AU 60 EXAM - CHAPTER 5
QUESTIONS & ANSWERS 100%
CORRECT
How is gross profit calculated? - ANSWERGross profit = sales- cost of goods sold
The bottom line of an income statement shows the organization's - ANSWERNet
income
CES Brokers is considering purchasing several shares of Tylo Industries to diversify
their investment portfolio. Prior to the purchase, CES would like detailed information
on long-term debt issued by Tylo that is nearing maturity. CES should look for this
information in the - ANSWERNotes to the financial statements
Retained earnings - ANSWERThe cumulative net income that an organization has
retained, after payment of dividends, for reinvestment in the organization's
operations.
Gross margin (gross profit margin) - ANSWERThe percentage of sales remaining
after deducting the cost of goods sold from sales, calculated by dividing gross profit
by sales.
Statement of changes in shareholders' equity - ANSWERThe financial statement that
explains any changes that have occurred in the organization's capital accounts
during a specific period.
Paid-in capital - ANSWERThe total amount invested in an organization by the
owners.
Which one of the following represents the general form of a balance sheet? -
ANSWERAssets Liabilities
Owners' Equity
Total Liabilities and Owners' Equity
The basic accounting equation on which the balance sheet is structured is -
ANSWERAssets= Liabilities + Net Worth
Marketable securities - ANSWERAn asset classification that includes temporary
investments that can easily be converted into cash
Current assets - ANSWERA balance sheet asset classification that includes cash
and other assets that are expected to be converted into cash, sold, or exchanged
within the business's normal operating cycle, usually one year.
, Sarbanes-Oxley Act of 2002 - ANSWERA federal statutory law governing corporate
directors in the areas of investor protection, internal controls, and penalties, both civil
and criminal.
Treasury stock - ANSWERA corporate stock issued as fully apid to a stockholder
and subsequently reacquired by the corporation to use for business purposes.
Liabilities are claims against the organization's assets. Which one of the following
best describes a current liability?
A. Unpaid invoices from vendors
B. Unamortized portion of goodwill
C. Treasury stock to be retired in six months
D. Deferred acquisition costs - ANSWERA. Unpaid invoices from vendors
Which one of the following items may not be fairly represented on an entity's
financial statements due to the cost principle of accounting?
A. Inventory
B. Accounts payable
C. Treasury stock
D. Reinsurance recoverables - ANSWERA. Inventory
ABC Company purchased a building in Manhattan in 1935. There is no mortgage on
the property. Which one of the following statements best describes a limitation of the
financial statements when evaluating ABC's financial position?
A. The financial statements report the building as fully depreciated.
Incorrect. The fair value of the building may be much higher than cost.
B. The location of the building may not be disclosed.
C. The fair value of the building may be much higher than cost.
D. The original mortgage may be reported on the financial statements. - ANSWERC.
The fair value of the building may be much higher than cost.
The financial statement that shows an organization's cash receipts and cash
payments during a specified period is the - ANSWERStatement of cash flows
How is the value of an insurer's reputation typically reflected on its balance sheet?
A. Goodwill
B. Treasury stock value
C. Excess of fair market value
D. Not recorded - ANSWERD. Not recorded
QUESTIONS & ANSWERS 100%
CORRECT
How is gross profit calculated? - ANSWERGross profit = sales- cost of goods sold
The bottom line of an income statement shows the organization's - ANSWERNet
income
CES Brokers is considering purchasing several shares of Tylo Industries to diversify
their investment portfolio. Prior to the purchase, CES would like detailed information
on long-term debt issued by Tylo that is nearing maturity. CES should look for this
information in the - ANSWERNotes to the financial statements
Retained earnings - ANSWERThe cumulative net income that an organization has
retained, after payment of dividends, for reinvestment in the organization's
operations.
Gross margin (gross profit margin) - ANSWERThe percentage of sales remaining
after deducting the cost of goods sold from sales, calculated by dividing gross profit
by sales.
Statement of changes in shareholders' equity - ANSWERThe financial statement that
explains any changes that have occurred in the organization's capital accounts
during a specific period.
Paid-in capital - ANSWERThe total amount invested in an organization by the
owners.
Which one of the following represents the general form of a balance sheet? -
ANSWERAssets Liabilities
Owners' Equity
Total Liabilities and Owners' Equity
The basic accounting equation on which the balance sheet is structured is -
ANSWERAssets= Liabilities + Net Worth
Marketable securities - ANSWERAn asset classification that includes temporary
investments that can easily be converted into cash
Current assets - ANSWERA balance sheet asset classification that includes cash
and other assets that are expected to be converted into cash, sold, or exchanged
within the business's normal operating cycle, usually one year.
, Sarbanes-Oxley Act of 2002 - ANSWERA federal statutory law governing corporate
directors in the areas of investor protection, internal controls, and penalties, both civil
and criminal.
Treasury stock - ANSWERA corporate stock issued as fully apid to a stockholder
and subsequently reacquired by the corporation to use for business purposes.
Liabilities are claims against the organization's assets. Which one of the following
best describes a current liability?
A. Unpaid invoices from vendors
B. Unamortized portion of goodwill
C. Treasury stock to be retired in six months
D. Deferred acquisition costs - ANSWERA. Unpaid invoices from vendors
Which one of the following items may not be fairly represented on an entity's
financial statements due to the cost principle of accounting?
A. Inventory
B. Accounts payable
C. Treasury stock
D. Reinsurance recoverables - ANSWERA. Inventory
ABC Company purchased a building in Manhattan in 1935. There is no mortgage on
the property. Which one of the following statements best describes a limitation of the
financial statements when evaluating ABC's financial position?
A. The financial statements report the building as fully depreciated.
Incorrect. The fair value of the building may be much higher than cost.
B. The location of the building may not be disclosed.
C. The fair value of the building may be much higher than cost.
D. The original mortgage may be reported on the financial statements. - ANSWERC.
The fair value of the building may be much higher than cost.
The financial statement that shows an organization's cash receipts and cash
payments during a specified period is the - ANSWERStatement of cash flows
How is the value of an insurer's reputation typically reflected on its balance sheet?
A. Goodwill
B. Treasury stock value
C. Excess of fair market value
D. Not recorded - ANSWERD. Not recorded
