Deck 1: Accounting and the Financial Statements

Question 1

The four steps in preparing the Income Statement are: 1)Prepare heading, 2)List the revenues of the company, 3)List the expenses of the company, 4)List the dividends of the company.

Answer 1

False

Question 2

Investing is the business activity that measures the company's ability to generate cash from its revenue and expense activities.

Answer 2

False

Question 3

When an entity's stock issuances exceed its expenses for a period of time, the entity will report net income.

Answer 3

False

Question 4

The independent auditor's report conveys whether or not the business is a good investment.

Question 5

The Statement of Cash Flows shows cash inflows and cash outflows for a period of time.

Question 6

The primary objective of internal auditors who are employees of the company is to provide assurance to the company's stockholders that the financial statements are fairly presented.

Question 7

The income statement summarizes the assets, liabilities and stockholders' equity for a period of time.

Question 8

The four basic financial statements are the Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows.

Question 9

The only financial statement that reports the retained earnings balance at the end of the period is the Statement of Retained Earnings.

Question 10

Stockholders' equity is composed of two main sources: liabilities and contributed capital.

Question 11

The three main business activities are financing, operating, and investing.

Question 12

Internal users of accounting information include present creditors and management.

Question 13

The amount of earnings distributed to stockholders can be found in the income statement as an expense.

Question 14

The company's annual report includes an audit report, notes to the financial statements, but not management's discussion and analysis.

Question 15

An income statement provides information at one specific point in time, while the other basic financial statements provide information on activities that occur over a period of time.

Question 16

Stockholders equity is composed of contributed capital and retained earnings.

Question 17

Contributed capital is the residual interest that remains after deducting liabilities from stockholders' equity.

Question 18

The first step in preparing the classified balance sheet is to list the assets in order of liquidity.

Question 19

There are more corporations than sole proprietorships and partnerships in the United States.

Question 20

Because the four financial statements are interrelated (i.e., there is a natural progression from one financial statement to another), the balance sheet should be prepared first.

Question 21

The Statement of Cash Flows, like the Income Statement, reports only operating activities and other activities of a company.

Question 22

The company's annual report is contained within the company's 10-K filing with the Securities Exchange Commission.

Question 23

The owners of a sole proprietorship, partnership and corporations have limited liability.

Question 24

The classifications in the balance sheet are to help users determine how a company obtained its resources.

Question 25

The current ratio is useful in determining a company's ability to pay obligations when they become due.

Question 26

In the independent auditors' report included with the annual report, management discusses the financial statements and provides the shareholders with explanations for certain amounts reported in the statements.

Question 27

Current liabilities are typically listed in the order in which they will be paid.

Question 28

One primary purpose of a classified balance sheet is to help users evaluate the working capital of a company.

Question 29

Net loss reduces a company's retained earnings balance.

Question 30

Independent auditors (CPAs)render an opinion that the financial statements do or do not fairly present a company's financial position, operating results, and cash flows.

Question 31

Current assets include all of the following: cash, inventory, equipment, supplies, and accounts receivable.

Question 32

In the stockholders' equity section of a classified balance sheet, a distinction is made between amounts invested by owners and amounts financed by creditors.

Question 33

Creditors use accounting information to evaluate whether to loan money to a company.

Question 34

Three common categories of long-term assets are: 1)property, plant, and equipment, 2)long-term investments, and 3)intangibles.

Question 35

The purpose of financial reporting is to provide economic information to investors, creditors, and other financial statement users.

Question 36

An independent auditor's (CPA's)report is a guarantee that the financial statements are free from fraud or material error.

Question 37

Income from operations includes interest revenue and interest expense because these items are considered to be operating in nature.

Question 38

Dividend payments appear on the Statement of Retained Earnings.

Question 39

A company with healthy cash flows from operating activities is in a good position to repay its debts.

Question 40

The ending cash balance is shown on the Balance Sheet and the Statement of Retained Earnings.

Question 41

The Statement of Cash Flows classifies cash flow into these three categories: ____________________, ____________________ and ____________________.

Question 42

____________________ is a liquidity measure that is calculated by subtracting current assets from current liabilities.

Question 43

Current assets minus current liabilities is called ____________________.

Question 44

The demand for accounting information comes from stakeholders both inside and outside the business. The five stakeholder groups discussed in the text include ____________________, ____________________, ____________________, ____________________, and ____________________.

Question 45

The names of the four basic financial statements are ____________________, ____________________, ____________________, and ____________________

Question 46

The three financial statements in which net income can be found are the ____________________, ____________________ and ____________________.

Question 47

The step of listing the liabilities of the company in order of their time to maturity is performed for a financial statement called ____________________.

Question 48

____________________ are cash and other assets that are reasonably expected to be realized in cash during the normal operating cycle, whichever is longer.

Question 49

Both net income and dividends can be found on this financial statement: ____________________.

Question 50

External users and outside decision makers use ____________________ accounting.

Question 51

____________________ have claims to an entity's economic resources.

Question 52

Property, plant and equipment is classified as ____________________ assets on the balance sheet.

Question 53

The fundamental accounting equation is ____________________ = ____________________ + ____________________.

Question 54

The ability of a company to pay its debt as it comes due relates to ____________________.

Question 55

The type of business activity that relates to obtaining funds from either issuing stock or borrowing money is called ____________________.

Question 56

The financial statement in which you list revenues, starting with sales revenue (service revenue), is called the ____________________.

Question 57

The current ratio is found by dividing current assets by ____________________.

Question 58

The three forms of business organizations are ____________________, ____________________, and ____________________.

Question 59

Net Income from the Income Statement increases ____________________.

Question 60

In a(n)____________________-step income statement, all expenses and losses are added together, then deducted from the sum of all revenues and gains.

Question 61

Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.)
a.Assets
b.Liabilities
c.Revenues
d.Expenses
e.Stockholders' Equity
Net sales

Question 62

Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.)
a.Assets
b.Liabilities
c.Revenues
d.Expenses
e.Stockholders' Equity
Research and development expense

Question 63

Provided is a list of important users of accounting information. Also provided are descriptions of a major need for accounting information that may be experienced by the various users. Identify the one user group that is most likely to have the need described. (Choices may be used more than once.)
a.Investors
b.Management
c.Supplier
d.Banker
e.Government
f.Employees
g.Labor Union
h.Investors and Banker
i.Supplier and Banker
The company's labor rate agree to the last contract.

Question 64

Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.)
a.Assets
b.Liabilities
c.Revenues
d.Expenses
e.Stockholders' Equity
Accounts receivable

Question 65

Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.)
a.Assets
b.Liabilities
c.Revenues
d.Expenses
e.Stockholders' Equity
Patents

Question 66

Provided is a list of important users of accounting information. Also provided are descriptions of a major need for accounting information that may be experienced by the various users. Identify the one user group that is most likely to have the need described. (Choices may be used more than once.)
a.Investors
b.Management
c.Supplier
d.Banker
e.Government
f.Employees
g.Labor Union
h.Investors and Banker
i.Supplier and Banker
The effectiveness of the last advertising campaign.

Question 67

Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.)
a.Assets
b.Liabilities
c.Revenues
d.Expenses
e.Stockholders' Equity
Unearned revenue

Question 68

Match each statement to the item listed below.
a.Cash flows from financing activities
b.Cash flows from investing activities
c.Cash flows from operating activities
Cash flows related to obtaining capital for the company

Question 69

Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.)
a.Assets
b.Liabilities
c.Revenues
d.Expenses
e.Stockholders' Equity
Common stock

Question 70

Provided is a list of important users of accounting information. Also provided are descriptions of a major need for accounting information that may be experienced by the various users. Identify the one user group that is most likely to have the need described. (Choices may be used more than once.)
a.Investors
b.Management
c.Supplier
d.Banker
e.Government
f.Employees
g.Labor Union
h.Investors and Banker
i.Supplier and Banker
The prospects for future dividend payments.

Question 71

Provided is a list of important users of accounting information. Also provided are descriptions of a major need for accounting information that may be experienced by the various users. Identify the one user group that is most likely to have the need described. (Choices may be used more than once.)
a.Investors
b.Management
c.Supplier
d.Banker
e.Government
f.Employees
g.Labor Union
h.Investors and Banker
i.Supplier and Banker
The profitability of the company based upon the Internal Revenue Code.

Question 72

Provided is a list of important users of accounting information. Also provided are descriptions of a major need for accounting information that may be experienced by the various users. Identify the one user group that is most likely to have the need described. (Choices may be used more than once.)
a.Investors
b.Management
c.Supplier
d.Banker
e.Government
f.Employees
g.Labor Union
h.Investors and Banker
i.Supplier and Banker
The exact amount of profit on each product of the company.

Question 73

Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.)
a.Assets
b.Liabilities
c.Revenues
d.Expenses
e.Stockholders' Equity
Interest Income

Question 74

Match each statement to the item listed below.
a.Cash flows from financing activities
b.Cash flows from investing activities
c.Cash flows from operating activities
Cash flows directly related to earning income

Question 75

Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.)
a.Assets
b.Liabilities
c.Revenues
d.Expenses
e.Stockholders' Equity
Long-term notes payable

Question 76

Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.)
a.Assets
b.Liabilities
c.Revenues
d.Expenses
e.Stockholders' Equity
Cash

Question 77

Provided is a list of important users of accounting information. Also provided are descriptions of a major need for accounting information that may be experienced by the various users. Identify the one user group that is most likely to have the need described. (Choices may be used more than once.)
a.Investors
b.Management
c.Supplier
d.Banker
e.Government
f.Employees
g.Labor Union
h.Investors and Banker
i.Supplier and Banker
Will I get a raise this year?

Question 78

Provided is a list of important users of accounting information. Also provided are descriptions of a major need for accounting information that may be experienced by the various users. Identify the one user group that is most likely to have the need described. (Choices may be used more than once.)
a.Investors
b.Management
c.Supplier
d.Banker
e.Government
f.Employees
g.Labor Union
h.Investors and Banker
i.Supplier and Banker
The ability of the company to pay its debts as they become due.

Question 79

Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.)
a.Assets
b.Liabilities
c.Revenues
d.Expenses
e.Stockholders' Equity
Inventory

Question 80

Several items from the financial statements of Fireside Tires are listed. Use the following choices to identify the type of account for each item listed. (Choices may be used more than once.)
a.Assets
b.Liabilities
c.Revenues
d.Expenses
e.Stockholders' Equity
Retained earnings