Riaz Academy
Financial Statement Analysis by Charles H Gibson
MCQs with Answers Chapter # 2 Introduction to Financial Statements and Other Financial Reporting Topics
P 2-5: Answer the following multiple-choice questions:
a. The balance sheet equation can be defined as which of the following?
1. Assets + Stockholders’ Equity = Liabilities
2. Assets + Liabilities = Stockholders’ Equity
3. Assets = Liabilities – Stockholders’ Equity
4. Assets – Liabilities = Stockholders’ Equity
5. None of the above
b. If assets are $40,000 and stockholders’ equity is $10,000, how much are liabilities?
1. $30,000
2. $50,000
3. $20,000
4. $60,000
5. $10,000
c. If assets are $100,000 and liabilities are $40,000, how much is stockholders’ equity?
1. $40,000
2. $50,000
3. $60,000
4. $30,000
5. $140,000
d. Which is a permanent account?
1. Revenue
2. Advertising Expense
3. Accounts Receivable
4. Dividends
5. Insurance Expense
e. Which is a temporary account?
1. Cash
2. Accounts Receivable
3. Insurance Expense
4. Accounts Payable
5. Notes Payable
f. In terms of debits and credits, which accounts have the same normal balances?
1. Dividends, retained earnings, liabilities
2. Capital stock, liabilities, expenses
3. Revenues, capital stock, expenses
4. Expenses, assets, dividends
5. Dividends, assets, liabilities
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P 2-6: Answer the following multiple-choice questions:
A . Audit opinions cannot be classified as which of the following?
1. All-purpose
2. Disclaimer of opinion
3. Adverse opinion
4. Qualified opinion
5. Unqualified opinion
b. From the point of view of analysis, which classification of an audit opinion indicates that the financial statements carry the highest degree of reliability?
1. Unqualified opinion
2. All-purpose
3. Disclaimer of opinion
4. Qualified opinion
5. Adverse opinion
c. Which one of the following statements is false?
1. The reliance that can be placed on financial statements that have been reviewed is substantially less than for those that have been audited.
2. An accountant’s report described as a compilation presents only financial information as provided by management.
3. A disclaimer of opinion indicates that you should not look to the auditor’s report as an indication of the reliability of the statements.
4. A review has substantially less scope than an examination in accordance with generally accepted auditing standards.
5. The typical unqualified opinion has one paragraph.
d. If an accountant performs a compilation and becomes aware of deficiencies in the statements, the accountant’s report characterizes the deficiencies by all but one of the following:
1. Omission of substantially all disclosures
2. Omission of the statement of cash flows
3. Accounting principles not generally accepted
4. All of the above
5. None of the above
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e. In addition to the company’s principal financial statements, the Form 10-K and shareholder annual reports must include all but one of the following:
1. Information on the market for holders of common stock and related securities, including high and
low sales price, frequency and amount of dividends, and number of shares
2. Five-year summary of selected financial data
3. Management’s discussion and analysis of financial condition and results of operations
4. Two years of audited balance sheets, three years of audited statements of income, and two years of statements of cash flows
5. Disclosure of the domestic and foreign components of pretax income
f. Which of these is not a suggested problem caused by lack of harmonization of international accounting standards?
1. Positive effect on the international trade of accounting practice and services
2. A need for employment of key personnel in multinational companies to bridge the “gap” in
accounting requirements between countries
3. Difficulties in reconciling local standards for access to other capital markets
4. Difficulties in accessing capital markets for companies from less-developed countries
5. Negative effect on the international trade of accounting practice and services
g. Which of these organizations has not played a role in the harmonization of international accounting standards?
1. United Nations
2. Internal Revenue Service
3. International Accounting Standards Board
4. Financial Accounting Standards Board
5. European Economic Community
h. The Form 10-K is submitted to the:
1. American Institute of Certified Public Accountants
2. Securities and Exchange Commission
3. Internal Revenue Service
4. American Accounting Association
5. Emerging Issues Task Force
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P 2-7: Answer the following multiple-choice questions:
a. Which party has the primary responsibility for the financial statements?
1. Bookkeeper
2. Auditor
3. Management
4. Cost accountant
5. None of the above
b. Which of the following is a type of audit opinion that a firm would usually prefer?
1. Unqualified opinion
2. Qualified opinion
3. Adverse opinion
4. Clear opinion
5. None of the above
c. Which of the following statements is true?
1. You are likely to regard an adverse opinion as an immaterial issue as to the reliability of the financial statements.
2. A disclaimer of opinion indicates that you should look to the auditor’s report as an indication of the reliability of the statements.
3. A review consists principally of inquiries made to company personnel and analytical procedures applied to financial data.
4. When the outside accountant presents only financial information as provided by management, he or she is said to have reviewed the financial statements.
5. None of the above
d. This item need not be provided with a complete set of financial statements:
1. A 20-year summary of operations
2. Note disclosure of such items as accounting policies
3. Balance sheet
4. Income statement
5. Statement of cash flows
e. Which of the following statements is true?
1. Financial statements of legally separate entities may be issued to show financial position, income, and cash flow as they would appear if the companies were a single entity (consolidated).
2. Consolidated statements reflect a legal, rather than an economic, concept of the entity.
3. The financial statements of the parent and the subsidiary are consolidated for all majority-owned subsidiaries.
4. Consolidated statements are rare in the United States.
5. The acceptance of consolidation has been decreasing.
f. Domestic accounting standards developed to meet the needs of domestic environments. Which of these factors did not influence accounting standards locally?
1. A litigious environment in the United States that led to a demand for more detailed standards in many cases
2. High rates of inflation in some countries that resulted in periodic revaluation of fixed assets and other price-level adjustments or disclosures
3. Income tax conformity in certain countries that no doubt greatly influenced domestic financial reporting
4. Reliance on open markets as the principal means of intermediating capital flows that increased the demand for information to be included in financial reports in the United States
5. The need to have standards different from the U.S. standards
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For more MCQs Financial Statement Analysis by Gibson
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 1
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 2
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 3
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 4
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 5
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 6
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 7
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 8
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 9
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 10
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 11
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 12
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 13
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 14
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 15