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FinancialReportingandAnalysis:AnIntroduction

TestID:7659214

Question#1of76

QuestionID:413992

Whichofthefollowingisleastlikelytobeconsideredaroleoffinancialstatementanalysis?

A) Determiningwhethertoinvestinthecompany'ssecurities.

B) Assessingthemanagementskillofthecompany'sexecutives.

C) Tomakeeconomicdecisions.

Explanation

Theroleoffinancialstatementanalysisistousetheinformationinacompany'sfinancialstatements,alongwithotherrelevant

information,tomakeeconomicdecisions.Examplesofsuchdecisionsincludewhethertoinvestinthecompany'ssecuritiesor

recommendthemtootherinvestors,orwhethertoextendtradeorbankcredittothecompany.Althoughthefinancial

statementsmightprovideindirectevidenceaboutthemanagementskillofthecompany'sexecutives,thatisnotgenerally

consideredtheroleoffinancialstatementanalysis.

Question#2of76

QuestionID:485770

Acompanycollectscashfromacustomertosettleanaccountreceivable.Whateffectdoesthistransactionhaveonthe

company'stotalassetsandtotalshareholders'equity?

Assets

Equity

A) Increase

Increase

B) Noeffect

Increase

C) Noeffect

Noeffect

Explanation

Collectingamountsduefromcustomershasnoeffectontheaccountingequationbecauseitincreasesoneasset(cash)and

decreasesanotherasset(accountsreceivable).Equityincreasesintheperiodwhenacompanysellsanitemoncreditand

deliversittoacustomer.Equitydoesnotchangewhenthefirmlatercollectsthecash.

Question#3of76

QuestionID:413996

TheManagementDiscussionandAnalysis(MD&A)portionofthefinancialstatements:

A) isnotrequiredbytheSEC.

B) includessuchitemsasdiscontinuedoperations,extraordinaryitems,andother unusualorinfrequentevents.

C) includesauditeddisclosuresthathelpexplaintheinformationsummarizedinthe financialstatements.

Explanation

TheMD&Aprovidesanassessmentofthefinancialperformanceandconditionofthecompanyfromtheperspectiveofthe

companyandisrequiredbytheSEC.Itincludesmanyareasincludingsuchitemsasdiscontinuedoperations,extraordinary

items,andotherunusualorinfrequentevents.TheMD&Aistypicallynotaudited.

Question#4of76

QuestionID:414013

Intheexpandedformoftheaccountingequation,assetsequalliabilitiespluscontributedcapitalplus:

A) endingretainedearningsminusbeginningretainedearnings.

B) beginningretainedearningsplusrevenueminusexpenses.

C) endingretainedearnings.

Explanation

Equityequalscontributedcapitalplusendingretainedearnings.Endingretainedearningsequalbeginningretainedearnings

plusrevenueminusexpensesminusdividendspaid.

Question#5of76

QuestionID:413993

AccordingtotheIASB,whichofthefollowingleastaccuratelydescribesfinancialreporting?Financialreporting:

A) providesinformationaboutchangesinfinancialpositionofanentity.

B) usestheinformationinacompany'sfinancialstatementstomakeeconomicdecisions.

C) isusefultoawiderangeofusers.

Explanation

TheroleoffinancialreportingisdescribedbytheInternationalAccountingStandardsBoard(IASB)inits"Frameworkforthe

PreparationandPresentationofFinancialStatements":

Theobjectiveoffinancialstatementsistoprovideinformationaboutthefinancialposition,performanceandchangesin

financialpositionofanentitythatisusefultoawiderangeofusersinmakingeconomicdecisions.

Usingtheinformationinacompany'sfinancialstatementstomakeeconomicdecisionsisfinancialanalysis,notfinancial

reporting.

Question#6of76

QuestionID:414025

AlphaCompanyreportedthefollowingfinancialstatementinformation:

December31,2006:

Assets

$70,000

Liabilities

45,000

December31,2007:

Assets

82,000

Liabilities

55,000

During2007:

Stockholderinvestments

3,000

Netincome

?

Dividends

6,000

CalculateAlpha'snetincomefortheyearendedDecember31,2007andthechangeinstockholders'equityfortheyear

endedDecember31,2007.

 

Netincome

Changeinstockholders'equity

A)

$2,000

 

$5,000

decrease

B)

$2,000

 

($3,000)

increase

C)

$2,000

 

$5,000

increase

Explanation

Stockholders'equity,asofDecember31,2006,was$25,000($70,000assets­$45,000liabilities)andstockholders'equity,as

ofDecember31,2007,was$27,000($82,000assets­$55,000liabilities).Stockholders'equityincreased$2,000during2007.

Netincomefor2007was$5,000($27,000endingequity+$6,000dividends­$3,000stockholderinvestments­$25,000

beginningequity).

Question#7of76

Whatisthefundamentalbalancesheetequation?

A) Assets=Liabilities+Stockholders'Equity(A=L+E).

B) Liabilities=Assets+Stockholders'Equity(L=A+E).

C) Assets=Stockholders'Equity­Liabilities(A=E­L).

Explanation

QuestionID:414014

ThefundamentalbalancesheetequationisAssets=Liabilities+Stockholders'Equity(A=L+E).Thisisthefundamental

accountingrelationshipthatsetsthebasisforrecordingallfinancialtransactions.

QuestionID:414029

PremaSinghisthebookkeeperforOctabiusIndustries.SinghhasbeenaskedbytheCFOofOctabiustoreviewallpurchases

thatoccurredbetweenFebruary1andFebruary8toinvestigateanerroronthereceivingdock.Singhwillmostlikelylookat

the:

A) initialtrialbalance.

B) generalledger.

C) generaljournal.

Explanation

Journalentriesrecordeverytransaction,showingwhichaccountsarechangedbywhatamounts.Alistingofallthejournal

entriesinorderbydateiscalledthe"generaljournal."

Question#9of76

BetaCompanyreportedthefollowingfinancialstatementinformation:

December31,2006:

Assets

$58,000

Liabilities

28,000

December31,2007:

Assets

?

Liabilities

38,000

During2007:

Stockholderinvestments

15,500

Netincome

18,000

Dividends

7,750

QuestionID:414023

CalculateBeta'stotalassetsandstockholders'equityasofDecember31,2007.

Totalassets Stockholders'

 

equity

A) $93,750

$30,000

B) $93,750

$55,750

C) $79,250

$55,750

Explanation

Stockholders'equity,asofDecember31,2006,was$30,000($58,000assets­$28,000liabilities)andstockholders'equity,as

ofDecember31,2007,was$55,750($30,000beginningequity+$15,500stockholderinvestments+$18,000netincome­

$7,750dividends).Totalassets,asofDecember31,2007,are$93,750($38,000liabilities+$55,570stockholders'equity).

Question#10of76

QuestionID:414020

Anaccountingentrythatupdatesthehistoricalcostofanassettocurrentmarketlevelsisbestdescribedas:

A) acontraaccount.

B) avaluationadjustment.

C) accumulateddepreciation.

Explanation

Insomecases,accountingstandardsrequirebalancesheetvaluesofcertainassetstoreflecttheircurrentmarketvalues.

Accountingentriesthatupdatetheseassets'valuesfromtheirhistoricalcostarecalledvaluationadjustments.Tokeepthe

accountingequationinbalance,changesinassetvaluesarealsochangesinowners'equity,throughgainsorlossesonthe

incomestatementorin"othercomprehensiveincome."

Question#11of76

QuestionID:485773

WhichofthefollowingfinancialreportingchoicesispermittedunderIFRSbutnotunderU.S.GAAP?

A) Nettingdeferredtaxassetswithdeferredtaxliabilities.

B) Excludingactuarialgainsandlossesfrombalancesheetpensionitems.

C) Revaluingplantandequipmentupward.

Explanation

Upwardrevaluationoflong­livedassetsispermittedunderIFRS.UnderU.S.GAAP,mostassets(otherthancertainfinancial

instruments)maynotberevaluedupward.Neithernettingdeferredtaxassetswithdeferredtaxliabilitiesnorexcluding

actuarialgainsandlossesfrombalancesheetpensionitemsispermittedunderIFRSorU.S.GAAP.

Question#12of76

Accrualsarebestdescribedasrequiringanaccountingentry:

A) whentheearliesteventinatransactionoccurs.

B) onlywhenagoodorservicehasbeenprovided.

C) whenanexpensehasbeenincurred.

Explanation

QuestionID:414021

Accrualsrequireanaccountingentrywhentheearliesteventoccurs(payingorreceivingcash,providingagoodorservice,or

incurringanexpense)andoneormoreoffsettingentriesastheexchangeiscompleted.

Whichofthefollowingstatementsrepresentsinformationataspecificpointintime?

A) Theincomestatementandthebalancesheet.

B) Thebalancesheet.

C) Theincomestatement.

Explanation

Thebalancesheetrepresentsinformationataspecificpointintime.Theincomestatementrepresentsinformationovera

periodoftime.

Question#14of76

QuestionID:414003

Whichofthefollowingstatementsaboutproxystatementsisleastaccurate?Proxystatementsare:

A) agoodsourceofinformationaboutthequalificationsofboardmembersand management.

B) availableontheEDGARwebsite.

C) notfiledwiththeSEC.

Explanation

Proxystatementsareissuedtoshareholderswhentherearemattersthatrequireashareholdervote.Thesestatements,

whicharealsofiledwiththeSECandavailablefromEDGAR,areagoodsourceofinformationabouttheelectionof(and

qualificationsof)boardmembers,compensation,managementqualifications,andtheissuanceofstockoptions.

Question#15of76

QuestionID:414039

WhenapubliclytradedU.S.companypreparesaproxystatementforitsshareholderspriortotheannualmeetingorother

shareholdervote,italsofilesthestatementwiththeSECasForm:

A) 144.

B) DEF­14A.

C) 8­K.

Explanation

FormDEF­14A:Whenacompanypreparesaproxystatementforitsshareholderspriortotheannualmeetingorother

shareholdervote,italsofilesthestatementwiththeSECasFormDEF­14A.

Form8­K:Companiesmustfilethisformtodisclosematerialeventsincludingsignificantassetacquisitionsanddisposals,

changesinmanagementorcorporategovernance,ormattersrelatedtoitsaccountants,financialstatements,orthemarkets onwhichitssecuritiestrade.

Form144:AcompanycanissuesecuritiestocertainqualifiedbuyerswithoutregisteringthesecuritieswiththeSEC,butmust

notifytheSECthatitintendstodoso.

Question#16of76

QuestionID:414004

Whichofthefollowingisananalystleastlikelytorelyonasobjectiveinformationtoincludeinacompanyanalysis?

A) Governmentagencystatisticaldataontheeconomyandthecompany's industry.

B) Proxystatements.

C) Corporatepressreleases.

Explanation

Corporatereportsandpressreleasesarewrittenbymanagementandareoftenviewedaspublicrelationsorsalesmaterials. Ananalystshouldreviewinformationontheeconomyandthecompany'sindustryandcomparethecompanytoits competitors.Thisinformationcanbeacquiredfromsourcessuchastradejournals,statisticalreportingservices,and

governmentagencies.SecuritiesandExchangeCommission(SEC)filingsincludeForm8­K,whichacompanymustfileto

reporteventssuchasacquisitionsanddisposalsofmajorassetsorchangesinitsmanagementorcorporategovernanceand

proxystatements,whichareagoodsourceofinformationabouttheelectionof(andqualificationsof)boardmembers,

compensation,managementqualifications,andtheissuanceofstockoptions.

Question#17of76

QuestionID:414024

WichitaCorporationreportedthefollowingbalancesasofDecember31,2007:

Cash

$?

Accountspayable

16,000

Accountsreceivable

58,000

Additionalpaid­incapital

42,000

Commonstock

19,600

Inventory

12,000

Plantandequipment

26,800

Notespayable

20,000

Retainedearnings

32,000

CalculateWichita'scashandtotalassetsasofDecember31,2007basedonlyontheseentries.

Cash

Totalassets

A) $32,800

$129,600

B) $32,800

$113,600

C) $16,000

$129,600

Explanation

Liabilitiesplusequityareequalto$129,600($16,000accountspayable+$20,000notespayable+$19,600commonstock+

$42,000additionalpaid­incapital+$32,000retainedearnings).Sinceassetsmustequalliabilitiesplusequity,cashmustequal

$32,800($129,600totalassets­$58,000accountsreceivable­$12,000inventory­$26,800plantandequipment).

Question#18of76

QuestionID:414056

Afirmengagesinanewtypeoffinancialtransactionthathasamaterialeffectonitsearnings.Ananalystshouldmostlikelybe

suspiciousofthenewtransactionif:

A) thetransactionisnotgovernedbyexistingregulations.

B) noaccountingstandardexiststhatappliestothetransaction.

C) managementhasnotexplaineditsbusinesspurpose.

Explanation

Newtypesoftransactionsmayemergethatarenotcoveredbyexistingaccountingstandardsorregulations.Analystsshould

obtaininformationfromafirm'smanagementabouttheeconomicsubstanceofsuchtransactionstoensurethattheyservea

businesspurposeandhavenotbeencreatedprimarilytomanipulatethefirm'sfinancialstatements.

Question#19of76

QuestionID:414031

Readingthefootnotestoacompany'sfinancialstatementsandtheManagementDiscussion&Analysisisleastlikelytohelp

ananalystdetermine:

A) howwellthefinancialstatementsreflectthecompany'strueperformance.

B) thevariousaccruals,adjustmentsandassumptionsthatwentintothefinancial statements.

C) thedetailedinformationthatunderliesthecompany'saccountingsystem.

Explanation

Ananalystdoesn'thaveaccesstothedetailedinformationthatflowsthroughacompany'saccountingsystem,butonlysees

itsendproduct,thefinancialstatements.Theanalystneedstounderstandthevariousaccruals,adjustments,and

managementassumptionsthatwentintothefinancialstatements.Muchofthisisoftenexplainedinthefootnotestothe

statementsandinManagement'sDiscussionandAnalysis,whichiswhyitiscrucialforananalysttoreviewthesepartsofthe

presentation.Withthisinformation,theanalystcanbetterjudgehowwellthefinancialstatementsreflectthecompany'strue

performance,andinwhatwaysheneedstoadjustthedataforhisownanalysis.

Question#20of76

QuestionID:414050

WhichofthefollowingfinancialreportingchoicesispermittedunderIFRSbutnotunderU.S.GAAP?

A) Nettingdeferredtaxassetswithdeferredtaxliabilities.

B) Revaluingplantandequipmentupward.

C) Excludingactuarialgainsandlossesfrombalancesheetpensionitems.

Explanation

Upwardrevaluationoflong­livedassetsispermittedunderIFRS.UnderU.S.GAAP,mostassets(otherthancertainfinancial

instruments)maynotberevaluedupward.Neithernettingdeferredtaxassetswithdeferredtaxliabilitiesnorexcluding

actuarialgainsandlossesfrombalancesheetpensionitemsispermittedunderIFRSorU.S.GAAP.

Question#21of76

QuestionID:460643

Informationaboutacompany'sfinancialpositionatapointintimeismostlikelyfoundinthe:

A) incomestatement.

B) balancesheet.

C) cashflowstatement.

Explanation

Thebalancesheetreportsthecompany'sfinancialpositionatapointintime.Incontrast,theincomestatementreportson

financialperformanceoveraperiodoftimeandthecashflowstatementreportsacompany'scashreceiptsandpayments

overaperiodoftime.

Question#22of76

QuestionID:414010

Allowanceforbaddebtsandinvestmentinaffiliatesaremostlikelytobeshownaswhattypesofaccounts?

Allowanceforbaddebts Investmentinaffiliates

A) Liabilities

Asset

B) Contra­asset

Asset

C) Contra­asset

Liabilities

Explanation

Allowanceforbaddebtsisacontra­assetaccounttoaccountsreceivable.Investmentsinaffiliatesareconsideredassets.

Question#23of76

QuestionID:414053

Characteristicsofacoherentfinancialreportingframeworkarebestdescribedas:

A) materiality,comprehensiveness,andaggregation.

B) consistency,materiality,andtransparency.

C) transparency,consistency,andcomprehensiveness.

Explanation

Thethreecharacteristicsofacoherentfinancialreportingframeworkaretransparency,comprehensiveness,andconsistency.

MaterialityandaggregationaretwoofthefeaturesforpreparingfinancialstatementslistedinInternationalAccounting

StandardNo.1.

Question#24of76

QuestionID:414001

WhichofthefollowingwouldNOTrequireanexplanatoryparagraphaddedtotheauditors'report?

A) StatementsthatthefinancialinformationwaspreparedaccordingtoGAAP.

B) Doubtregardingthe"goingconcern"assumption.

C) Uncertaintyduetolitigation.

Explanation

ThestatementsthatthefinancialinformationwaspreparedaccordingtoGAAPshouldbeincludedintheregularpartofthe

auditors'reportandnotasanexplanatoryparagraph.Theotherinformationwouldbecontainedinexplanatoryparagraphs

addedtotheauditors'report.

Question#25of76

QuestionID:414011

Accumulateddepreciationandtreasurystockaremostlikelytobeshownaswhattypesofaccounts?

Accumulated

depreciation

A) Liability

B) Contra­asset

C) Contra­asset

Treasurystock

Equity

Contra­equity

Equity

Explanation

Accumulateddepreciationisacontra­assetaccounttotheassetaccountproperty,plant&equipment.Treasurystockisa

contra­equityaccounttocommonstockoradditionalpaid­incapital.

Question#26of76

QuestionID:414038

Professionalorganizationsofaccountantsandauditorsthatestablishfinancialreportingstandardsarecalled:

A) Regulatoryauthorities.

B) Internationalorganizationsofsecuritiescommissions.

C) Standardsettingbodies.

Explanation

Standard­settingbodiesareprofessionalorganizationsofaccountantsandauditorsthatestablishfinancialreporting

standards.Regulatoryauthoritiesaregovernmentagenciesthathavethelegalauthoritytoenforcecompliancewithfinancial

reportingstandards.Regulatoryauthorities,suchastheSecuritiesandExchangeCommission(SEC)intheU.S.andthe

FinancialServicesAuthority(FSA)intheUnitedKingdom,areestablishedbynationalgovernments.Mostnationalauthorities

belongtotheInternationalOrganizationofSecuritiesCommissions(IOSCO).

Question#27of76

QuestionID:414057

Managementdisclosureofthelikelyimpactofimplementingrecentlyissuedaccountingstandardsisleastlikelyto:

A) concludethatthestandardwillnotaffectthefinancialstatementsmaterially.

B) concludethatthestandarddoesnotapply.

C) statethattheimpactofthestandardisimpossibletodetermine.

Explanation

Adisclosurethatisrequiredforpubliccompaniesisthelikelyimpactofimplementingrecentlyissuedaccountingstandards.

Managementcandiscusstheimpactofadoptingthestandard,concludethatthestandarddoesnotapplyorwillnotaffectthe

financialstatementsmaterially,orstatethattheyarestillevaluatingtheeffectsofthenewstandards.Analystsshouldbe

awareoftheuncertaintythatthislaststatementimplies.

Question#28of76

QuestionID:413999

TheManagementDiscussionandAnalysis(MD&A)portionofthefinancialdisclosureisleastlikelyrequiredtodiscuss:

A) capitalresourcesandliquidity.

B) unusualorinfrequentitems.

C) resultsofoperations.

Explanation

TheMD&Aportionofthefinancialdisclosureisrequiredtodiscussresultsofoperations,capitalresourcesandliquidityanda

generalbusinessoverviewbasedonknowntrends.AdiscussionofunusualorinfrequentitemsmaybeincludedintheMD&A,

butisnotrequired.

Question#29of76

QuestionID:413990

Whichofthefollowingstatementsaboutfinancialstatementanalysisandreportingisleastaccurate?

A) Providinginformationaboutchangesinacompany'sfinancialpositionisarole offinancialreporting.

B) Decidingwhethertorecommendacompany'ssecuritiestoinvestorsisaroleof financialstatementanalysis.

C) Financialstatementanalysisfocusesonthewaycompaniesshowtheirfinancial performancetoinvestorsbypreparingandpresentingfinancialstatements.

Explanation

Financialreportingreferstothewaycompaniesshowtheirfinancialperformancetoinvestors,creditors,andotherinterested

partiesbypreparingandpresentingfinancialstatements,includinginformationaboutchangesinacompany'sfinancial

position.Theroleoffinancialstatementanalysisistousetheinformationinacompany'sfinancialstatements,alongwithother

relevantinformation,tomakeeconomicdecisions,suchaswhethertoinvestinthecompany'ssecuritiesorrecommendthem

tootherinvestors.Analystsusefinancialstatementdatatoevaluateacompany'spastperformanceandcurrentfinancial

positioninordertoformopinionsaboutthecompany'sabilitytoearnprofitsandgeneratecashflowinthefuture.

Question#30of76

QuestionID:414045

AccordingtotheIASBconceptualframework,characteristicsthatenhancerelevanceandfaithfulrepresentationinclude:

A) comparabilityandthoroughness.

B) timelinessandverifiability.

C) assuranceandunderstandability.

Explanation

Thefourcharacteristicsthatenhancerelevanceandfaithfulrepresentationarecomparability,verifiability,timeliness,and

understandability.

Question#31of76

QuestionID:414009

Inthefinancialstatementanalysisframework,usingthedatatoaddresstheobjectivesoftheanalysisanddecidingwhat

conclusionsorrecommendationstheinformationsupportsisbestdescribedas:

A) analyzingandinterpretingthedata.

B) reportingtheconclusions.

C) processingthedata.

Explanation

Thefinancialstatementanalysisframeworkconsistsofsixsteps:

1. Statetheobjectiveandcontext.Determinewhatquestionstheanalysisismeanttoanswer,theforminwhichitneedsto

bepresented,andwhatresourcesandhowmuchtimeareavailabletoperformtheanalysis.

2. Gatherdata.Acquirethecompany'sfinancialstatementsandotherrelevantdataonitsindustryandtheeconomy.Ask

questionsofthecompany'smanagement,suppliers,andcustomers,andvisitcompanysites.

3. Processthedata.Makeanyappropriateadjustmentstothefinancialstatements.Calculateratios.Prepareexhibitssuchas

graphsandcommon­sizebalancesheets.

4. Analyzeandinterpretthedata.Usethedatatoanswerthequestionsstatedinthefirststep.Decidewhatconclusionsor

recommendationstheinformationsupports.

5. Reporttheconclusionsorrecommendations.Prepareareportandcommunicateittoitsintendedaudience.Besurethe

reportanditsdisseminationcomplywiththeCodeandStandardsthatrelatetoinvestmentanalysisandrecommendations.

6. Updatetheanalysis.Repeatthesestepsperiodicallyandchangetheconclusionsorrecommendationswhennecessary.

JackRiversisaninvestmentanalystfortheequityfundofafamilyoffice.Theheadofthefamily,CharlotteBlackmon,is

concernedthatmanagementmaybemanipulatingtheearningsofsomeofthecompaniesthatthefundinvestsin.Rivers

explainstoBlackmon,"Eventhoughwedon'thaveaccesstothedetailedtransactionsthatunderliethefinancialstatements,

wecanbesurethatmanagementisnotmanipulatingearningsbecauseIreadthefootnotestothefinancialstatementsof

everycompanyweinvestin.Thefootnoteswoulddiscloseanydeviationfromappropriateaccountingparameters."Riversis:

A) correct.

B) incorrectbecauseevenwithinappropriateaccountingparameters,managementcan manipulateearningsthroughtheassumptionsthatrelyontheirdiscretion.

C) incorrectbecausedeviationfromappropriateaccountingparametersisaddressedin theauditor'sreport,soaqualifiedopinionintheauditor'sreportensuresthat managementisnotmanipulatingearnings.

Explanation

Becauseadjustmentsandassumptionswithinthefinancialstatementsaretosomeextentatthediscretionofmanagement,

thepossibilityexiststhatmanagementcantrytomanipulateormisrepresentthecompany'sfinancialperformance.Aclean

auditor'sreportdoesnotensurethatmanagementisunabletomanipulateearnings,andaqualifiedopinionexpresses

reservationsabouttheappropriatenessofaccountingpolicies.Ananalystdoesn'thaveaccesstothedetailedinformationthat

flowsthroughacompany'saccountingsystem,butonlyseesitsendproduct,thefinancialstatements.

Question#33of76

QuestionID:414036

Whichofthefollowingstatementsaboutfinancialstatementsandreportingstandardsisleastaccurate?

A) Reportingstandardsfocusmostlyonformatandpresentationandallow managementwidelatitudeinassumptions.

B) Theobjectiveoffinancialstatementsistoprovideeconomicdecisionmakerswith usefulinformation.

C) Financialstatementscouldpotentiallytakeanyformifreportingstandardsdidn'texist.

Explanation

Giventhevarietyandcomplexityofpossibletransactions,andtheestimatesandassumptionsafirmmustmakewhen

presentingitsperformance,financialstatementscouldpotentiallytakeanyformifreportingstandardsdidn'texist.Reporting

standardsensurethattheinformationis"usefultoawiderangeofusers,"includingsecurityanalysts,bymakingfinancial

statementscomparabletooneanotherandnarrowingtherangewithinwhichmanagement'sestimatescanbeseenas

reasonable.Reportingstandardslimittherangeofassumptionsmanagementcanmake.

Question#34of76

QuestionID:414022

Whichofthefollowingistheleastlikelytobeconsideredanaccrualforaccountingpurposes?

A) Unearnedrevenue.

B) Accumulateddepreciation.

C) Wagespayable.

Explanation

Accrualsfallintofourcategories:

1.Unearnedrevenue.

2.Accruedrevenue.

3.Prepaidexpenses.

4.Accruedexpenses.Wagespayableareacommonexampleofanaccruedexpense.

Accumulateddepreciationisconsideredacontra­assetaccounttoproperty,plantandequipment,notanaccrual.

Question#35of76

QuestionID:414017

WashburnMotorssignsacontracttosella$100,000luxurysedantobedeliverednextmonth,andreceivesa$20,000cash

downpaymentfromthebuyer.HowwillthetransactionmostlikelyaffectWashburn'sassetsandliabilities?

Assets

Liabilities

A) Increase

Unchanged

B) Increase

Increase

C) Unchanged

Unchanged

Explanation

Thedownpaymentwillincreasecash(anasset)andunearnedrevenue(aliability).Revenues(andthusretainedearnings

andowner'sequity)willnotincreasebecausethecarhasnotbeendelivered.

Question#36of76

QuestionID:485771

Makingaprofitablesaleoncreditismostlikelytohavewhichofthefollowingeffects?

A) Increaseassetsanddecreaseliabilities.

B) Increaseassetsandincreaseequity.

C) Decreaseassetsandincreaseequity.

Explanation

Makingaprofitablesaleoncreditwillincreaseaccountsreceivableanddecreaseinventory.Giventhatthesaleisprofitable,

theincreaseinaccountsreceivablewillbegreaterthanthedecreaseininventory,resultinginanetincreaseinassets.Profit

(duetosalesbeinggreaterthancostofgoodssold)willincreasenetincomeandretainedearnings(equity).

Question#37of76

QuestionID:414002

Whichofthefollowingisanindependentauditorleastlikelytodowithrespecttoacompany'sfinancialstatements?

A) Prepareandacceptresponsibilityforthem.

B) Provideanopinionconcerningtheirfairnessandreliability.

C) Confirmassetsandliabilitiescontainedinthem.

Explanation

Auditorsmakeanindependentreviewoffinancialstatements,whicharepreparedbycompanymanagementandare

management'sresponsibility.Itistheresponsibilityofauditorstoconfirmtheassets,liabilities,andotheritemsincludedinthe

statementsandthenissueanopinionconcerningtheirfairnessandreliability.

Question#38of76

Alistingofallthefirm'sjournalentriesbydateiscalledthe:

A) adjustedtrialbalance.

B) generalledger.

C) generaljournal.

Explanation

QuestionID:414027

Alistingofallthejournalentriesinorderbydateiscalledthe"generaljournal."Thegeneralledgersortstheentriesinthe

generaljournalbyaccount.Attheendoftheaccountingperiod,aninitialtrialbalanceispreparedthatshowsthebalancesin

eachaccount.Ifanyadjustingentriesareneeded,theywillberecordedandreflectedinanadjustedtrialbalance.Theaccount

balancesfromtheadjustedtrialbalancearepresentedinthefinancialstatements.

Question#39of76

QuestionID:485769

Inadditiontotheauditedfinancialstatementsincludedinafirm'sannualreport,whichofthefollowingsourcesofinformationis

mostlikelytocontainauditeddata?

A) Footnotestotheannualfinancialstatements.

B) Management'scommentary.

C) InterimfinancialstatementsfiledwiththeSEC.

Explanation

Thefootnotesareanintegralpartoftheauditedfinancialstatementsinafirm'sannualreportandareincludedintheaudit

opinion.

Question#40of76

QuestionID:414049

WhichofthefollowingisacompanyleastlikelyrequiredtopresentaccordingtoInternationalAccountingStandard(IAS)No.

1?

A) Statementofchangesinowners'equity.

B) Asummaryofaccountingpolicies.

C) Disclosuresofmaterialevents.

Explanation

InternationalAccountingStandard(IAS)No.1defineswhichfinancialstatementsarerequiredandhowtheymustbe

presented.Therequiredfinancialstatementsare:

•Balancesheet.

•Statementofcomprehensiveincome.

•Cashflowstatement.

•Statementofchangesinequity.

•Explanatorynotes,includingasummaryofaccountingpolicies.

DisclosuresofmaterialeventsthataffectthecompanyarerequiredbytheSecuritiesandExchangeCommission(Form8­K)

forfirmsthatarepubliclytradedintheUnitedStates.

Question#41of76

QuestionID:414058

Ananalystisleastlikelytousedisclosuresofaccountingpoliciesandestimatestoevaluate:

A) whetherthedisclosureshavechangedsincethepriorperiod.

B) whatpoliciesarelikelytobemodifiedinfutureperiods.

C) whatpoliciesarediscussed.

Explanation

CompaniesthatpreparefinancialstatementsunderIFRSorU.S.GAAPmustdisclosetheiraccountingpoliciesandestimates

inthefootnotesandManagement'sDiscussionandAnalysis.Ananalystshouldusethesedisclosurestoevaluatewhatpolicies

arediscussed,whethertheycoveralltherelevantdatainthefinancialstatements,whichpoliciesrequiredmanagementto

makeestimates,andwhetherthedisclosureshavechangedsincethepriorperiod.

Question#42of76

QuestionID:485772

AccordingtotheIASBConceptualFrameworkforFinancialReporting,oneofthequalitativecharacteristicsoffinancial

statementsis:

A) goingconcern.

B) faithfulrepresentation.

C) timeliness.

Explanation

IntheIASBconceptualframework,thetwoqualitativecharacteristicsoffinancialstatementsarerelevanceandfaithful

representation.Timelinessisacharacteristicthatenhancesrelevanceandfaithfulrepresentation.Goingconcernisan

underlyingassumptionoffinancialstatements.

Question#43of76

Thebestdescriptionofthegeneralledgeristhatit:

QuestionID:414026

A) groupsaccountsintothecategoriesthatarepresentedinthefinancial statements.

B) iswherejournalentriesarefirstrecorded.

C) sortstheentriesinthegeneraljournalbyaccount.

Explanation

Informationflowsthroughanaccountingsysteminfoursteps:

1.Journalentriesrecordeverytransaction,showingwhichaccountsarechangedbywhatamounts.Alistingofallthejournal

entriesinorderbydateiscalledthe"generaljournal."

2.Thegeneralledgersortstheentriesinthegeneraljournalbyaccount.

3.Attheendoftheaccountingperiod,aninitialtrialbalanceispreparedthatshowsthebalancesineachaccount.Ifany

adjustingentriesareneeded,theywillberecordedandreflectedinanadjustedtrialbalance.

4.Theaccountbalancesfromtheadjustedtrialbalancearepresentedinthefinancialstatements.

Question#44of76

Acompany'schartofaccountsis:

QuestionID:414012

A) thesetofjournalentriesthatmakesupthecomponentsofowners'equity.

B) adetailedlistoftheaccountsthatmakeupthefivefinancialstatementelements.

C) usedforentriesthatoffsetotheraccounts.

Explanation

Acompany'schartofaccountsisadetailedlistoftheaccountsthatmakeupthefivefinancialstatementelementsandtheline

itemspresentedinthefinancialstatements.Contraaccountsareusedforentriesthatoffsetotheraccounts.Thecategories

thatmakeupowners'equityarecapital,additionalpaid­incapital,retainedearningsandothercomprehensiveincome.

Question#45of76

Theterm"convergence"ismostaccuratelyusedtodescribe:

QuestionID:414041

A) thereductionofthepremiumonabondasitnearsmaturity.

B) theprocessofdevelopingoneuniversallyacceptedsetofaccountingstandards.

C) whenexpectedreturnandrequiredreturnareequal.

Explanation

Movingtowardsagreementonasinglesetofaccountingstandardsisreferredtoas"convergence."

Question#46of76

QuestionID:414047

Whichofthefollowingisleastlikelyaqualitativecharacteristicaccountinginformationmustpossessinordertoprovideuseful

informationtoananalyst,accordingtotheIASBConceptualFramework?

A) Faithfulrepresentation.

B) Relevance.

C) Conservatism.

Explanation

QualitativecharacteristicsthataccountinginformationmustpossessaccordingtotheIASBConceptualFrameworkare

relevanceandfaithfulrepresentation,whichareenhancedbythecharacteristicsoftimeliness,verifiability,understandability,

andcomparability.Conservatismmaybeadesirablecharacteristic,butisnotoneofthequalitativecharacteristicsspecifiedin

theIASBConceptualFramework.

Question#47of76

QuestionID:414028

Whichofthefollowingisthebestdescriptionoftheflowofinformationinanaccountingsystem?

A) Journalentries,generalledger,trialbalance,financialstatements.

B) Trialbalance,generalledger,generaljournal,financialstatements.

C) Generalledger,trialbalance,generaljournal,financialstatements.

Explanation

Informationflowsthroughanaccountingsysteminfoursteps:

1.Journalentriesrecordeverytransaction,showingwhichaccountsarechangedbywhatamounts.Alistingofallthejournal

entriesinorderbydateiscalledthe"generaljournal."

2.Thegeneralledgersortstheentriesinthegeneraljournalbyaccount.

3.Attheendoftheaccountingperiod,aninitialtrialbalanceispreparedthatshowsthebalancesineachaccount.Ifany

adjustingentriesareneeded,theywillberecordedandreflectedinanadjustedtrialbalance.

4.Theaccountbalancesfromtheadjustedtrialbalancearepresentedinthefinancialstatements.

Question#48of76

QuestionID:414016

Afurniturestoreacquiresasetofchairsfor$750cashandsellsthemfor$1000cash.Thesetransactionsaremostlikelyto

affectwhichaccounts?

Purchase

A) Assetsonly

Sale

Assets,revenue,expenses,

owners'equity

B) Assetsandexpenses Assets,revenue,expenses, owners'equity

C) Assetsonly

Assetsandrevenuesonly

Explanation

Thepurchasewillbeadecreaseincashandanincreaseininventory,bothassetaccounts.Theexpenseisnotrecordeduntil thechairsaresold.Thesalewillbeadecreaseininventoryandanincreaseincash(assets),anincreaseinsales(revenues),

anincreaseincostofgoodssold(expenses),andanincreaseinretainedearnings(owners'equity)forthe$250profit.

Question#49of76

QuestionID:414055

Disagreementsthatinhibitdevelopmentofacoherentfinancialreportingframeworkareleastlikelytoinvolvewhichofthe

following?

A) Standardsetting.

B) Transparency.

C) Valuation.

Explanation

Thereiswidespreadagreementthattransparencyisdesirableinfinancialreporting.Disagreementsthatinhibitdevelopmentof

asingleframeworkoftenarisearoundissuesofmeasurement,valuation,andstandardsetting.

Question#50of76

QuestionID:413998

Whichofthefollowingstatementsregardingfootnotestothefinancialstatementsisleastaccurate?

A) Footnotesmaycontaininformationregardingcontingentlosses.

B) Footnotesprovideinformationaboutassumptionsandestimatesusedby management.

C) Somesupplementaryschedulesareauditedwhereasfootnotesarenotaudited.

Explanation

Somesupplementaryschedulesarenotauditedwhereasfootnotesareaudited.Thefinancialstatementsandfootnotesinthe

annualreportandtheSEC10­kfilingsareallaudited.

Question#51of76

QuestionID:414054

Whichofthefollowingisleastlikelytobeconsideredacharacteristicofacoherentfinancialreportingframework?

A) Transparency.

B) Stability.

C) Comprehensiveness.

Explanation

Financialreportingshouldbetransparentandcomprehensive.Stabilityofaccountinginformationisnotacharacteristicofa

coherentreportingframework.

Question#52of76

QuestionID:414007

Thestepinthefinancialstatementanalysisframeworkthatincludesmakinganyappropriateadjustmentstothefinancial

statementsandcalculatingratiosisbestdescribedas:

A) gatheringthedata.

B) processingthedata.

C) analyzingandinterpretingthedata.

Explanation

Thefinancialstatementanalysisframeworkconsistsofsixsteps:

1.Statetheobjectiveandcontext.Determinewhatquestionstheanalysisismeanttoanswer,theforminwhichitneedstobe

presented,andwhatresourcesandhowmuchtimeareavailabletoperformtheanalysis.

2.Gatherdata.Acquirethecompany'sfinancialstatementsandotherrelevantdataonitsindustryandtheeconomy.Ask

questionsofthecompany'smanagement,suppliers,andcustomers,andvisitcompanysites.

3.Processthedata.Makeanyappropriateadjustmentstothefinancialstatements.Calculateratios.Prepareexhibitssuchas

graphsandcommon­sizebalancesheets.

4.Analyzeandinterpretthedata.Usethedatatoanswerthequestionsstatedinthefirststep.Decidewhatconclusionsor

recommendationstheinformationsupports.

5.Reporttheconclusionsorrecommendations.Prepareareportandcommunicateittoitsintendedaudience.Besurethe

reportanditsdisseminationcomplywiththeCodeandStandardsthatrelatetoinvestmentanalysisandrecommendations.

6.Updatetheanalysis.Repeatthesestepsperiodicallyandchangetheconclusionsorrecommendationswhennecessary.

Question#53of76

QuestionID:413994

Acompany'soperatingrevenuesforareportingperiodaremostlikelytobeshownonits:

A) cashflowstatement.

B) balancesheet.

C) incomestatement.

Explanation

Revenuesforareportingperiodarepresentedonacompany'sincomestatement.Theycanbe,butarenotrequiredtobe,

classifiedasoperatingandnonoperatingrevenues.Cashfromoperatingactivitiesispresentedonthecompany'sstatementof

cashflows,butthisisnotnecessarilyequaltooperatingrevenuesbecauserevenuemightberecognizedinadifferentperiod

thancashiscollected.Thebalancesheetdisplaysacompany'sfinancialpositionatafixedpointintime.

Question#54of76

QuestionID:414044

Twounderlyingassumptionsoffinancialstatements,accordingtotheIASBconceptualframework,are:

A) goingconcernandaccrualaccounting.

B) accrualaccountingandhistoricalcost.

C) historicalcostandgoingconcern.

Explanation

Thetwounderlyingassumptionsoffinancialstatementsaccordingtotheconceptualframeworkareaccrualaccountingand

thegoingconcernassumption.Historicalcostisoneofseveralmeasurementbasesthatmaybeusedforfinancialreporting.

Question#55of76

QuestionID:413991

Whichofthefollowingbestdescribesfinancialreportingandfinancialstatementanalysis?

A) Financialreportingreferstohowcompaniesshowtheirfinancialperformance andfinancialanalysisreferstousingtheinformationtomakeeconomic decisions.

B) Theobjectiveoffinancialanalysisistoprovideinformationaboutthefinancialposition ofanentitythatisusefultoawiderangeofusers.

C) Financialreportsassessacompany'spastperformanceinordertodrawconclusions aboutthecompany'sabilitytogeneratecashandprofitsinthefuture.

Explanation

Financialreportingreferstothewaycompaniesshowtheirfinancialperformancetoinvestors,creditors,andotherinterested

partiesbypreparingandpresentingfinancialstatements.Theobjectiveoffinancialstatements,notanalysis,istoprovide

informationaboutthefinancialposition,performanceandchangesinfinancialpositionofanentitythatisusefultoawide

rangeofusersinmakingeconomicdecisions.Theroleoffinancialstatementanalysis,notreporting,istousetheinformation

inacompany'sfinancialstatements,alongwithotherrelevantinformation,toassessacompany'spastperformanceinorder

todrawconclusionsaboutthecompany'sabilitytogeneratecashandprofitsinthefuture.

Question#56of76

QuestionID:414018

Thepurchaseofequipmentfor$25,000cashismostlikelytoberecordedas:

A) anincreaseinanassetaccountandanincreaseinaliabilityaccount.

B) anincreaseinoneassetaccountandadecreaseinanotherassetaccount.

C) anincreaseintwoassetaccounts.

Explanation

Thepurchaseofequipmentforcashisanincreaseinproperty,plantandequipment(anasset)andadecreaseincash

(anotherasset).

Question#57of76

QuestionID:434268

Ananalystcanfindacompany'saccountingpoliciesthatrequiresignificantjudgementorestimatesin:

A) boththefootnotestothefinancialstatementsandManagement'sDiscussion andAnalysis.

B) onlythefootnotes.

C) boththefootnotesandintheauditor'sopinion.

Explanation

CompaniesthatpreparefinancialstatementsunderIFRSorU.S.GAAPmustdisclosetheiraccountingpoliciesandestimates

inthefootnotesandaddressthosepoliciesandestimateswheresignificantjudgmentwasrequiredinManagement's

DiscussionandAnalysis.Theauditor'sopiniondiscusseswhetherpolicieshavebeenappliedappropriately,butdoesnot

includetheestimatesandpoliciesthemselves.

Question#58of76

QuestionID:414019

Whichofthefollowingleastaccuratelydescribesacorrectuseofdouble­entryaccounting?

A) Adecreaseinaliabilityaccountmaybebalancedbyadecreaseinanother liabilityaccount.

B) Atransactionmayberecordedinmorethantwoaccounts.

C) Anincreaseinanassetaccountmaybebalancedbyanincreaseinanowner'sequity account.

Explanation

Keepingtheaccountingequationinbalancerequiresdouble­entryaccounting,inwhichatransactionhastoberecordedinat

leasttwoaccounts.Anincreaseinanassetaccount,forexample,mustbebalancedbyadecreaseinanotherassetaccount

orbyanincreaseinaliabilityorowners'equityaccount.Adecreaseinaliabilityaccountmaybebalancedbyanincreasein

anotherliabilityaccount,notadecrease.Iftwoliabilitiesdecreasewithoutabalancingentry,thebalancesheetwillbeoutof

balance.

Question#59of76

QuestionID:414051

Underwhichframeworkforfinancialreportingsystemsarethefinancialstatementelementsrelatedtoperformancedefinedas

revenues,expenses,gains,losses,andcomprehensiveincome?

A) FASBframework.

B) BothIASBandFASBframeworks.

C) IASBframework.

Explanation

TheFASBframeworklistsrevenues,expenses,gains,losses,andcomprehensiveincomeaselementsrelatedto

performance.IntheIASBframework,elementsrelatedtoperformanceareincomeandexpenses.

Thestepinthefinancialstatementanalysisframeworkof"processingthedata"isleastlikelytoincludewhichactivity?

A) Makingappropriateadjustmentstothefinancialstatements.

B) Acquiringthecompany'sfinancialstatements.

C) Preparingexhibitssuchasgraphs.

Explanation

Thefinancialstatementanalysisframeworkconsistsofsixsteps.Step2:"Gatherdata"includesacquiringthecompany's

financialstatementsandotherrelevantdataonitsindustryandtheeconomy.Step3."Processthedata"includesactivities

suchasmakinganyappropriateadjustmentstothefinancialstatementsandpreparingexhibitssuchasgraphsandcommon­

sizebalancesheets.

Question#61of76

QuestionID:414035

Whichdescriptionoftheobjectiveoffinancialstatementsismostaccurate?Theobjectiveoffinancialstatementsis:

A) toprovideawiderangeofuserswithinformationaboutafirm'sfinancial prospects.

B) toprovideeconomicdecisionmakerswithusefulinformationaboutafirm'sfinancial performanceandchangesinfinancialposition.

C) toprovidesecuritiesanalystswithobjectivedataaboutafirm'sfinancialprospects.

Explanation

Theobjectiveoffinancialstatementsistoprovideeconomicdecisionmakerswithusefulinformationaboutafirm'sfinancial

performanceandchangesinfinancialposition.Assessingitsprospectsistheresponsibilityofanalysts.Financialstatements

fallunderthepurviewoftheFASBintheUS,nottheIASB.TheSECdoesnotsettheobjectivesoffinancialstatements,itisa

regulatoryauthority.

Question#62of76

QuestionID:414032

SergeyMartinenkoisaninvestmentanalystwithProfis,MartinenkoandVerona.Heisexplainingtohisnewassistant,John

Stevenson,whyitiscrucialforaninvestmentanalysttoreadthefootnotestoafirm'sfinancialstatementandtheManagement

DiscussionandAnalysis(MD&A)beforemakinganinvestmentdecision.WhichrationaleisMartinenkoleastlikelytoprovideto

StevensonregardingtheimportanceofanalyzingthefootnotesandMD&A?

A) ThefootnotesdisclosewhetherornotthecompanyisadheringtoGAAP.

B) Evaluatingthefootnoteshelpstheanalystassesswhethermanagementis manipulatingearnings.

C) Accruals,adjustmentsandassumptionsareoftenexplainedinthefootnotesand MD&A.

Explanation

Variousaccruals,adjustments,andmanagementassumptionsthatwentintothefinancialstatementsareoftenexplainedin

thefootnotestothestatementsandinManagement'sDiscussionandAnalysis.Becauseadjustmentsandassumptionswithin

thefinancialstatementsaretosomeextentatthediscretionofmanagement,thepossibilityexiststhatmanagementcantryto

manipulateormisrepresentthecompany'sfinancialperformance.Withthisinformation,theanalystcanbetterjudgehowwell

thefinancialstatementsreflectthecompany'strueperformance,andinwhatwaysheneedstoadjustthedataforhisown

analysis.WhetherornotthecompanyisadheringtoGAAPisaddressedintheauditor'sopinion,notthefootnotes.

Question#63of76

QuestionID:414046

AccordingtotheIFRSframework,timelinessisacharacteristicthatenhances:

A) faithfulrepresentation.

B) relevance.

C) bothrelevanceandfaithfulrepresentation.

Explanation

IntheIFRSframework,timeliness,comparability,verifiability,andunderstandabilityarecharacteristicsthatenhancethetwo

fundamentalqualitativecharacteristics,relevanceandfaithfulrepresentation.

Question#64of76

QuestionID:414040

WhichofthefollowingisleastlikelytobeconsideredastatedgoaloftheInternationalAccountingStandardsBoard(IASB)?

A) Developglobalaccountingstandardsrequiringtransparency,comparability, andhighqualityinfinancialstatements.

B) Remainneutralinthedebateontheuseofglobalaccountingstandardstoavoid appearanceofaconflictofinterest.

C) Accountfortheneedsofemergingmarketsandsmallfirmswhenimplementingglobal accountingstandards.

Explanation

TheIASBhasfourstatedgoals:

1.Developglobalaccountingstandardsrequiringtransparency,comparability,andhighqualityinfinancialstatements.

2.Promotetheuseofglobalaccountingstandards.

3.Accountfortheneedsofemergingmarketsandsmallfirmswhenimplementingglobalaccountingstandards.

4.Achieveconvergencebetweenvariousnationalaccountingstandardsandglobalaccountingstandards.

Question#65of76

QuestionID:414030

Regardingtheuseoffinancialstatementsinsecurityanalysisandselection,itwouldbemostaccuratetosaythat:

A) analystscanverifytheaccuracyoffinancialstatementsbyusingafirm's detailedaccountingsysteminformation.

B) furtheranalysisofafirm'sfinancialstatementsistypicallynotnecessaryifthefirmhas conformedtoapplicableaccountingprinciples.

C) analystscanusefootnotesandManagement'sDiscussionandAnalysistobetter understandassumptionsusedinthefinancialstatements.

Explanation

Analystsmusthaveagoodunderstandingofafirm'saccountingprocessandmustreadthefootnotestothefinancial

statementaswellasManagement'sDiscussionandAnalysistobetterunderstandassumptionsusedinthefinancial

statements.Evenifthefirmconformstoappropriateaccountingprinciples,thereisstillroomformanagementdiscretion.

Becauseanalystsdonothaveaccesstoafirm'sdetailedaccountinginformation,theymustrelyonwhattheycangleanfrom

thefootnotesandManagement'sDiscussionandAnalysis.

Question#66of76

QuestionID:414042

Whichofthefollowingismostlikelytobeconsideredabarriertodevelopingoneuniversallyrecognizedsetofreporting

standards?

A) Reluctanceoffirmstoadheretoasinglesetofreportingstandards.

B) Differentstandard­settingbodiesofdifferentcountriesdisagreeonthebesttreatment ofaparticularissue.

C) GATTalreadyrequiressufficientagreement.

Explanation

Aprincipalobstacletoagreementonasinglesetofreportingstandardsisthatvariousstandard­settingbodiesandregulatory

authoritiesdisagreeonwhatthestandardsshouldbe.Firmsgenerallysupporttheideabecauseitwouldreducethecostof

reporting.GATTistheGeneralAgreementonTariffsandTradeanddoesnotrelatetofinancialreporting.

Question#67of76

QuestionID:414006

Whichofthefollowingisthebestdescriptionofthefinancialstatementanalysisframework?

A) Statetheobjectiveandcontext,gatherdata,processthedata,analyzeand interpretthedata,reporttheconclusionsorrecommendations,updatethe analysis.

B) Gatherdata,analyzeandinterpretthedata,determinethecontext,reportthe conclusions,updatetheanalysis.

C) Gatherdata,analyzeandinterpretthedata,processtheconclusions,assessthe context,reporttherecommendations,updatetheanalysis.

Explanation

Thefinancialstatementanalysisframeworkconsistsofsixsteps:

1. Statetheobjectiveandcontext.

2. Gatherdata.

3. Processthedata.

4. Analyzeandinterpretthedata.

6.

Updatetheanalysis.

Question#68of76

QuestionID:414048

Requiredfinancialstatements,accordingtoInternationalAccountingStandard(IAS)No.1,includea(n):

A) balancesheetandexplanatorynotes.

B) cashflowstatementandauditor'sreport.

C) incomestatementandworkingcapitalsummary.

Explanation

FinancialstatementsthatarerequiredbyIASNo.1includeabalancesheet,astatementofcomprehensiveincome,acash

flowstatement,astatementofchangesinowners'equity,andexplanatorynotesthatincludeasummaryofthecompany's

accountingpolicies.IASNo.1doesnotrequireanauditor'sreportoraworkingcapitalsummary.

Question#69of76

QuestionID:414015

ThefollowingamountsweredrawnfromtherecordsofJMECompany:totalassets=$1,200;totalliabilities=$750;

contributedcapital=$600.Basedonthisinformationalone,retainedearningsmustbeequalto:

A) −$150.

B)

$150.

C)

$450.

Explanation

(1,200−750−600)=−150

Question#70of76

Thestandardauditor'sreportismostlikelyrequiredto:

QuestionID:414000

A) providereasonableassurancethatmanagementisreliable.

B) providean"unqualified"opinionifmaterialuncertaintiesexist.

C) providereasonableassurancethatthefinancialstatementscontainnomaterialerrors.

Explanation

Thestandardauditor'sreportcontainsthreeparts:

1. Thefinancialstatementsarepreparedbymanagementandaretheirresponsibilityandtheauditorhasperformedan

independentreview.

2. Theauditwasconductedusinggenerallyacceptedauditingstandards,whichprovidesreasonableassurancethatthere

arenomaterialerrorsinthefinancialstatements.

principleschosenandestimatesarereasonable.

UnderU.S.GAAP,theauditorisrequiredtostateanopiniononthecompany'sinternalcontrols.Theauditormayaddthis

opinionasafourthelementoftheauditor'sreportorprovideitseparately.

Question#71of76

QuestionID:414034

Whichofthefollowingstatementsaboutfinancialreportingstandardsisleastaccurate?Reportingstandards:

A) narrowtherangewithinwhichmanagementestimatescanbeseenas reasonable.

B) aredisclosedonForm8KbypubliclytradedfirmsintheUnitedStates.

C) ensurethattheinformationis"usefultoawiderangeofusers."

Explanation

Reportingstandardsensurethattheinformationis"usefultoawiderangeofusers,"includingsecurityanalysts,bymaking financialstatementscomparabletooneanotherandnarrowingtherangewithinwhichmanagement'sestimatescanbeseen

asreasonable.Securities&ExchangeCommissionForm8Kaddressesacquisitions,divestitures,etc.andnotreporting

standards.

Question#72of76

QuestionID:413997

Whichofthefollowingstatementsconcerningthenotestotheauditedfinancialstatementsofacompanyisleastaccurate?

Financialstatementnotes:

A) containinformationaboutcontingentlossesthatmayoccur.

B) includemanagement'sassessmentofthecompany'soperatingperformanceand financialresults.

C) areaudited.

Explanation

Management'sperspectiveonthecompany'sresultsisprovidedintheManagement'sDiscussionandAnalysissupplementto

thefinancialstatements.Financialstatementnotes(footnotes)provideinformationaboutmatterssuchasthecompany's

accountingmethodsandassumptions,contingencies,andacquisitionsanddisposals.Footnotestothefinancialstatements

areaudited.

Question#73of76

QuestionID:414037

Desirableattributesofaccountingstandard­settingbodiesleastlikelyinclude:

A) makingdecisionsthatareinthepublicinterest.

B) operatingindependentlyofinterestedstakeholders.

C) havingclearandconsistentstandard­settingprocesses.

Explanation

Althoughstandard­settingbodiesshouldnotbecompromisedbyspecialinterests,seekinginputfromstakeholdersis

consideredadesirableattribute.

Question#74of76

QuestionID:414005

WhichofthefollowingisleastlikelytobeavailableonEDGAR(ElectronicDataGathering,Analysis,andRetrievalSystem)?

A) SECfilings.

B) Corporatepressreleases.

C) Form10Q.

Explanation

SecuritiesandExchangeCommission(SEC)filingsareavailablefromEDGAR(ElectronicDataGathering,Analysis,and

RetrievalSystem,www.sec.gov).Companies'annualandquarterlyfinancialstatementsarealsofiledwiththeSEC(Form10­K

andForm10­Q,respectively).

Question#75of76

QuestionID:414043

Theprocessofdevelopingoneuniversallyacceptedsetofaccountingstandardsisbestdescribedas:

A) unification.

B) convergence.

C) IASB.

Explanation

Developingoneuniversallyacceptedsetofaccountingstandardsisreferredtoas"convergence."TheIASBisanaccounting

standardsettingbodyinvolvedintheprocess.

Question#76of76

QuestionID:414052

WhichofthefollowingstatementsabouttheelementsoffinancialstatementsundertheFASBandIASBframeworksisleast

accurate?

A) TheIASBframeworklistsincomeandexpensesastheelementsrelatedto performance.

B) TheIASBframeworkdoesnotallowthevaluesofassetstobeadjustedupward.

C) Theword"probable"isusedbytheFASBtodefineassetsandliabilities.

Explanation

Differencesinfinancialstatementelementsinclude:(1)TheIASBframeworklistsincomeandexpensesastheelements

relatedtoperformance,whiletheFASBframeworkusesrevenues,expenses,gains,losses,andcomprehensiveincome.(2)

FASBdefinesanassetasafutureeconomicbenefit,whereIASBdefinesitasaresourcefromwhichafutureeconomicbenefit

isexpected.(3)Theword"probable"isusedbytheFASBtodefineassetsandliabilities.(4)TheFASBframeworkdoesnot

allowthevaluesofmostassetstobeadjustedupward.