sheet) change? Look at... ✅Statement of Stockholders'
Equity
How did operations affect retained earnings (on the balance sheet)? Look at...
✅Statement of Income
Four Financial Statements ✅Balance Sheet
Statement of Cash Flows
Statement of Equity
, Income Statement
Generally Accepted Accounting Principles (GAAP) ✅Standards and accepted
practices designed to guide the preparation of financial statements
Based on underlying principles
Enables external users to rely on audited financial statements
The SEC's Authority ✅Regulates the issuance and trading of securities in the U.S.
Who must report to the SEC? ✅Companies with more than $10 million of assets and
whose securities are held by more than 500 owners must file annual and other periodic
reports.
Financial Accounting Standards Board (FASB) ✅Currently establishes accounting
standards in the U.S. (GAAP).
Developed a Conceptual Framework to serve as a guide for accounting issues not
covered by standards
Auditor's Report ✅A statement to the board of directors of the company and to the
shareholders of the company by an independent auditor.
What does an audit report express? ✅An opinion as to whether the financial
statements present fairly the financial activities of the company and whether the
financials were prepared in accordance with GAAP.
A "clean" audit opinion indicates... ✅that the auditors do believe that the financial
statements present fairlythe economic conditions of the firm. It does NOT state that the
statements are "accurate."
Balance Sheets is reported at a... ✅specific point in time
Statement of cash flows, equity and income statement are reported at a ✅period of
time
Reporting Periods ✅Can be annual, semiannual, quarterly, or monthly reporting
periods
Fiscal Year ✅A one-year reporting period
Often called an accounting year
Complete Solutions
Three general uses of accounting ✅Financial reporting and external performance
evaluations
Managerial decision making
Managerial planning, control & internal performance evaluations
Corporate Advantages ✅Limited liability
Ability to raise capital
Ability to separate ownership from management
Transferability of ownership
Corporate Disadvantages ✅Double taxation (corporate profits and dividends/capital
gains
Paperwork and formalities
What are the three basic business activities ✅Operational
Investing
Financing
How did cash (on the balance sheet) change? Look at... ✅Statement of Cash Flows
How did equity (on the balance sheet) change? Look at... ✅Statement of Stockholders'
Equity
How did operations affect retained earnings (on the balance sheet)? Look at...
✅Statement of Income
Four Financial Statements ✅Balance Sheet
Statement of Cash Flows
Statement of Equity
, Income Statement
Generally Accepted Accounting Principles (GAAP) ✅Standards and accepted
practices designed to guide the preparation of financial statements
Based on underlying principles
Enables external users to rely on audited financial statements
The SEC's Authority ✅Regulates the issuance and trading of securities in the U.S.
Who must report to the SEC? ✅Companies with more than $10 million of assets and
whose securities are held by more than 500 owners must file annual and other periodic
reports.
Financial Accounting Standards Board (FASB) ✅Currently establishes accounting
standards in the U.S. (GAAP).
Developed a Conceptual Framework to serve as a guide for accounting issues not
covered by standards
Auditor's Report ✅A statement to the board of directors of the company and to the
shareholders of the company by an independent auditor.
What does an audit report express? ✅An opinion as to whether the financial
statements present fairly the financial activities of the company and whether the
financials were prepared in accordance with GAAP.
A "clean" audit opinion indicates... ✅that the auditors do believe that the financial
statements present fairlythe economic conditions of the firm. It does NOT state that the
statements are "accurate."
Balance Sheets is reported at a... ✅specific point in time
Statement of cash flows, equity and income statement are reported at a ✅period of
time
Reporting Periods ✅Can be annual, semiannual, quarterly, or monthly reporting
periods
Fiscal Year ✅A one-year reporting period
Often called an accounting year
