16. Which of the following statements concerning financial reporting is correct?
ID: 2477055 • Letter: 1
Question
16. Which of the following statements concerning financial reporting is correct?
A. The FASB requires all financial decision makers to adhere to a code of professional conduct.
B. There is no attempt to eliminate the difference in accounting rules in the U.S. and elsewhere as this would prevent investors from comparing financial statements of companies from different countries.
C. The Sarbanes-Oxley Act does not require businesses to maintain an audited system of internal control.
D. A fundamental characteristic of useful financial information is that it fully depicts the economic substance of business activities.
17. A company that purchases inventory for $27,000 with terms 2/10, n/30. It then returns $3,700 of the inventory purchased to the supplier and also receives an allowance for defective inventory of $270. The company pays the amount due within the discount period. What is the amount of the discount that will be taken? (Round your answer to the nearest dollar amount.)
A. $461
B. $370
C. $466
D. $535
18. Investors and creditors look at the balance sheet to see whether the company:
A. can maintain its existing product line.
B. has had a positive cash flows from operating activities.
C. is profitable.
D. owns enough assets to pay all that it owes to creditors.
19. A company has $72,500 of inventory at the beginning of the year and $65,500 at the end of the year. Sales revenue is $986,400, cost of goods sold is $572,700, and net income is $124,200 for the year. The inventory turnover ratio is closest to:
A. 14.3.
B. 6.0.
C. 8.3.
D. 1.8.
20. Which of the following statements is not correct?
A. An "A" rating is the best credit rating a company can earn.
B. Standard and Poor's, Fitch, and Moody's are the names of credit rating agencies.
C. A credit rating agency indicates a company's ability to pay its debts on a timely basis.
D. Credit ratings below BB are called "junk."
Explanation / Answer
16. The correct answer is Option D i.e. A fundamental characteristic of useful financial information is that it fully depicts the economic substance of business activities
17. Amount of Discount = ($27,000 - $3,700 - $270) x 2%
.......................................= $461
The correct answer is Option A i.e. $461
18. The correct answer is Option D i.e. owns enough assets to pay all that it owes to creditors
19. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
...............................................= $572,700 / [($72,500 + $65,500) / 2]
...............................................= $572,700 / $69,000
...............................................= 8.3
The correct answer is Option C i.e. 8.3
20. The correct answer is Option D i.e. Credit ratings below BB are called "junk."
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