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Exam 5: Communicating and Interpreting Accounting Information

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Question 61

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Which of the following describes the conservatism constraint?

A) A business should avoid overstating assets and revenues and avoid understating expenses and liabilities.
B) The benefits of accounting for and reporting information should outweigh the costs.
C) If the dollar amounts involved are large enough to influence a user's decisions the data is considered to be relevant.
D) The conservatism constraint produces a higher net income and stockholders' equity.

E) B) and C)
F) A) and C)

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Question 62

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The Securities & Exchange Commission requires publically traded companies to have their financial statements audited by their internal auditors.

A) True
B) False

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Question 63

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The board of directors is responsible for maintaining the integrity of a company's financial statements and financial reporting.

External users of accounting information include decision makers such as investors,creditors,and financial analysts.

Determine the effect of the following transactions on the identified financial statement components and ratios.Code your answers as follows: A: If the transaction results in an increase in the financial statement component or ratio. B: If the transaction results in a decrease in the financial statement component or ratio. C.If the transaction does not affect the financial statement component or ratio. Transaction 1: A company accrued interest expense at year-end. Net income_____ Assets_____ Stockholders' equity_____ Asset turnover ratio_____ Transaction 2: A company declared and paid dividends to stockholders. Net income_____ Assets_____ Stockholders' equity_____ Return on assets ratio_____

The Willie Company has provided the following information: Operating expenses were $345,000; Income from operations was $215,000; Net sales were $1,100,000; Interest expense was $71,000; Discontinued operations loss was $87,000; Income tax expense was $58,000. What was Willie's cost of gross profit?

Where are stock issues in exchange for cash reported on a statement of cash flows?

In order for financial information to be reliable,it should be timely and verifiable.

The mission of the Securities & Exchange Commission (SEC)is to develop generally accepted accounting principles.

Net sales less cost of goods sold is reported on the income statement as income from continuing operations.

The summary of significant accounting policies is a required financial statement disclosure.