39) If a company\'s financial issue? ments are not fairly presented, which type
ID: 2392188 • Letter: 3
Question
39) If a company's financial issue? ments are not fairly presented, which type of opinion will the auditor not A) qualified B) unqualified C) adverse D) disclaimer 40) Th financial statements. A) True B) False e Management Discussion and Analysis section of the annual report is a part of the audited 1 What is the term that describes the value today of a cash flow or series of cash flows to be receive or paid in the future? A) present value B) compound value C) discount value D) temporal value 42) Simple interest on a $25,000, 8%, 18-month note is- A) $1,200 B) $2,000 C) $2,500 D) $3,000 43) Which of the following statements is true? A) The process of accumulating interest on interest is referred to as discounting. B) The higher the discount rate, the higher the present value. C) If interest is 12% compounded annually, $1,200 due one year from today is equivalent to $1,000 today. D) If interest is 10% compounded annually, $1,100 due one year from today is equivalent to $1,000 today. 44) You decide to deposit $5,000 at a local bank for three years at a 8% rate of interest compounded quarterly. The future value of your investment is most nearly equal to A) $6,200 B) $6,340 C) $6,430 D) $6,800 45) Como Company borrowed $4,550 from its bank. Como will repay $7,000 in five years. What is the approximate interest rate that Como will incur on this loan, assuming annual compounding? A) 9% B)11% C) 13% D) 65%Explanation / Answer
39) When the auditor finds that financial statements do not fairly represent the entity's accounts or the audited statements do not comply with GAAP, the auditor issues an adverse opinion. In the given case co.'s financial statements are not fairly presented, thus the auditor will issue an adverse opinio. Therefore the correct option is C) adverse.
40) The given statement is false because the auditors do not audit the information in Management discussion and analysis section. This section represent the thoughts and opinions of management and provides a forecast of future operations. Therefore, MD&A section of the annual report is not a part of the audited financial statements.
41) Present value is the term that describes the value today of a cash flow or series of cash flows to be received or paid in the future. It is the current value of a future sum of money or stream cash flows given a specified rate of return. Hence the correct option is A) present value.
42) Simple interest on Note = $25,000*8%*18/12 = $3,000
The correct option is D) $3,000.
43) From the given statements, the statement D is true. It is shown as follows:-
$1,100/1.10 = $1,000
The only statement D is true and all other statements (A, B and C) are false. (The process of accumulating interest on interest is referred to as compounding not discounting. The higher the discount rate, the lower the present value)
$1,200/1.12 = $1,071 (thus present value of $1,200 discounted at 12% for one year is equal to $1,071 not $1,000).
44) Rate per Quarter = 8%/4 quarters in a year = 2%
No. of Periods (Quarters) = 3 years*4 quarters in a year = 12
Future Value of Investment = $5,000*FVF(2%, 12)
= $5,000*1.26824 = $6,341
Therefore the correct option is B) $6,340 (approx.)
45) $4,550*FVF(r%, 5 yrs) = $7,000
FVF(r%, 5 yrs) = $7,000/$4,550 = 1.5385
The future value factor of 1.5385 is for 9% (approx.) from the future value table for five years.
The correct option is A) 9%.
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