Deck 1: Introducing Financial Statements

Question 1

Owners of a corporation are called shareholders or stockholders.

Answer 1

True

Question 2

Accounting is an information and measurement system that identifies,records,and communicates information about an organization's business activities.

Answer 2

True

Question 3

Regulators have legal authority over certain activities of organizations.

Answer 3

True

Question 4

Ethics are beliefs that separate right from wrong.

Question 5

The primary objective of managerial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization's activities.

Question 6

The fraud triangle asserts that there are three factors that push a person to commit fraud: opportunity,pressure,and rationalization.

Question 7

The Sarbanes-Oxley Act (SOX)requires each issuer of securities to disclose whether it has adopted a code of ethics for its senior financial officers and the contents of that code.

Question 8

Accounting is an information and measurement system that identifies,records,and communicates relevant,reliable,and comparable information about an organization's business activities.

Question 9

Internal users include lenders,shareholders,brokers and nonexecutive employees.

Question 10

External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles.

Question 11

Recordkeeping,or bookkeeping,is the recording of transactions and events,either manually or electronically.

Question 12

In the partnership form of business,the owners are called stockholders.

Question 13

External users include lenders,shareholders,customers,and regulators.

Question 14

The Sarbanes-Oxley Act (SOX)requires a business that sells stock to disclose a code of ethics for its executives.

Question 15

The balance sheet shows a company's net income or loss due to earnings activities over a period of time.

Question 16

The Financial Accounting Standards Board is the governmental agency that sets both broad and specific accounting principles.

Question 17

A partnership is a business owned by two or more people.

Question 18

Opportunities in accounting include auditing,consulting,market research,and tax planning.

Question 19

Financial accounting serves external users by providing them with general-purpose financial statements.

Question 20

External users of accounting information do not directly run the organization and have limited access to its accounting information.

Question 21

According to the measurement (cost)principle,it is necessary for managers to report an approximation of an asset's market value upon purchase.

Question 22

Objectivity means that financial information is supported by independent,unbiased evidence; it demands more than a person's opinion.

Question 23

The business entity assumption means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Question 24

Unlimited liability and separate taxation of the business are advantages of a sole proprietorship.

Question 25

The revenue recognition principle requires that revenue be recognized when goods or services are provided to customers,and at the amount expected to be received from the customer.

Question 26

A limited liability company offers the limited liability of a partnership or proprietorship and the tax treatment of a corporation.

Question 27

The four common forms of business ownership include sole proprietorship,partnership,corporation,and limited liability company (LLC).

Question 28

Generally accepted accounting principles are the basic assumptions,concepts,and guidelines for preparing financial statements.

Question 29

The measurement principle is also known as the cost principle.

Question 30

Understanding generally accepted accounting principles is not necessary to effectively use and interpret financial statements.

Question 31

The idea that a business will continue to operate instead of being closed or sold underlies the going-concern assumption.

Question 32

The expense recognition principle is also known as the cost principle.

Question 33

The monetary unit assumption means that all companies doing business in the United States must express transactions and events in US dollars.

Question 34

The Securities and Exchange Commission (SEC)is a government agency that has legal authority to establish GAAP.

Question 35

The four common forms of business ownership include sole proprietorship,partnership,corporation,and non-profit.

Question 36

A limited liability company offers the limited liability of a corporation and the tax treatment of a partnership or proprietorship.

Question 37

The International Accounting Standards Board (IASB)is the government group that establishes reporting requirements for companies that issue stock to the public.

Question 38

The business entity assumption means that a business is accounted for separately from other business entities,including its owner or owners.

Question 39

A sole proprietorship is a business owned by one or more persons.

Question 40

The International Accounting Standards board (IASB)has the authority to impose its standards on companies around the world.

Question 41

From an accounting perspective,an event is a happening that affects the accounting equation,but cannot be measured.

Question 42

Dividends paid to stockholders are subtracted as expenses in the calculation of net income.

Question 43

After each business transaction is recorded,the accounting equation remains in balance.

Question 44

Assets are the resources a company owns or controls that are expected to yield future benefits.

Question 45

Revenues are increases in equity (via net income)from a company's sales of products and services to customers.

Question 46

Financing activities provide the means organizations use to pay for resources such as land,buildings,and equipment.

Question 47

Net income occurs when revenues exceed expenses.

Question 48

Investing activities are the means an organization uses to pay for resources like land,buildings,and equipment to carry out its plans.

Question 49

Equity increases as a result of stockholder investments and business revenues.

Question 50

The three major types of business activities are operating,financing,and investing.

Question 51

Equity decreases as a result of revenues and expenses.

Question 52

Investing activities are the acquiring and disposing of resources that an organization uses to acquire and sell its products or services.

Question 53

A stockholder's investment increases equity via net income.

Question 54

Liabilities are owner claims on assets.

Question 55

Planning is a part of each business activity (Operating,investing,and financing),and gives each activity meaning and focus.

Question 56

Stockholders' equity is increased when cash is received from customers in payment of previously recorded accounts receivable.

Question 57

An external transaction is an exchange within an entity that may or may not affect the accounting equation.

Question 58

A net loss occurs when revenues exceed expenses.

Question 59

Stockholder investments are increases in equity from a company's earnings activities.

Question 60

Owner financing refers to resources contributed by creditors or lenders.

Question 61

The statement of cash flows shows the net effect of revenues and expenses for a reporting period.

Question 62

Operating activities include long-term borrowing and repaying cash from lenders,and cash investments by or dividends paid to stockholders.

Question 63

The income statement shows the financial position of a business on a specific date.

Question 64

Risk is the uncertainty about the return we will earn.

Question 65

Return on assets is often stated in ratio form as the amount of average total assets divided by income.

Question 66

U.S.Government Treasury bonds provide low return and low risk to investors.

Question 67

Return on assets (ROA)is also known as return on investment (ROI).

Question 68

Return on assets (ROA)is useful in evaluating management,analyzing and forecasting profits,and planning activities.

Question 69

Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business.

Question 70

The income statement describes revenues earned and expenses incurred along with the resulting net income or loss over a specified period of time,due to earnings activities.

Question 71

Return on assets reflects a company's ability to generate profit through productive use of its assets.

Question 72

Arrow's net income of $112 million and average assets of $1,400 million results in a return on assets of 8%.

Question 73

Generally,the lower the risk,the higher the return that can be expected.

Question 74

The purchase of supplies appears on the statement of cash flows as an investing activity because it involves the purchase of assets.

Question 75

A balance sheet covers activities over a period of time such as a month or year.

Question 76

The balance sheet is based on the accounting equation.

Question 77

The four basic financial statements include the balance sheet,income statement,statement of retained earnings,and statement of cash flows.

Question 78

An income statement reports on investing and financing activities.

Question 79

The income statement reports on operating activities at a point in time.

Question 80

The first section of the income statement reports cash flows from operating activities.