Deck 1: Introducing Financial Accounting

Question 1

Financial accounting is designed primarily for decision makers within the company.

Answer 1

False

Question 2

Investing activities are the acquiring and disposing of liabilities that a company needs in order to finance its operating activities.

Answer 2

False

Question 3

Other than operating profit, there are three main sources of external financing.

Answer 3

False

Question 4

Financing activities are defined as the acquiring and disposing of resources for the purpose of selling products and services.

Question 5

Retained earnings are present on both the income statement and the statement of stockholders' equity.

Question 6

If a company reports retained earnings of $242.6 million on its balance sheet, it will also report $242.6 million in cash.

Question 7

The International Accounting Standards Board (IASB) has legal authority to impose accounting standards on any country.

Question 8

Foreign companies using international accounting standards must reconcile their financial statements to American rules if they wish to sell securities in the U.S.

Question 9

One key measure of profitability is the debt-to-equity ratio.

Question 10

The qualitative characteristic of accounting information known as comparability means that the same accounting methods should be used from one period to the next, whenever possible.

Question 11

The conceptual framework developed by the FASB includes a statement of the objectives of financial reporting and a discussion about the qualitative characteristics of accounting information.

Question 12

On which statement are assets, liabilities and equity reported?

A) Balance sheet
B) Income statement
C) Statement of stockholders' equity
D) Statement of cash flows

Question 13

Which of the following is a correct statement of the accounting equation in terms of activities?

A) Investing = Operating assets + Financial assets
B) Investing = Creditor financing + Owner financing
C) Investing = Nonowner financing - Owner financing
D) Nonowner financing = Investing + Operating

Question 14

Which of the following is not part of the standard heading of each financial statement?

A) The company name
B) The statement title
C) The date or time period of the statement
D) The company's industry

Question 15

Which of the following items are in the balance sheet? (Select all that apply.)

A) Inventory
B) Operating expenses
C) Account receivable
D) Equipment
E) Cash payments

Question 16

Which of the four basic financial statements would contain a line item for expenses?

A) Balance sheet
B) Income statement
C) Statement of equity
D) Statement of cash flows

Question 17

Which one of the following is not a key linkage among the four primary financial statements?

A) The expenses in the income statement link to the total liability balance.
B) The statement of cash flows links to ending cash in the balance sheet.
C) The income statement links to the ending retained earnings in the statement of stockholders' equity.
D) The statement of stockholders' equity links to ending equity in the balance sheet.

Question 18

Use the following information to answer questions below
Data from the financial statements of The Grocer Company and FoodValu, Inc., two national grocery chains are presented below:


-To the nearest hundredth of a percent, what is the 2016 return on equity ratio for The Grocer Company?

A) 4.00%
B) 13.11%
C) 8.75%
D) Not enough information provided

Question 19

Use the following information to answer questions below
Data from the financial statements of The Grocer Company and FoodValu, Inc., two national grocery chains are presented below:


-To the nearest hundredth, what is the 2016 debt-to-equity ratio for The Grocer Company?

A) 2.41
B) 4.92
C) 1.77
D) 44.16

Question 20

Use the following information to answer questions below
Data from the financial statements of The Grocer Company and FoodValu, Inc., two national grocery chains are presented below:


-To the nearest hundredth of a percent, what is the return on equity ratio 2016 for FoodValu?

A) 21.48%
B) (61.89)%
C) (152.83)%
D) Not enough information is provided

Question 21

Use the following information to answer questions below
Data from the financial statements of The Grocer Company and FoodValu, Inc., two national grocery chains are presented below:


-To the nearest hundredth, what is the 2016 debt-to-equity ratio for FoodValu?

A) 0.21
B) 6.68
C) 572.95
D) 4.96

Question 22

Arrow, Inc. has an ROE of 15.45% and Clip Company has an ROE of 18.3%. Which of the following statements is true?

A) Clip reported more dollars of profit than Arrow
B) Clip has more of the firm financed with debt than Arrow does
C) Clip is able to bring its product to market more efficiently than Arrow
D) Arrow would likely be able to borrow money at a lower interest rate than would Clip

Question 23

Arrow, Inc. has a debt-to-equity ratio of 0.26 and Clip Company has 0.49. Which of the following statements is true?

A) Clip reported more dollars of profit than Arrow
B) Clip has more total debt than does Arrow
C) Clip is able to bring its product to market more efficiently than Arrow
D) Arrow would likely be able to borrow money at a lower interest rate than would Clip

Question 24

Which of the following statements is true regarding generally accepted accounting principles (GAAP)?

A) GAAP is a set of laws
B) GAAP is subject to change as conditions warrant
C) Under GAAP, if two companies engage in the same transactions, they must choose the same accounting methods
D) U.S. GAAP is the same as GAAP in other countries

Question 25

Which statement is true about IFRS?

A) It has legal authority to impose accounting standards world-wide
B) It is working to reduce diversity in financial reporting practices across the world
C) It has replaced GAAP financial accounting standards
D) It is under the control of the SEC

Question 26

Which of the following assumptions that underlies the preparation of financial statements assumes that companies will continue their operations over time?

A) Separate economic entity
B) Going concern
C) Accounting period
D) Measuring unit

Question 27

Match each of the following terms with related explanations

-Managerial accounting

A) Corporations with stock traded on public exchanges
B) The common form of business ownership used by lawyers and CPAs
C) Lenders of resources
D) Designed primarily for decision makers outside of the company
E) Elected by the shareholders to oversee management
F) Owners of a corporation
G) Securities and Exchange Commission
H) Designed primarily for decision makers within the company

Question 28

Match each of the following terms with related explanations

-Stock market regulators

A) Corporations with stock traded on public exchanges
B) The common form of business ownership used by lawyers and CPAs
C) Lenders of resources
D) Designed primarily for decision makers outside of the company
E) Elected by the shareholders to oversee management
F) Owners of a corporation
G) Securities and Exchange Commission
H) Designed primarily for decision makers within the company

Question 29

Match each of the following terms with related explanations

-Creditors

A) Corporations with stock traded on public exchanges
B) The common form of business ownership used by lawyers and CPAs
C) Lenders of resources
D) Designed primarily for decision makers outside of the company
E) Elected by the shareholders to oversee management F. Owners of a corporation G. Securities and Exchange Commission H. Designed primarily for decision makers within the company

Question 30

Match each of the following terms with related explanations

-Shareholders

A) Corporations with stock traded on public exchanges
B) The common form of business ownership used by lawyers and CPAs
C) Lenders of resources
D) Designed primarily for decision makers outside of the company
E) Elected by the shareholders to oversee management
F) Owners of a corporation
G) Securities and Exchange Commission
H) Designed primarily for decision makers within the company

Question 31

Match each of the following terms with related explanations

-Financial accounting

A) Corporations with stock traded on public exchanges
B) The common form of business ownership used by lawyers and CPAs
C) Lenders of resources
D) Designed primarily for decision makers outside of the company
E) Elected by the shareholders to oversee management F. Owners of a corporation G. Securities and Exchange Commission H. Designed primarily for decision makers within the company

Question 32

Match each of the following terms with related explanations

-Publicly traded corporations

A) Corporations with stock traded on public exchanges
B) The common form of business ownership used by lawyers and CPAs
C) Lenders of resources
D) Designed primarily for decision makers outside of the company
E) Elected by the shareholders to oversee management F. Owners of a corporation G. Securities and Exchange Commission H. Designed primarily for decision makers within the company

Question 33

Match the following decision makers with the most likely decisions they seek to answer from accounting information. Use each answer only once.

-Suppliers and customers

A) Launch a new product or not?
B) Purchase/sell goods from/to the company?
C) Develop a new company strategy?
D) Lend to the company or not?
E) Manage operations? F. Buy or sell stock of the company?

Question 34

Match the following decision makers with the most likely decisions they seek to answer from accounting information. Use each answer only once.

-Productions and operations

A) Launch a new product or not?
B) Purchase/sell goods from/to the company?
C) Develop a new company strategy?
D) Lend to the company or not?
E) Manage operations? F. Buy or sell stock of the company?

Question 35

Match the following decision makers with the most likely decisions they seek to answer from accounting information. Use each answer only once.

-Creditors

A) Launch a new product or not?
B) Purchase/sell goods from/to the company?
C) Develop a new company strategy?
D) Lend to the company or not?
E) Manage operations? F. Buy or sell stock of the company?

Question 36

Match the following decision makers with the most likely decisions they seek to answer from accounting information. Use each answer only once.

-Investors and analysts

A) Launch a new product or not?
B) Purchase/sell goods from/to the company?
C) Develop a new company strategy?
D) Lend to the company or not?
E) Manage operations?
F)Buy or sell stock of the company?

Question 37

Match the following decision makers with the most likely decisions they seek to answer from accounting information. Use each answer only once.

-Top management

A) Launch a new product or not?
B) Purchase/sell goods from/to the company?
C) Develop a new company strategy?
D) Lend to the company or not?
E) Manage operations? F. Buy or sell stock of the company?

Question 38

Match the following decision makers with the most likely decisions they seek to answer from accounting information. Use each answer only once.

-Marketing teams

A) Launch a new product or not?
B) Purchase/sell goods from/to the company?
C) Develop a new company strategy?
D) Lend to the company or not?
E) Manage operations? F. Buy or sell stock of the company?

Question 39

Compute the missing financial amounts (a) and (b):

Question 40

To which financial statements are each of the following financial values linked, and how are they linked?
A. Retained earnings
B. Net income
C. Cash

Question 41

Construct a balance sheet from the financial statements components listed below.

Question 42

At January 30, 2016, the end of Dot, Inc.'s financial period in 2016, Dot's retained earnings were $88,440 million. During the following year, Dot reported net income of $28,666 million and paid a dividend of $2,690 million. Determine Dot's retained earnings as of January 29, 2017.

Question 43

Match each item with the financial statement in which each item would most likely appear:

-Revenue

A) Income Statement
B) Balance Sheet
C) Statement of Cash Flow

Question 44

Match each item with the financial statement in which each item would most likely appear:

-Contributed capital

A) Income Statement
B) Balance Sheet
C) Statement of Cash Flow

Question 45

Match each item with the financial statement in which each item would most likely appear:

-Cash from investing activities

A) Income Statement
B) Balance Sheet
C) Statement of Cash Flow

Question 46

Match each item with the financial statement in which each item would most likely appear:

-Net change in cash

A) Income Statement
B) Balance Sheet
C) Statement of Cash Flow

Question 47

Prepare a statement of cash flows for Doggie, Inc. for 2016 given its information below (amounts in millions):

Question 48

At the beginning of 2016 Hotels International, Inc. had $11,820 million in assets and $1,562 million in equity. During 2016, Hotels International's assets increased by $864 million while its equity decreased by $1,008 million.
How much were Hotels International's liabilities at the beginning and end of 2016?

Question 49

In its 2016 annual report, Lego Pizza reported net income of $46,820 thousand, retained earnings at the beginning of 2016 of $91,670 thousand, and dividends of $33,908 thousand.
What is the amount of Domino's retained earnings at the end of 2016?

Question 50

In addition to the financial statements, list 3 other sources of information reported to external stakeholders?

Question 51

Match each of the following statements to the best qualitative characteristic or underlying assumption of accounting information that should be considered. Each answer is used only once.

-Consistency

A) Although several accounting methods are acceptable, company management chooses a single method and follows that each year.
B) The company's accountant ignores a $1.60 error in recording an invoice, discovered after the final financial statements were prepared.
C) The accountant estimates the value of accounts receivable, based on recent information about economic forecasts and prior collection trends applicable to the company.
D) Before each board meeting, the company prepares a number of reports that are time-consuming and expensive that are never used.
E) In estimating the life of a new piece of equipment, the accounting department assumes that the business will last indefinitely. F. George Bush, a stockholder of Halliburton, owes a debt to Union Bank for $3,000. This $3,000 is not a debt of Halliburton.

Question 52

Match each of the following statements to the best qualitative characteristic or underlying assumption of accounting information that should be considered. Each answer is used only once.

-Relevance

A) Although several accounting methods are acceptable, company management chooses a single method and follows that each year.
B) The company's accountant ignores a $1.60 error in recording an invoice, discovered after the final financial statements were prepared.
C) The accountant estimates the value of accounts receivable, based on recent information about economic forecasts and prior collection trends applicable to the company.
D) Before each board meeting, the company prepares a number of reports that are time-consuming and expensive that are never used.
E) In estimating the life of a new piece of equipment, the accounting department assumes that the business will last indefinitely. F. George Bush, a stockholder of Halliburton, owes a debt to Union Bank for $3,000. This $3,000 is not a debt of Halliburton.

Question 53

Match each of the following statements to the best qualitative characteristic or underlying assumption of accounting information that should be considered. Each answer is used only once.

-Benefits > Costs

A) Although several accounting methods are acceptable, company management chooses a single method and follows that each year.
B) The company's accountant ignores a $1.60 error in recording an invoice, discovered after the final financial statements were prepared.
C) The accountant estimates the value of accounts receivable, based on recent information about economic forecasts and prior collection trends applicable to the company.
D) Before each board meeting, the company prepares a number of reports that are time-consuming and expensive that are never used.
E) In estimating the life of a new piece of equipment, the accounting department assumes that the business will last indefinitely. F. George Bush, a stockholder of Halliburton, owes a debt to Union Bank for $3,000. This $3,000 is not a debt of Halliburton.

Question 54

Match each of the following statements to the best qualitative characteristic or underlying assumption of accounting information that should be considered. Each answer is used only once.

-Going concern

A) Although several accounting methods are acceptable, company management chooses a single method and follows that each year.
B) The company's accountant ignores a $1.60 error in recording an invoice, discovered after the final financial statements were prepared.
C) The accountant estimates the value of accounts receivable, based on recent information about economic forecasts and prior collection trends applicable to the company.
D) Before each board meeting, the company prepares a number of reports that are time-consuming and expensive that are never used.
E) In estimating the life of a new piece of equipment, the accounting department assumes that the business will last indefinitely. F. George Bush, a stockholder of Halliburton, owes a debt to Union Bank for $3,000. This $3,000 is not a debt of Halliburton.

Question 55

Match each of the following statements to the best qualitative characteristic or underlying assumption of accounting information that should be considered. Each answer is used only once.

-Separate economic entity

A) Although several accounting methods are acceptable, company management chooses a single method and follows that each year.
B) The company's accountant ignores a $1.60 error in recording an invoice, discovered after the final financial statements were prepared.
C) The accountant estimates the value of accounts receivable, based on recent information about economic forecasts and prior collection trends applicable to the company.
D) Before each board meeting, the company prepares a number of reports that are time-consuming and expensive that are never used.
E) In estimating the life of a new piece of equipment, the accounting department assumes that the business will last indefinitely.
F) George Bush, a stockholder of Halliburton, owes a debt to Union Bank for $3,000. This $3,000 is not a debt of Halliburton.

Question 56

Match each of the following statements to the best qualitative characteristic or underlying assumption of accounting information that should be considered. Each answer is used only once.

-Materiality

A) Although several accounting methods are acceptable, company management chooses a single method and follows that each year.
B) The company's accountant ignores a $1.60 error in recording an invoice, discovered after the final financial statements were prepared.
C) The accountant estimates the value of accounts receivable, based on recent information about economic forecasts and prior collection trends applicable to the company.
D) Before each board meeting, the company prepares a number of reports that are time-consuming and expensive that are never used.
E) In estimating the life of a new piece of equipment, the accounting department assumes that the business will last indefinitely. F. George Bush, a stockholder of Halliburton, owes a debt to Union Bank for $3,000. This $3,000 is not a debt of Halliburton.

Question 57

Anka Audio reported the following amounts in its December 31, 2016, and 2015 financial statements.
Calculate to the nearest hundredth:
A. Return on equity for 2016.
B. Debt-to-equity ratio as of December 31, 2016

Question 58

Lorraine, Inc. has a debt-to-equity ratio of 0.49 and a ROE of 16.8%. The median ROE for similar companies in the same industry as Lorraine is about 15.1%. The median debt-to-equity ratio for similar companies in the same industry is 0.36. Based on this industry information, how does Lorraine compare to similar companies and what are the causes of these differences?

Question 59

The following is selected financial information of Gleeson Group, Inc. for the year ended December 31, 2016.
Prepare an income statement, balance sheet and statement of cash flows for Gleeson Group, Inc. at December 31, 2016.

Question 60

The following is selected financial information for Maurermart, Inc. for its year ending January 31, 2016:
Prepare a statement of stockholders' equity for 2016 for Mauermart.

Question 61

The following is selected financial information from Pink Whale, Inc. for 2016.
Construct a balance sheet and statement of cash flows for Pink Whale for 2016.

Question 62

The following is selected financial information for Soup Company from its Form 10-K filed with the SEC for the year ended July 31, 2016:
Prepare each of the following financial statements for Soup Company in proper form:
●Income statement
●Balance sheet
●Statement of cash flows

Question 63

Soup Company reported the following selected information at July 31, 2016:
Use this information to prepare a statement of stockholders' equity for Soup Company's year ending July 31, 2016.

Question 64

Describe the four basic business activities conducted by a company in the production and sale of its products and services.

Question 65

List three users of financial accounting information and explain the significance of this information for each user.

Question 66

Financial statements rely on countless estimates by accountants, including the useful life of building and equipment, the dollar amounts that will be collected from customers who purchase on credit, the prediction of future costs related to warranty claims or future pension obligations. Prepare a short argument to explain why estimates are an acceptable and important ingredient in the preparation of financial statements.

Question 67

Accounting debacles, such as in the case of Enron, brought to light the necessity of accuracy in financial reporting and accountability of management. Describe how the introduction of the Sarbanes-Oxley Act has changed the requirements of financial reporting.

Question 68

Explain the benefits and costs associated with a company's disclosure of information.

Question 69

Businesses rely on financing activities to fund their operating and investments. Explain the difference between owner and non-owner financing, and explain the benefits and risks involved in relying more heavily on each type of financing.