Chapter 05 – Communicating and Interpreting Accounting Information
1. External users of accounting information include decision makers such as investors,
creditors, and financial analysts.
2. The mission of the Securities & Exchange Commission (SEC) is to develop generally
accepted accounting principles.
Chapter 05 – Communicating and Interpreting Accounting Information
3. Independent auditors are advisors who analyze financial statements and other economic
information to formulate forecasts and stock recommendations.
4. The Securities & Exchange Commission (SEC) oversees the work of the Financial
Accounting Standards Board (FASB).
Chapter 05 – Communicating and Interpreting Accounting Information
5. The Financial Accounting Standards Board (FASB) oversees the work of the Public
Company Accounting Oversight Board (PCAOB).
6. The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for
independent auditors.
Chapter 05 – Communicating and Interpreting Accounting Information
7. The primary responsibility for the information in a corporation’s financial statements lies
with the chief executive officer (CEO) and the chief financial officer (CFO).
8. The board of directors is responsible for maintaining the integrity of a company’s financial
statements and financial reporting.
Chapter 05 – Communicating and Interpreting Accounting Information
9. The Securities & Exchange Commission requires publically traded companies to have their
financial statements audited by their internal auditors.
10. Financial analysts utilize a company’s financial reports to assist them in making earnings
projections and earnings per share projections.
Chapter 05 – Communicating and Interpreting Accounting Information
11. For financial information to be relevant it must be verifiable and accurate.
12. In order for financial information to be consistent, similar accounting methods need to be
used from one period to the next.
Chapter 05 – Communicating and Interpreting Accounting Information
13. In order for financial information to be reliable, it should be timely and verifiable.
14. In order for financial information to be relevant, it should be timely and accurate.
Chapter 05 – Communicating and Interpreting Accounting Information
15. The form 10-Q contains an unaudited set of quarterly financial statements containing a
condensed income statement and balance sheet.
16. The form 10-K is the annual report that publically traded companies must file with the
Securities & Exchange Commission (SEC).
17. Recent stock price information is a financial statement disclosure.
Chapter 05 – Communicating and Interpreting Accounting Information
18. A listing of a company’s directors and officers is a financial statement disclosure.
19. Inventories are reported on the balance sheet as a current asset.
20. Intangible assets are reported on the balance sheet as a current asset.
Chapter 05 – Communicating and Interpreting Accounting Information
21. Intangible assets are reported on the balance sheet as a noncurrent asset and include
goodwill.
22. Additional-paid in capital is reported on the balance sheet as a component of shareholders’
equity.
23. Common stock and additional-paid in capital are both reported on the balance sheet as a
component of shareholders’ equity.
Chapter 05 – Communicating and Interpreting Accounting Information
24. Common stock and additional-paid in capital represent the capital contributed by
shareholders.
25. Net sales less cost of goods sold is reported on the income statement as income from
continuing operations.
26. Discontinued operations and extraordinary items are reported on the income statement as
a component of income from continuing operations.
Chapter 05 – Communicating and Interpreting Accounting Information
27. The summary of significant accounting policies is a required financial statement
disclosure.
28. The return on assets ratio is calculated by dividing income from continuing operations by
average total assets.
29. The return on assets ratio will increase when sales increase.
Chapter 05 – Communicating and Interpreting Accounting Information
30. The return on assets ratio is affected by both the net profit margin ratio and the asset
turnover ratio.
31. Which of the following tasks does the Securities & Exchange Commission (SEC) not
perform?
Chapter 05 – Communicating and Interpreting Accounting Information
32. Which of the following tasks does the Financial Accounting Standards Board (FASB)
perform?
33. Which of the following are primarily responsible for the information provided in a
company’s financial statements?
Chapter 05 – Communicating and Interpreting Accounting Information
34. Which of the following is not a responsibility of the chief executive officer (CEO) and the
chief financial officer (CFO)?
35. Which of the following is not true about the board of directors?
Chapter 05 – Communicating and Interpreting Accounting Information
36. Which of the following statements is false?
37. For accounting information to be useful, it must be which of the following?
Chapter 05 – Communicating and Interpreting Accounting Information
38. Conservatism requires that special care must be taken to avoid which of the following?
39. Which of the following is an objective of the external audit of a company’s financial
statements?
Chapter 05 – Communicating and Interpreting Accounting Information
40. Which of the following describes the conservatism constraint?
41. Which of the following is false?
Chapter 05 – Communicating and Interpreting Accounting Information
42. The Securities and Exchange Commission’s (SEC) report that is required to be filed if any
special event occurs is which of the following?
43. In what order are current assets usually reported on the balance sheet?
Chapter 05 – Communicating and Interpreting Accounting Information
44. Which of the following would not be classified as a current asset?
45. What account is credited when a corporation issues stock at an amount over the stock’s par
value?