Question

True or False

1-Financial analysts utilize a company's financial reports to assist them in making earnings forecasts and earnings per share projections.

2-The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for independent auditors.

3-The primary responsibility for the information in a corporation's financial statements lies with the chief executive officer (CEO) and the chief financial officer (CFO).

4-The form 10-Q contains an unaudited set of quarterly financial statements.

5-The Securities & Exchange Commission (SEC) oversees the work of the Financial Accounting Standards Board (FASB)

6-The Financial Accounting Standards Board (FASB) oversees the work of the Public Company Accounting Oversight Board (PCAOB).

7-Comparative financial statements are those of a company in one industry presented with another company in the same industry.

8-The fraud triangle conditions necessary for financial statement fraud to occur are the existence of a system of internal control, the ability to invade the system, and rationalization to commit the fraud.

9-External users of accounting information include decision makers such as investors, creditors, and financial analysts.

10-The form 10-K is the annual report that publicly traded companies must file with the Securities & Exchange Commission (SEC).

11-The summary of significant accounting policies is typically included as one of the first notes to the financial statements.

12-Gross profit is calculated as gross sales less cost of sales.

13-Credit card discounts are reported as operating expenses on an income statement.

14-Sales returns and allowances is a contra-revenue account.

15-When goods are shipped FOB shipping point, title passes to the buyer on the shipment date.

16-Credit terms of "2/10, n/30" mean that if payment is made in two days, a 10% discount will be given; if not paid within two days, the full invoice price will be due in thirty days.

17-Sales discounts are deducted from sales in the calculation of net sales.

18-When goods are shipped FOB destination, the revenue from the sale is recognized on the shipment date

19-When completing the bank reconciliation, bank service charges should be deducted from the company's cash balance.

20-The allowance for doubtful accounts is reported as a contra-asset on the balance sheet.

21-When using the percentage of credit sales method, net sales multiplied by a historical percentage for credit losses equal bad debt expense.

22-An objective of preparing the bank reconciliation is to reconcile the bank balance at the end of the period with the company's book balance at the end of the period.

23-Deposits in transit are deducted from the bank balance when preparing the bank reconciliation

24-Effective internal control of cash should include the separation of the duties for receiving and disbursing cash.

25-The journal entry to record bad debt expense is made during the year in which it is determined that a particular receivable is uncollectible, regardless of the year of sale.

26-The LIFO inventory method allocates the oldest inventory purchase costs to cost of goods sold.

27-During periods of decreasing unit costs, use of the FIFO inventory method results in lower gross profit than would use of the LIFO method.

28-A grocery store would likely use the specific identification inventory costing method for most of the items in its inventory.

29-During periods of increasing unit costs, the LIFO inventory method results in lower income taxes.

30-Inventory turnover is calculated as cost of goods sold divided by average inventory.

31-The journal entry to write down inventory under the lower of cost or net realizable value rule results in a debit to cost of goods sold and a credit to inventory.

32-A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.

33-Goods available for sale are allocated to both ending inventory and cost of goods sold.

34-LIFO liquidation results when a company has a lower level of inventory at the end of the year than it had at the beginning of the year.

35-The FIFO inventory method will result in the lowest net income in comparison with the LIFO method when costs are decreasing.

36-The FIFO inventory method allocates the earliest inventory purchase costs to ending inventory.

37-The LIFO Reserve represents the excess of FIFO inventory costs over LIFO inventory costs.

38-An increase in inventory is subtracted from net income when determining cash flow from operating activities.

39-An increase in accounts payable is added to net income when determining cash flows from operating activities.

Answer 1

Particulars	Answer	Explanation
1-Financial analysts utilize a company's financial reports to assist them in making earnings forecasts and earnings per share projections.	TRUE
2-The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for independent auditors.	TRUE
3-The primary responsibility for the information in a corporation's financial statements lies with the chief executive officer (CEO) and the chief financial officer (CFO).	TRUE
4-The form 10-Q contains an unaudited set of quarterly financial statements.	TRUE
5-The Securities & Exchange Commission (SEC) oversees the work of the Financial Accounting Standards Board (FASB)	TRUE
6-The Financial Accounting Standards Board (FASB) oversees the work of the Public Company Accounting Oversight Board (PCAOB).	FALSE	SEC Oversees
7-Comparative financial statements are those of a company in one industry presented with another company in the same industry.	FALSE	It is for the same company for different periods
8-The fraud triangle conditions necessary for financial statement fraud to occur are the existence of a system of internal control, the ability to invade the system, and rationalization to commit the fraud.	FALSE	They are OPPORTUNITY, INCENTIVE and RATIONALIZATION
9-External users of accounting information include decision makers such as investors, creditors, and financial analysts.	TRUE
10-The form 10-K is the annual report that publicly traded companies must file with the Securities & Exchange Commission (SEC).	TRUE
11-The summary of significant accounting policies is typically included as one of the first notes to the financial statements.	TRUE
12-Gross profit is calculated as gross sales less cost of sales.	FALSE	It is Net Sales less Cost of Sales
13-Credit card discounts are reported as operating expenses on an income statement.	FALSE	These are deducted from sales to report Net Sales
14-Sales returns and allowances is a contra-revenue account.	TRUE
15-When goods are shipped FOB shipping point, title passes to the buyer on the shipment date.	TRUE
16-Credit terms of "2/10, n/30" mean that if payment is made in two days, a 10% discount will be given; if not paid within two days, the full invoice price will be due in thirty days.	FALSE	It means 2% discount if paid in 10 days
17-Sales discounts are deducted from sales in the calculation of net sales.	TRUE
18-When goods are shipped FOB destination, the revenue from the sale is recognized on the shipment date	FALSE	It is recognized when it is delivered
19-When completing the bank reconciliation, bank service charges should be deducted from the company's cash balance.	TRUE
20-The allowance for doubtful accounts is reported as a contra-asset on the balance sheet.	TRUE
21-When using the percentage of credit sales method, net sales multiplied by a historical percentage for credit losses equal bad debt expense.	TRUE
22-An objective of preparing the bank reconciliation is to reconcile the bank balance at the end of the period with the company's book balance at the end of the period.	TRUE
23-Deposits in transit are deducted from the bank balance when preparing the bank reconciliation	FALSE	Deposits are added back
24-Effective internal control of cash should include the separation of the duties for receiving and disbursing cash.	TRUE
25-The journal entry to record bad debt expense is made during the year in which it is determined that a particular receivable is uncollectible, regardless of the year of sale.	FALSE	It is recorded on the basis of an estimate in the year of sale
26-The LIFO inventory method allocates the oldest inventory purchase costs to cost of goods sold.	FALSE	LIFO is Last In First Out. This means latest costs are allocated.
27-During periods of decreasing unit costs, use of the FIFO inventory method results in lower gross profit than would use of the LIFO method.	TRUE
28-A grocery store would likely use the specific identification inventory costing method for most of the items in its inventory.	FALSE	It is used when expensive unique items are sold
29-During periods of increasing unit costs, the LIFO inventory method results in lower income taxes.	TRUE
30-Inventory turnover is calculated as cost of goods sold divided by average inventory.	TRUE
31-The journal entry to write down inventory under the lower of cost or net realizable value rule results in a debit to cost of goods sold and a credit to inventory.	TRUE
32-A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.	FALSE	If LIFO is used for tax purpose, it should be used for Financials as well due to Conformity Rule
33-Goods available for sale are allocated to both ending inventory and cost of goods sold.	TRUE
34-LIFO liquidation results when a company has a lower level of inventory at the end of the year than it had at the beginning of the year.	TRUE
35-The FIFO inventory method will result in the lowest net income in comparison with the LIFO method when costs are decreasing.	TRUE
36-The FIFO inventory method allocates the earliest inventory purchase costs to ending inventory.	TRUE
37-The LIFO Reserve represents the excess of FIFO inventory costs over LIFO inventory costs.	TRUE
38-An increase in inventory is subtracted from net income when determining cash flow from operating activities.	TRUE
39-An increase in accounts payable is added to net income when determining cash flows from operating activities.	TRUE