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Chapter 05 The Accounting Cycle: Reporting Financial Results
Answer Key
True / False Questions
1.
A company's annual report includes comparative statements for several years.
2.
Accountants refer to the period of time from October 1 - December 31 as "busy season."
3.
The income statement, statement of retained earnings, and the statement of cash flows
can all be prepared directly from the adjusted trial balance.
4.
Publicly owned companies are typically managed by their stockholders.
5.
The balance sheet is prepared first because if it balances, all the accounting information is
correct and can be used to prepare the other financial statements.
6.
Publicly owned companies must file their audited financial statements and detailed
supporting schedules with the Financial Accounting Standards Board.
7.
Dividends declared are an expense and reduce net income.
8.
The report form of the balance sheet lists liabilities and owners' equity below assets.
9.
A current asset must be capable of being converted into cash within a relatively short
period of time, usually less than five years.
10.
IFRS 1 requires that management and auditors should depart from compliance with GAAP
if it is necessary to achieve a fair presentation when reporting financial results.
11.
The Financial Accounting Standards Board (FASB) maintains and periodically updates a
well-defined list of disclosure items that companies must include in their annual reports.
12.
Companies need not disclose information that may have a damaging effect on the
business, such as product liability lawsuits.
13.
Most disclosures appear within the body of the financial statements; however, a few
disclosures may also appear in the notes that accompany the financial statements.
14.
Real accounts can only be closed at the end of the year with a single compound entry.
15.
A revenue account is closed by debiting Income Summary and crediting Service Revenue.
16.
At year-end, all equity accounts must be closed.
17.
The income summary account appears on the statement of retained earnings.
18.
The Dividends account is closed directly to retained earnings at year-end.
19.
After all the closing entries have been posted, the Income Summary account has a zero
balance.
20.
Closing entries do not affect the cash account.
21.
The adjusted trial balance contains income statement accounts and balance sheet
accounts, while the after-closing trial balance will only have balance sheet accounts.
22.
The purpose of the after-closing trial balance is to give assurance that the accounts are in
balance and ready for the new accounting period.
23.
An after-closing trial balance consists only of asset, liability, and owners' equity accounts.
24.
Measures of profitability tell us how quickly current assets can be converted into profits.
25.
The current ratio is a measure of liquidity.
26.
The net income percentage can be measured by dividing net income by total assets.
27.
Working capital equals current assets divided by current liabilities.
28.
The current ratio equals current assets plus current liabilities.
29.
The return on equity ratio equals net income divided by common stock.
30.
Return on equity is a commonly used measure of a company's profitability.
31.
The current ratio is a measure of short-term debt paying ability.
32.
Interim financial statements usually report on a period of time less than one year.
33.
An annual report filed with the Securities and Exchange Commission must include a
section called "Management Discussion and Analysis" (MD&A).
Multiple Choice Questions
34.
An annual report
35.
Which of the following financial statements is usually prepared last?
36.
Publicly owned companies are:
37.
The normal order in which the financial statements are prepared is:
38.
Publicly traded companies must file audited financial statements with the:
39.
Of the following, which is not an alternative title for the income statement?
40.
The Retained Earnings statement is based upon which of the following relationships?
41.
Dividends declared:
42.
The dividends account should be:
43.
Retained Earnings at the end of a period:
44.
A statement of retained earnings shows:
45.
Declaring a dividend will:
46.
Dividends will have what effect upon retained earnings?
47.
Net income from the Income Statement appears on:
48.
All of the following statements are true regarding the Income Statement
except
?
49.
Assets are considered current assets if they are cash or will usually be converted into
cash:
