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Financial Statements Multiple Choice

Which one is false?

A) conservative accounting aggressively recognizes loss or reserve provisions in early period
B) aggressive accounting understates loss in early period
C) conservative accounting may be reversed to record higher profit later
D) conservative accounting is based on logical theory instead of accounting tradition

Which one is false?

A) when company finds the error on prior statement and the prior period affected is reported for comparative purposes, the corrected information must be disclosed for the period in which it occurred
B) when an estimate is changed, no adjustment is needed from the previous statements
C) when the accounting principle for goodwill in 2002 is changed, the firm should remake the previous financial statements based on the new principle for 5 years

Which one is false?

A) SFAS No. 128 requires that company should report EPS on the face of the income statement
B) Primary EPS on APB No. 15 is always equal to the basic EPS on SFAS No. 128
C) There are two EPS figures such as basic EPS and Diluted EPS. The basic EPS is usually higher than diluted EPS
D) EPS has been termed a summary indicator to communicate the information about the performance or financial position

Which one is not a main question when you evaluate earnings' quality?

A) gross profit ratio
B) relationship between earnings and the market price of the common stock
C) debt to equity ratio and total amounts of liabilities
D) source of revenue and persistence of revenues

Which one is false?

A) the return on assets (ROA) measures the percentage return on the asset employed by a company
B) inventory on balance sheet is measured only by current or replacement values
C) the balance sheet should disclose a company's wealth to a point. Wealth is defined as the present value of all resources less the present value of obligations.
C) FASB's asset-liability approach is based on FASB Statement of Concept No. 6

Solution Preview

Which one is false?

A) conservative accounting aggressively recognizes loss or reserve provisions in early period <-- this is true. Losses would be recognized before gains in conservative accounting.
B) aggressive accounting understates loss in early period <-- it usually severely understates expenses and losses. It is the opposite of conservative accounting.
C) conservative accounting may be reversed to record higher profit later <-- true, there is usually a delay because of "how conservative" conservative accounting practices are.
D) conservative accounting is based on logical theory instead of accounting tradition <------ this would be false and is an opinion. Conservative accounting wouldn't be based on logical theory to any greater or less extent than aggressive accounting is.

Which one is false?

A) when company finds the error on prior statement and the prior period affected is reported for comparative purposes, the corrected information must be disclosed for the ...

Solution Summary

Financial Statements Multiple Choice questions are answered with explanations.

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