Acctg Chapter Test

The full disclosure principle, as adopted by the accounting profession, is best

described by which of the following? ANSWER: D: Disclosure of any
financial facts significant enough to influence the judgment of an
informed reader.

Which of the following questions would an analyst be least likely to find

addressed by the notes to the financial statements? ANSWER: C:How
many separate bank accounts does the company maintain?

The disclosure of accounting policies is important to financial statement

readers in determining: ANSWER: B: whether accounting policies are
consistently applied from year to year.

Which of the following should be disclosed in a Summary of Significant

Accounting Policies? ANSWER: B:Inventory method followed.

If a business entity entered into certain related party transactions it would be

required to disclose all of the following information except: ANSWER:
B:The nature of any future transactions planned between the
parties and the
terms involved.

Which of the following describes unintentional mistakes? ANSWER: D:

Errors: Yes, Irregularities: No

In presenting segment information, which of the following items must be

reconciled to the entity's consolidated financial statements? ANSWER: A:
Revenues: Yes, Operating Profit(Loss): Yes, unidentifiable assets:
yes

An operating segment is regarded as significant enough to warrant disclosure

if it satisfies one or more quantitative tests that deal with segment
revenues, income, or assets. In addition to these quantitative tests the FASB
believes entities should not report too many segments so as to overwhelm
users
with detailed information that may not be useful. The FASB also requires that:
ANSWER: A:segment results equal or exceed 75% of the combined
sales to unaffiliated customers for the entire enterprise

The accounting profession indicates that: ANSWER: D:the same

accounting principles used for the annual report should be
employed
for interim reports

The standard unqualified opinion is also known as a(n) ANSWER: B: clean

opinion
If the financial statements examined by an auditor lead the auditor to issue an
opinion that contains an exception that is not of sufficient magnitude to
invalidate the statement as a whole, the opinion is said to be: ANSWER:
B:qualified.

Which of the following best characterizes the difference between a financial

forecast and a financial projection? ANSWER: C: A forecast attempts to
provide information on what is expected to happen
whereas a projection may provide information on what is not
necessarily
expected to happen.

The publication of profit projections by a business enterprise is: ANSWER:

D:encouraged by the SEC, which has issued a safe harbor rule to
protect entities
that present this kind of information.

Opportunities for fraudulent financial reporting are present in circumstances

when the fraud is easy to commit and when detection is difficult. An
opportunity for fraud would least likely arise from the following situation:
ANSWER: D:Strong internal controls.

Durdil Company has a current ratio of 2:1. If current assets and current
liabilities are both increased by $10,000, the current ratio will: ANSWER: B:
decrease.

When should an average amount be used for the numerator or denominator?

ANSWER: B:For a balance sheet item when a ratio consists of an
income statement item
and a balance sheet item

Nick Baker Company earns a 7.4% return on assets. If net income amounts to
$275,000, total average assets must be: ANSWER: D: $3,716,216.

Perhaps the most severe criticism aimed at ratio analysis is: ANSWER: D:
the difficult problem of achieving comparability among firms in a
given industry.

Ratio analysis provides only a single snapshot, the analysis being for one given
point or period in time. When an investment analyst wishes to concentrate on
a given item to determine whether it appears to be growing or diminishing
year by year and the proportion of such change to related items, they should
use: ANSWER: C:comparative analysis.