Chapter 3 Financial Statements and Ratio Analysis

Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart)
Chapter 3 Financial Statements and Ratio Analysis

3.1 The stockholder's report

1) The Financial Accounting Standards Board (FASB) is the federal regulatory body that
governs the sale and listing of securities.
Answer: FALSE
Diff: 1
Topic: The Stockholders' Report
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

2) GAAP is the accounting profession's rule-setting body.
Answer: FALSE
Diff: 1
Topic: The Stockholders' Report
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

3) Generally accepted accounting principles are authorized by the Financial Accounting
Standards Board (FASB).
Answer: TRUE
Diff: 1
Topic: The Stockholders' Report
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

4) The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight
Board (PCAOB) which is a not-for-profit corporation that oversees auditors of public
corporations.
Answer: TRUE
Diff: 1
Topic: The Stockholders' Report
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking




1
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,5) The Sarbanes-Oxley Act of 2002 was passed to eliminate many of the disclosure and conflict-
of-interest problems of corporations.
Answer: TRUE
Diff: 1
Topic: The Stockholders' Report
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

6) The Sarbanes-Oxley Act of 2002 established the Private Company Accounting Oversight
Board (PCAOB) which is a for-profit corporation that oversees CEOs of public corporations.
Answer: FALSE
Diff: 1
Topic: The Stockholders' Report
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

7) Publicly owned corporations with more than $5 million assets are required by the Securities
and Exchange Commission (SEC) to provide their stockholders with an annual stockholders'
report.
Answer: TRUE
Diff: 1
Topic: The Stockholders' Report
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

8) The letter to stockholders is the primary communication from management in an annual
report.
Answer: TRUE
Diff: 1
Topic: The Letter to Stockholders
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

9) Common stock dividends paid to stockholders is equal to the earnings available for common
stockholders divided by the number of shares of common stock outstanding.
Answer: FALSE
Diff: 1
Topic: The Four Key Financial Statements
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking



2
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,10) The income statement is a financial summary of a firm's operating results during a specified
period while the balance sheet is a summary statement of a firm's financial position at a given
point in time.
Answer: TRUE
Diff: 1
Topic: The Four Key Financial Statements
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking

11) The common stock entry in balance sheet is the par value of common stock.
Answer: TRUE
Diff: 1
Topic: The Four Key Financial Statements
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking

12) Paid-in capital in excess of par represents the proceeds in excess of par value received from
the original sale of common stock.
Answer: TRUE
Diff: 1
Topic: The Four Key Financial Statements
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking

13) Earnings per share represents amount earned during the period on each outstanding share of
common stock.
Answer: TRUE
Diff: 1
Topic: The Four Key Financial Statements
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking

14) Net fixed assets represent the difference between gross fixed assets and the amount of
depreciation expense from the most recent year.
Answer: FALSE
Diff: 1
Topic: The Four Key Financial Statements
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking




3
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, 15) Earnings per share results from dividing earnings available for common stockholders by the
number of shares of common stock authorized.
Answer: FALSE
Diff: 1
Topic: The Four Key Financial Statements
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking

16) Retained earnings represent the cumulative total of all earnings, net of dividends, that have
been retained and reinvested in the firm since its inception.
Answer: TRUE
Diff: 1
Topic: The Four Key Financial Statements
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking

17) The balance sheet is a statement which balances a firm's assets (what it owns) against its debt
(what it owes) and its equity (what is provided by owners).
Answer: TRUE
Diff: 1
Topic: The Four Key Financial Statements
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking

18) The amount paid in by the original purchasers of common stock is shown by two entries in
the firm's balance sheet—common stock and paid-in capital in excess of par on common stock.
Answer: TRUE
Diff: 1
Topic: The Four Key Financial Statements
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking

19) The original price per share received by the firm on a single issue of common stock is equal
to the sum of the common stock and paid-in capital in excess of par accounts divided by the
number of shares outstanding.
Answer: TRUE
Diff: 1
Topic: The Four Key Financial Statements
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking



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Copyright © 2019 Pearson Education, Inc.