Exam (elaborations)

Accounting Ch 1 Exam Questions and Verified Answers

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Course
CPA - Certified Public Accountant

Institution
CPA - Certified Public Accountant

"Big 4" answer - The four public accounting firms that audit most of the large companies in the United States are known as the Big 4. They are Deloitte & Touche, Ernst & Young, KPMG Peat Marwick, and PricewaterhouseCoopers. Board of Directors answer - The board of directors is a group of indiv...

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Uploaded on May 13, 2025
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Type Exam (elaborations)
Contains Questions & answers

accounting ch 1 exam questions and verified answer

Institution CPA - Certified Public Accountant
Course CPA - Certified Public Accountant

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Accounting Ch 1 Exam Questions and
Verified Answers

"Big 4" answer - The four public accounting firms that audit most of the large companies in the
United States are known as the Big 4. They are Deloitte & Touche, Ernst & Young, KPMG Peat
Marwick, and PricewaterhouseCoopers.

Board of Directors answer - The board of directors is a group of individuals, elected annually by
the stockholders of a corporation to represent the interests of those stockholders. In addition to
setting overall corporate policies, the board has the power to declare dividends, set executive
compensation, and hire and fire management. The board also appoints and monitors the
compensation committee and audit committees.

Certified Public Accountant (CPA) answer - A certified public accountant (CPA) is an individual
who has met a set of educational requirements to sit for the national CPA exam, passed the
exam, and met the experience requirements of the states in which he or she practices. Certified
public accountants must also pass an ethics exam, periodically participate in continuing
education courses, and maintain their membership with the American Institute of Certified
Public Accountants (AICPA) CPAs are empowered to sign audit reports.

Common Stock answer - Common stock is a certificate that represents an ownership (equity)
interest in a corporation, carrying with it the right to receive dividends if they are declared and
the right to vote for the corporation's board of directors at the annual shareholders' meeting. It
also carries with it the right to the assets of the corporation, but this right is subordinate to that
of the corporate creditors. Issuing common stock is a popular way used by corporations to raise
capital.

Compensation Contracts answer - Compensation contracts specify the form and amount of
compensation paid to the executives, managers, or employees of a company.

, Consolidated Financial Statements answer - Consolidated financial statements include a
company's assets and liabilities as well as the assets and liabilities of its majority-owned
subsidiaries. See business acquisition and merger.

Corporate Governance answer - Mechanisms that encourage management to report in good
faith to - and act in the interest of - the stockholders. Effective corporate governance is critical
for an effective financial reporting system. Components of corporate governance include
financial information users and capital markets, contracts between management and debt and
equity investors, financial reporting regulations and standards, independent auditors, boards of
directors and audit committees, internal controls ensuring that the company is in compliance
with financial reporting regulations, legal liability, professional reputation, and ethics.

Creditors answer - A creditor is an individual or entity to which a company owes money or
services or to which the company has an outstanding debt.

Debt Covenants answer - A debt covenant is an agreement between a company's debtholders
and its managers that often restricts the managers' behavior. These restrictions are usually
designed to protect the debtholder's investment (i.e., increase the likelihood of receiving the
contractual debt payments on a timely basis), and they are often written in terms of numbers
and ratios taken from the financial statements. Violating a debt covenant puts the issuing
company (debtor) into technical default.

Debt Investment answer - A debt investment involves the purchase of a debt security or a loan
of goods or services to another entity, with the expectation that some payment (principal and
interest) will be received in return. Debt investments are usually backed by contracts that
specify the terms of the arrangement—maturity date interest and principal payments, security,
and collateral as well as other features that transfer risk from one party to the other (e.g., debt
covenants, call provisions).

Debt Restrictions answer - Restrictions imposed on the debtor in order to protect to protect an
investment

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