Question 1

For consolidated statements, all transactions between entities being consolidated (i.e., intercompany transactions) must be eliminated.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is a type of audit opinion that a firm would usually prefer?

Accepted Answer

A)  unqualified opinion 
B)  qualified opinion 
C)  adverse opinion 
D)  clear opinion 
E)  none of the answers are correct

Question 3

Retained earnings always shows a positive balance.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following would not be considered a subsequent event?

Accepted Answer

A)  A major customer declares bankruptcy subsequent to the balance sheet date but prior to issuing the statements.This event was not considered on the balance sheet date. 
B)  A major purchase of a subsidiary subsequent to the balance sheet date but prior to issuing the statements. 
C)  Substantial debt incurred subsequent to the balance sheet date but prior to issuing the statements. 
D)  Substantial stock issued subsequent to the balance sheet date but prior to issuing the statements. 
E)  Hiring of employees for a new store, subsequent to the balance sheet date but prior to issuing the statements.

Question 5

The statement of retained earnings reconciles the beginning retained earnings balance to the retained earnings balance at the end of the current period.

Accepted Answer

A) True 
 B)False

Question 6

An adverse opinion states that, except for the effects of the matter(s) to which the qualification relates, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity in conformity with generally accepted accounting principles.

Accepted Answer

A) True 
 B)False

Question 7

The assets for the balance sheet must equal the liabilities and stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 8

If liabilities total $70,000 and stockholders' equity totals $50,000, then total assets must be:

Accepted Answer

A)  $20,000 
B)  $80,000 
C)  $120,000 
D)  $30,000 
E)  $30,000.

Question 9

Financial statements of legally separate entities may be issued to show financial position, income, and cash flow as they would appear if the companies were a single entity.

Accepted Answer

A) True 
 B)False

Question 10

The income statement is a summary of revenues and expenses and gains and losses, ending with net income, for a particular period of time.

Accepted Answer

A) True 
 B)False

Question 11

Domestic accounting standards have developed to meet the needs of international environments.

Accepted Answer

A) True 
 B)False

Question 12

In 2007, the Securities and Exchange Commission announced that it would accept financial statements from foreign private issues without reconciliation to U.S.GAAP if they are prepared using IFRS as issued by the International Accounting Standards Board.

Accepted Answer

A) True 
 B)False

Question 13

One is unlikely to regard a qualified opinion or an adverse opinion as casting serious doubts on the reliability of the financial statements.

Accepted Answer

A) True 
 B)False

Question 14

At the end of the fiscal year, an adjusting entry is made that increases both interest expense and interest payable.This entry is an application for which accounting principle?

Accepted Answer

A)  full disclosure 
B)  materiality 
C)  matching 
D)  going concern 
E)  realization

Question 15

Who is responsible for the preparation and integrity of financial statements?

Accepted Answer

A)  a cost accountant 
B)  management 
C)  an auditor 
D)  a bookkeeper 
E)  the FASB

Question 16

Which of the following statements is not true?

Accepted Answer

A)  A qualified opinion or an adverse opinion may bring into question the reliability of the financial statements. 
B)  A disclaimer of opinion indicates that one should not look to the auditor's report as an indication of the reliability of the statements. 
C)  In some cases, outside accountants are associated with financial statements when they have performed less than an audit. 
D)  A review is substantially less in scope than an examination in accordance with generally accepted auditing statements. 
E)  The accountant's report expresses an opinion on reviewed financial statements.

Question 17

There are three methods of accounting for a business combination.

Accepted Answer

A) True 
 B)False

Question 18

A summary annual report is a condensed annual report that omits much of the financial information included in a typical annual report.

Accepted Answer

A) True 
 B)False

Question 19

The retained earnings account is the link between the balance sheet and the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is not an objective of the SEC's integrated disclosure system?

Accepted Answer

A)  to coordinate the Form 10-K requirements with those of the annual report 
B)  to lessen the impact of the FASB 
C)  to expand the management discussion of liquidity, capital resources, and results of operations 
D)  to improve the quality of disclosure 
E)  to standardize information requirements

Exam 2: Introduction to Financial Statements and Other Financial Reporting Topics

For consolidated statements, all transactions between entities being consolidated (i.e., intercompany transactions) must be eliminated.

Which of the following is a type of audit opinion that a firm would usually prefer?

Retained earnings always shows a positive balance.

Which of the following would not be considered a subsequent event?

The statement of retained earnings reconciles the beginning retained earnings balance to the retained earnings balance at the end of the current period.

The assets for the balance sheet must equal the liabilities and stockholders' equity.

If liabilities total $70,000 and stockholders' equity totals $50,000, then total assets must be:

Financial statements of legally separate entities may be issued to show financial position, income, and cash flow as they would appear if the companies were a single entity.

The income statement is a summary of revenues and expenses and gains and losses, ending with net income, for a particular period of time.

Domestic accounting standards have developed to meet the needs of international environments.

In 2007, the Securities and Exchange Commission announced that it would accept financial statements from foreign private issues without reconciliation to U.S.GAAP if they are prepared using IFRS as issued by the International Accounting Standards Board.

One is unlikely to regard a qualified opinion or an adverse opinion as casting serious doubts on the reliability of the financial statements.

At the end of the fiscal year, an adjusting entry is made that increases both interest expense and interest payable.This entry is an application for which accounting principle?

Who is responsible for the preparation and integrity of financial statements?

Which of the following statements is not true?

There are three methods of accounting for a business combination.

A summary annual report is a condensed annual report that omits much of the financial information included in a typical annual report.

The retained earnings account is the link between the balance sheet and the statement of cash flows.

Which of the following is not an objective of the SEC's integrated disclosure system?