SI –Acct 284

Chapter 5 – September 24, 2009

  1. Who are the 4 main user groups of financial statements?
  1. What 3 things must exist for accounting fraud to occur?
  1. What is the Sarbanes Oxley Act?
  1. ______is the most significant change to the financial reporting environment in the United States.
  1. What are 3 major business opportunity incentives for committing accounting fraud?
  1. What are 3 major personal greed incentives for committing accounting fraud?
  1. In what three ways did SOX Act of 2002 reduce incentive to commit fraud?
  1. What are three ways that SOX reduces opportunities to commit fraud?
  1. What are three ways that SOX encourages good character?
  1. Match each of the following SOX requirements to the corresponding element of the fraud triangle by entering the appropriate letter in the space provided

______Establish a tip line for employees to report questionable acts

______Increase maximum fines to $5 million.

______Require management to report on effectiveness of internal controls

______Legislate whistle-blower protections

______Require external auditors report on internal control effectiveness

  1. Incentive
  2. Opportunity
  3. Character
  1. ______includes numbers for two or more time periods to make it easy for users to compare account balances from one period to the next.
  1. What is the difference between a single-step income statement and a multistep income statement?
  1. What is the purpose of the multistep income statement?
  1. What is the largest expense on the income statement?
  1. What is the equation used to calculate gross profit?
  1. Fill in the missing account titles of the multistep income statement

Net sales

-______

= ______

-Operating expenses

= ______

+/- Other Revenue and Expenses

= ______

-______

= Net Income

  1. What are you taxed on pretax income or net income?
  1. Using the following account balances prepare a multistep income statement on the back of this sheet.

Sales Revenue$100,000

Other Revenue$50,000

Rent Expense$12,000

COGS$60,000

Wage Expense$15,000

Depreciation Expense$10,000

Other Operating Exp$12,000

Interest Revenue$1000

Interest Expense$500

Income Tax Rate30%

  1. ___ 1. Users of financial statements

___ 2. Objective of financial statements

___3. Consistency

___4. Comparability

___5. Separate Entity

___6. Unit of Measure

___7. Cost principle

___8. Revenue principle

___9. Matching Principle

___10. Conservatism

  1. Counted unused supplies at the end of the period and valued them in US dollars
  2. Valued an asset at the amount paid to acquire it, even through its market value has increase considerably
  3. Analyzed the financial statements to assess the company’s performance
  4. Established an accounting policy that sales revenue shall be recognized only when services have been provided to the customer
  5. Prepared and distributed financial statements that provide useful economic information
  6. Established a policy not to include in the financial statements the personal financial affairs of the owners of the business
  7. Changed the company’s year-end to correspond to that used by others in the industry
  8. Disclosed all relevant financial information about the business in the financial statements
  9. Established a policy to report the company’s recurring business activities in the same way from year to year
  10. Adjusted the rent accounts to show the cost of rent relating to the current period
  11. Acquired a vehicle for use in the business, reporting it at the agree-upon purchase price rather than its higher sticker price.