Multiple Choice Questions

2-1 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 02 Financial Reporting and Analysis

Multiple Choice Questions

• Which of the following would require the filing of Form 8-K?

• Major acquisition

II. Audited financial statements III. Bankruptcy IV. Change in management control

• I and III

• II and IV

• I, III, and IV

• I, II, III, and IV

• Which of the following is considered part of GAAP?

• Statements of Financial Accounting Standards (SFAS)

• International Accounting Standards (IAS)

• International Financial Reporting Standards (IFRS)

• Internal Revenue Services (IRS)

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2-2 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• Which of the following is not considered a monitoring mechanism?

• The Securities and Exchange Commission (SEC)

• Top level management

• The board of director's audit committee

• The external auditors

• Which of the following statements about directors of a company is true?

• Directors are elected by management of a company.

• Directors only get paid if the company increases its profitability that year.

• Directors are shareholders' representatives.

• All directors of a company are senior managers in that company.

• Which of the following statements about accruals is true?

• Accrual income is less relevant than cash flow.

• Accruals cannot be manipulated.

• Accruals are less reliable than cash flows.

• All accrual accounting adjustments are value irrelevant.

• Which of the following statements about cash flows is true?

• All cash flows are value relevant.

• Only current cash flows are relevant for valuation.

• Cash flows are less reliable than accruals.

• Cash flows can be manipulated.

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• Relevance, one of the desirable qualities of accounting information, implies:

• the capacity of information should be based on five-year average historical data.

• the capacity of information to affect a decision.

• the capacity of information should be based on market expectations.

• that all companies should use same valuation methods such as LIFO and FIFO.

• Financial accounting data has some inherent limitations to investors. Which of the following is a

limitation?

• Not all economic events are easily quantifiable.

II. Many accounting entries rely heavily on estimates.III. Historical costs do not accurately reflect the true value of firms.IV. Inflation can distort analysis of accounting data.

• I, II and III

• I, III, and IV

• II, III, and IV

• I, II, III, and IV

• If a company fails to record a material amount of depreciation in a previous year, this is

considered:

• a change in accounting principle.

• an unusual item.

• an accounting error.

• a change in estimate.

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• Which of the following is an example of judgments made in the accounting reporting process?

• Useful life of machinery

II. Allowance for doubtful accounts III. Obsolescence of assets IV. Interest payment on bonds

• I, II, III, and IV

• I, II, and III

• II and III

• I and III

• Which of the following would affect the comparability of accounting information for a given

company from one accounting period to the next?

• Change in accounting principles

II. Disposition of segment of business III. Restructuring expenses IV. Change in auditors

• I and II

• I and III

• I, II, and III

• I, III, and IV