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web.groovymark@gmail.com
- December 12, 2024
Question 41
What is the main goal of financial reporting?
A) To maximize profits
B) To provide information to stakeholders for decision-making
C) To reduce tax liabilities
D) To increase company value
Answer: B) To provide information to stakeholders for decision-making
Explanation: Financial reporting aims to deliver accurate information to stakeholders, aiding in informed economic decisions.
Question 42
What does the term “earnings per share” (EPS) represent?
A) Total revenues divided by total assets
B) Net income divided by the number of outstanding shares
C) Total assets divided by total liabilities
D) Gross profit divided by total equity
C) Ignore in cash flows
D) Report as a non-cash transaction
Answer: B) Net income divided by the number of outstanding shares
Explanation: EPS measures a company's profitability on a per-share basis, indicating how much profit is allocated to each share of stock.
Question 43
What is a “financial statement audit”?
A) A review of cash transactions only
B) An independent examination of financial statements
C) A process to prepare tax returns
D) An analysis of operational efficiency
Answer: B) An independent examination of financial statements
Explanation: A financial statement audit evaluates the fairness and accuracy of a company’s financial reporting by an external party.
Question 44
Which accounting concept requires that companies report information in a clear and understandable manner?
A) Full disclosure principle
B) Materiality principle
C) Understandability principle
D) Conservatism principle
Answer: C) Understandability principle
Explanation: The understandability principle ensures that financial information is presented in a manner that is clear and comprehensible to users.
Question 45
What type of account is “retained earnings”?
A) Asset
B) Liability
C) Contra asset
D) Equity
Answer: D) Equity
Explanation: Retained earnings represent the cumulative net income that has not been distributed as dividends and is part of stockholders' equity.
Question 46
What is the effect of issuing new shares of stock on a company’s cash flow?
A) It results in cash outflow.
B) It has no effect on cash flow.
C) It creates a cash inflow.
D) It decreases stockholders’ equity.
Answer: C) It creates a cash inflow.
Explanation: Issuing new shares raises capital for the company, resulting in a cash inflow from investors.
Question 47
Which of the following represents a financing activity in the statement of cash flows?
A) Issuing bonds
B) Selling inventory
C) Purchasing equipment
D) Collecting accounts receivable
Answer: A) Issuing bonds
Explanation: Issuing bonds is classified as a financing activity as it involves obtaining funds from creditors.
Question 48
What is the impact of a stock dividend on total equity?
A) It decreases total equity.
B) It increases total equity.
C) It has no effect on total equity.
D) It reallocates equity among shareholders.
Answer: C) It has no effect on total equity.
Explanation: A stock dividend redistributes retained earnings to capital stock but does not change the total equity amount.
Question 49
What does “net cash provided by operating activities” indicate?
A) The cash flow from investing activities
B) The cash flow generated from regular business operations
C) The total cash receipts and payments for the period
D) The cash used for financing activities
Answer: B) The cash flow generated from regular business operations
Explanation: This measure reflects the cash generated from a company's primary revenue-generating activities, excluding financing and investing cash flows.
Question 50
What is the purpose of the “full disclosure principle” in accounting?
A) To ensure assets are valued at market price
B) To provide all necessary information to users of financial statements
C) To limit the amount of information disclosed
D) To prevent manipulation of earnings
Answer: B) To provide all necessary information to users of financial statements
Explanation: The full disclosure principle requires that all relevant financial information is made available to users for informed decision-making.
