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标题: Financial Reporting and Analysis 【Reading 23】Sample [打印本页]
作者: Kingpin804    时间: 2012-3-26 10:52     标题: [2012 L1] Financial Reporting and Analysis 【Session 7 - Reading 23】Sample

A company’s chart of accounts is:
A)
used for entries that offset other accounts.
B)
the set of journal entries that makes up the components of owners’ equity.
C)
a detailed list of the accounts that make up the five financial statement elements.


A company’s chart of accounts is a detailed list of the accounts that make up the five financial statement elements and the line items presented in the financial statements. Contra accounts are used for entries that offset other accounts. The categories that make up owners’ equity are capital, additional paid-in capital, retained earnings and other comprehensive income.
作者: Kingpin804    时间: 2012-3-26 10:53

Accumulated depreciation and treasury stock are most likely to be shown as what types of accounts?
Accumulated depreciation Treasury stock
A)
Contra-asset Equity
B)
Contra-asset Contra-equity
C)
Liability Equity


Accumulated depreciation is a contra-asset account to the asset account property, plant & equipment. Treasury stock is a contra-equity account to common stock or additional paid-in capital.
作者: Kingpin804    时间: 2012-3-26 10:53

Allowance for bad debts and investment in affiliates are most likely to be shown as what types of accounts?
Allowance for bad debts Investment in affiliates
A)
Contra-asset Asset
B)
Contra-asset Liabilities
C)
Liabilities Asset


Allowance for bad debts is a contra-asset account to accounts receivable. Investments in affiliates are considered assets.
作者: Kingpin804    时间: 2012-3-26 10:54

The following amounts were drawn from the records of JME Company: total assets = $1,200; total liabilities = $750; contributed capital = $600. Based on this information alone, retained earnings must be equal to:
A)
$150.
B)
$450.
C)
−$150.


(1,200 − 750 − 600) = −150
作者: Kingpin804    时间: 2012-3-26 10:54

What is the fundamental balance sheet equation?
A)
Assets = Liabilities + Stockholders' Equity (A = L + E).
B)
Assets = Stockholders' Equity - Liabilities (A = E - L).
C)
Liabilities = Assets + Stockholders' Equity (L = A + E).


The fundamental balance sheet equation is Assets = Liabilities + Stockholders’ Equity (A = L + E). This is the fundamental accounting relationship that sets the basis for recording all financial transactions.
作者: Kingpin804    时间: 2012-3-26 10:55

Which of the following least accurately describes a correct use of double-entry accounting?
A)
A decrease in a liability account may be balanced by a decrease in another liability account.
B)
A transaction may be recorded in more than two accounts.
C)
An increase in an asset account may be balanced by an increase in an owner’s equity account.


Keeping the accounting equation in balance requires double-entry accounting, in which a transaction has to be recorded in at least two accounts. An increase in an asset account, for example, must be balanced by a decrease in another asset account or by an increase in a liability or owners’ equity account. A decrease in a liability account may be balanced by an increase in another liability account, not a decrease. If two liabilities decrease without a balancing entry, the balance sheet will be out of balance.
作者: Kingpin804    时间: 2012-3-26 10:55

The purchase of equipment for $25,000 cash is most likely to be recorded as:
A)
an increase in one asset account and a decrease in another asset account.
B)
an increase in an asset account and an increase in a liability account.
C)
an increase in two asset accounts.


The purchase of equipment for cash is an increase in property, plant and equipment (an asset) and a decrease in cash (another asset).
作者: Kingpin804    时间: 2012-3-26 10:56

Washburn Motors signs a contract to sell a $100,000 luxury sedan to be delivered next month, and receives a $20,000 cash down payment from the buyer. How will the transaction most likely affect Washburn’s assets and liabilities?
Assets Liabilities
A)
Unchanged Unchanged
B)
Increase Increase
C)
Increase Unchanged


The down payment will increase cash (an asset) and unearned revenue (a liability). Revenues (and thus retained earnings and owner’s equity) will not increase because the car has not been delivered.
作者: Kingpin804    时间: 2012-3-26 10:57

A furniture store acquires a set of chairs for $750 cash and sells them for $1000 cash. These transactions are most likely to affect which accounts?
Purchase Sale
A)
Assets only Assets, revenue, expenses, owners' equity
B)
Assets only Assets and revenues only
C)
Assets and expenses Assets, revenue, expenses, owners' equity


The purchase will be a decrease in cash and an increase in inventory, both asset accounts. The expense is not recorded until the chairs are sold. The sale will be a decrease in inventory and an increase in cash (assets), an increase in sales (revenues), an increase in cost of goods sold (expenses), and an increase in retained earnings (owners’ equity) for the $250 profit.
作者: Kingpin804    时间: 2012-3-26 10:57

Which of the following is the least likely to be considered an accrual for accounting purposes?
A)
Accumulated depreciation.
B)
Wages payable.
C)
Unearned revenue.


Accruals fall into four categories:
1. Unearned revenue.
2. Accrued revenue.
3. Prepaid expenses.
4. Accrued expenses. Wages payable are a common example of an accrued expense.
Accumulated depreciation is considered a contra-asset account to property, plant and equipment, not an accrual.
作者: Kingpin804    时间: 2012-3-26 11:01

Accruals are best described as requiring an accounting entry:
A)
when an expense has been incurred.
B)
only when a good or service has been provided.
C)
when the earliest event in a transaction occurs.


Accruals require an accounting entry when the earliest event occurs (paying or receiving cash, providing a good or service, or incurring an expense) and one or more offsetting entries as the exchange is completed.
作者: Kingpin804    时间: 2012-3-26 11:02

An accounting entry that updates the historical cost of an asset to current market levels is best described as:
A)
a contra account.
B)
a valuation adjustment.
C)
accumulated depreciation.


In some cases, accounting standards require balance sheet values of certain assets to reflect their current market values. Accounting entries that update these assets’ values from their historical cost are called valuation adjustments. To keep the accounting equation in balance, changes in asset values are also changes in owners’ equity, through gains or losses on the income statement or in “other comprehensive income.”
作者: Kingpin804    时间: 2012-3-26 11:02

Alpha Company reported the following financial statement information:

December 31, 2006:

Assets

$70,000


Liabilities

45,000


December 31, 2007:

Assets

82,000


Liabilities

55,000


During 2007:

Stockholder investments

3,000


Net income

?


Dividends

6,000


Calculate Alpha’s net income for the year ended December 31, 2007 and the change in stockholders’ equity for the year ended December 31, 2007.
Net income Change in stockholders' equity
A)
($3,000) $2,000 increase
B)
$5,000 $2,000 decrease
C)
$5,000 $2,000 increase


Stockholders’ equity, as of December 31, 2006, was $25,000 ($70,000 assets – $45,000 liabilities) and stockholders’ equity, as of December 31, 2007, was $27,000 ($82,000 assets – $55,000 liabilities). Stockholders’ equity increased $2,000 during 2007. Net income for 2007 was $5,000 ($27,000 ending equity + $6,000 dividends – $3,000 stockholder investments – $25,000 beginning equity).
作者: Kingpin804    时间: 2012-3-26 11:03

Wichita Corporation reported the following balances as of December 31, 2007:
Cash

$?

Accounts payable

16,000

Accounts receivable

58,000

Additional paid-in capital

42,000

Common stock

19,600

Inventory

12,000

Plant and equipment

26,800

Notes payable 20,000
Retained earnings 32,000

Calculate Wichita’s cash and total assets as of December 31, 2007 based only on these entries.
Cash Total assets
A)
$16,000 $129,600
B)
$32,800 $113,600
C)
$32,800 $129,600


Liabilities plus equity are equal to $129,600 ($16,000 accounts payable + $20,000 notes payable + $19,600 common stock + $42,000 additional paid-in capital + $32,000 retained earnings). Since assets must equal liabilities plus equity, cash must equal $32,800 ($129,600 total assets – $58,000 accounts receivable – $12,000 inventory – $26,800 plant and equipment).
作者: Kingpin804    时间: 2012-3-26 11:03

Beta Company reported the following financial statement information:

December 31, 2006:

Assets

$58,000


Liabilities

28,000


December 31, 2007:

Assets

?


Liabilities

38,000


During 2007:

Stockholder investments

15,500


Net income

18,000


Dividends

7,750


Calculate Beta’s total assets and stockholders’ equity as of December 31, 2007.
Total assets Stockholders' equity
A)
$93,750 $55,750
B)
$93,750 $30,000
C)
$79,250 $55,750


Stockholders’ equity, as of December 31, 2006, was $30,000 ($58,000 assets – $28,000 liabilities) and stockholders’ equity, as of December 31, 2007, was $55,750 ($30,000 beginning equity + $15,500 stockholder investments + $18,000 net income – $7,750 dividends). Total assets, as of December 31, 2007, are $93,750 ($38,000 liabilities + $55,570 stockholders’ equity).
作者: Kingpin804    时间: 2012-3-26 11:04

Prema Singh is the bookkeeper for Octabius Industries. Singh has been asked by the CFO of Octabius to review all purchases that occurred between February 1 and February 8 to investigate an error on the receiving dock. Singh will most likely look at the:
A)
general journal.
B)
initial trial balance.
C)
general ledger.


Journal entries record every transaction, showing which accounts are changed by what amounts. A listing of all the journal entries in order by date is called the “general journal.”
作者: Kingpin804    时间: 2012-3-26 11:04

Which of the following is the best description of the flow of information in an accounting system?
A)
Journal entries, general ledger, trial balance, financial statements.
B)
General ledger, trial balance, general journal, financial statements.
C)
Trial balance, general ledger, general journal, financial statements.


Information flows through an accounting system in four steps:
1. Journal entries record every transaction, showing which accounts are changed by what amounts. A listing of all the journal entries in order by date is called the “general journal.”
2. The general ledger sorts the entries in the general journal by account.
3. At the end of the accounting period, an initial trial balance is prepared that shows the balances in each account. If any adjusting entries are needed, they will be recorded and reflected in an adjusted trial balance.
4. The account balances from the adjusted trial balance are presented in the financial statements.
作者: Kingpin804    时间: 2012-3-26 11:05

A listing of all the firm’s journal entries by date is called the:
A)
general ledger.
B)
adjusted trial balance.
C)
general journal.


A listing of all the journal entries in order by date is called the “general journal.” The general ledger sorts the entries in the general journal by account. At the end of the accounting period, an initial trial balance is prepared that shows the balances in each account. If any adjusting entries are needed, they will be recorded and reflected in an adjusted trial balance. The account balances from the adjusted trial balance are presented in the financial statements.
作者: Kingpin804    时间: 2012-3-26 11:05

The best description of the general ledger is that it:
A)
sorts the entries in the general journal by account.
B)
groups accounts into the categories that are presented in the financial statements.
C)
is where journal entries are first recorded.


Information flows through an accounting system in four steps:
1. Journal entries record every transaction, showing which accounts are changed by what amounts. A listing of all the journal entries in order by date is called the “general journal.”
2. The general ledger sorts the entries in the general journal by account.
3. At the end of the accounting period, an initial trial balance is prepared that shows the balances in each account. If any adjusting entries are needed, they will be recorded and reflected in an adjusted trial balance.
4. The account balances from the adjusted trial balance are presented in the financial statements.
作者: Kingpin804    时间: 2012-3-26 11:06

Jack Rivers is an investment analyst for the equity fund of a family office. The head of the family, Charlotte Blackmon, is concerned that management may be manipulating the earnings of some of the companies that the fund invests in. Rivers explains to Blackmon, “Even though we don’t have access to the detailed transactions that underlie the financial statements, we can be sure that management is not manipulating earnings because I read the footnotes to the financial statements of every company we invest in. The footnotes would disclose any deviation from appropriate accounting parameters.” Rivers is:
A)
correct.
B)
incorrect because even within appropriate accounting parameters, management can manipulate earnings through the assumptions that rely on their discretion.
C)
incorrect because deviation from appropriate accounting parameters is addressed in the auditor’s report, so a qualified opinion in the auditor’s report ensures that management is not manipulating earnings.


Because adjustments and assumptions within the financial statements are to some extent at the discretion of management, the possibility exists that management can try to manipulate or misrepresent the company’s financial performance. A clean auditor’s report does not ensure that management is unable to manipulate earnings, and a qualified opinion expresses reservations about the appropriateness of accounting policies. An analyst doesn’t have access to the detailed information that flows through a company’s accounting system, but only sees its end product, the financial statements.
作者: Kingpin804    时间: 2012-3-26 11:06

Sergey Martinenko is an investment analyst with Profis, Martinenko and Verona. He is explaining to his new assistant, John Stevenson, why it is crucial for an investment analyst to read the footnotes to a firm’s financial statement and the Management Discussion and Analysis (MD&A) before making an investment decision. Which rationale is Martinenko least likely to provide to Stevenson regarding the importance of analyzing the footnotes and MD&A?
A)
Accruals, adjustments and assumptions are often explained in the footnotes and MD&A.
B)
Evaluating the footnotes helps the analyst assess whether management is manipulating earnings.
C)
The footnotes disclose whether or not the company is adhering to GAAP.


Various accruals, adjustments, and management assumptions that went into the financial statements are often explained in the footnotes to the statements and in Management’s Discussion and Analysis. Because adjustments and assumptions within the financial statements are to some extent at the discretion of management, the possibility exists that management can try to manipulate or misrepresent the company’s financial performance. With this information, the analyst can better judge how well the financial statements reflect the company’s true performance, and in what ways he needs to adjust the data for his own analysis. Whether or not the company is adhering to GAAP is addressed in the auditor’s opinion, not the footnotes.
作者: Kingpin804    时间: 2012-3-26 11:07

Reading the footnotes to a company’s financial statements and the Management Discussion & Analysis is least likely to help an analyst determine:
A)
the detailed information that underlies the company’s accounting system.
B)
the various accruals, adjustments and assumptions that went into the financial statements.
C)
how well the financial statements reflect the company’s true performance.


An analyst doesn’t have access to the detailed information that flows through a company’s accounting system, but only sees its end product, the financial statements. The analyst needs to understand the various accruals, adjustments, and management assumptions that went into the financial statements. Much of this is often explained in the footnotes to the statements and in Management’s Discussion and Analysis, which is why it is crucial for an analyst to review these parts of the presentation. With this information, the analyst can better judge how well the financial statements reflect the company’s true performance, and in what ways he needs to adjust the data for his own analysis.
作者: Kingpin804    时间: 2012-3-26 11:07

Regarding the use of financial statements in security analysis and selection, it would be most accurate to say that:
A)
analysts can verify the accuracy of financial statements by using a firm’s detailed accounting system information.
B)
analysts can use footnotes and Management’s Discussion and Analysis to better understand assumptions used in the financial statements.
C)
further analysis of a firm’s financial statements is typically not necessary if the firm has conformed to applicable accounting principles.


Analysts must have a good understanding of a firm’s accounting process and must read the footnotes to the financial statement as well as Management’s Discussion and Analysis to better understand assumptions used in the financial statements. Even if the firm conforms to appropriate accounting principles, there is still room for management discretion. Because analysts do not have access to a firm’s detailed accounting information, they must rely on what they can glean from the footnotes and Management’s Discussion and Analysis.
作者: terpsichorefan    时间: 2013-3-20 18:32

thanks for sharing



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