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An audit is an examination of the financial statements to ensure that they represent what they claim and to make sure that they are in compliance with generally accepted accounting principles.

A) True
B) False

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The International Accounting Standards Board has worked to develop global accounting standards known as:


A) Generally accepted accounting principles.
B) Globally accepted financial standards.
C) International financial reporting standards.
D) Generally accepted international financial standards.

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

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The primary responsibility for the content of the financial statements lies with the external auditor.

A) True
B) False

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Which of the following is represented by elements of the statement of stockholders' equity?


A) Common stock reinvested in the business.
B) Revenues plus dividends and expenses.
C) Earnings not distributed to owners.
D) Financing from creditors and stockholders.

E) C) and D)
F) None of the above

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Which of the following is not an alternate title for the financial statement that reports revenues and expenses?


A) Income Statement.
B) Statement of Net Income.
C) Statement of Operations.
D) Statement of Income.

E) B) and C)
F) C) and D)

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Parker Pool Supply,Inc.reported the following items for the year ended December 31,2019: Parker Pool Supply,Inc.reported the following items for the year ended December 31,2019: Prepare an income statement for the year ended December 31,2019. Prepare an income statement for the year ended December 31,2019.

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blured image Accounts receivable...

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Which of the following best describes the purpose of an audit?


A) To prove the accuracy of an entity's financial statements.
B) To lend credibility to an entity's financial statements.
C) To audit every transaction that an entity entered into.
D) To establish that a corporation's stock is a sound investment.

E) A) and D)
F) B) and D)

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Which of the following accounts would not be reported on the balance sheet?


A) Retained earnings.
B) Inventory.
C) Accounts payable.
D) Dividends.

E) B) and D)
F) None of the above

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Which of the following is considered to be an expense on the income statement?


A) Accounts payable.
B) Notes payable.
C) Wages payable.
D) Cost of goods sold.

E) A) and B)
F) None of the above

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Which of the following describes the operating activities section of a cash flow statement?


A) It provides information about how operations have been financed.
B) It provides information pertaining to dividend payments to stockholders.
C) It provides information with respect to a company's ability to generate cash flows that are directly related to earning income.
D) It provides the net increase or decrease in cash during the period.

E) None of the above
F) All of the above

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Which of the following accounts is not a liability on the balance sheet?


A) Retained earnings.
B) Notes payable.
C) Accounts payable.
D) Interest payable.

E) A) and B)
F) B) and D)

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Which of the following is primarily responsible for the information provided in the financial statements?


A) Chief Executive Officer.
B) External Auditors.
C) Board of Directors.
D) Internal Accounting Staff.

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

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Sparty Corporation has provided the following information for its most recent year of operation: Revenues earned were $97,000,of which $9,000 were uncollected at the end of the year. Operating expenses incurred were $39,000,of which $7,000 were unpaid at the end of the year. Dividends declared were $11,000,of which $3,000 were unpaid at the end of the year. Income tax expense is $17,400. What is the amount of net income reported on Sparty's income statement?


A) $32,900.
B) $39,300.
C) $33,600.
D) $40,600.

E) B) and C)
F) C) and D)

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For each of the following items that appear on the balance sheet,identify each as an asset (A),liability (L),or element of stockholders' equity (SE).For any item that would not appear on the balance sheet,write the letter,N. For each of the following items that appear on the balance sheet,identify each as an asset (A),liability (L),or element of stockholders' equity (SE).For any item that would not appear on the balance sheet,write the letter,N.

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Which of the following is not a consequence to a company resulting from the issuance of their financial statements?


A) The effect on the selling price of their stock.
B) The providing of information to their competitors.
C) The effect of bonus payments to its employees.
D) The providing of information to their auditors.

E) All of the above
F) C) and D)

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Which of the following transactions increases both cash and net income?


A) Cash receipts from a bank loan.
B) Cash receipts from sale of common stock.
C) Cash receipts from customers for services provided.
D) Cash receipts from cost of goods sold.

E) A) and D)
F) A) and C)

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Madrid Company has provided the following data (ignore income taxes) : 2019 revenues were $77,500. 2019 net income was $33,900. Dividends declared and paid during 2019 totaled $5,700. Total assets at December 31,2019 were $217,000. Total stockholders' equity at December 31,2019 was $123,000. Retained earnings at December 31,2019 were $83,000. - Which of the following is not correct?


A) 2019 expenses were $43,600.
B) Total liabilities at December 31,2019 were $94,000.
C) Retained earnings increased $33,900 during 2019.
D) Common stock at December 31,2019 was $40,000.

E) None of the above
F) B) and C)

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Which of the following is not a formal requirement to become a licensed certified public accountant (CPA) ?


A) A college education.
B) Professional experience.
C) Membership in the American Institute of Certified Public Accountants (AICPA) .
D) A professional examination.

E) None of the above
F) A) and B)

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Which of the following would not be reported in the operating activities section of a cash flow statement?


A) Cash paid for dividends to stockholders.
B) Cash paid for interest expense.
C) Cash paid for employee wages.
D) Cash received from customers.

E) A) and B)
F) None of the above

Correct Answer

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A decision maker who wants to understand a company's financial statements must carefully read the notes to the financial statements because these disclosures provide useful supplemental information.

A) True
B) False

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