Deck 1: Accounting and the Financial Statements

Question 1

The four steps in preparing the income statement are: 1)prepare a heading; 2)list the revenues of the company; 3)list the expenses of the company; and 4)list the dividends of the company.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

The majority of business in Canada is conducted by corporations.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Internal users of accounting information include present creditors and management.

Question 9

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

Question 10

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

Question 11

The statement of cash flows shows cash inflows and cash outflows for a period of time.

Question 12

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 13

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

Question 14

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 15

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

Question 16

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

Question 17

Shareholders' equity is composed of contributed capital and retained earnings.

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

The statement of cash flows,like the income statement,reports only operating activities and other activities of a company.

Question 23

The company's annual report includes a section called Management's Discussion and Analysis.

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

A classified balance sheet is to help users determine how a company obtained its resources.

Question 29

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

Question 30

Net loss reduces a company's retained earnings balance.

Question 31

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

Question 32

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

Question 33

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

Question 34

Dividend payments appear on the statement of retained earnings.

Question 35

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

Question 36

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

Question 37

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 38

The ending cash balance is shown on the balance sheet and the statement of retained earnings.

Question 39

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

Question 40

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

Question 41

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

Question 42

Net income from the income statement increases ____________________.

Question 43

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

Question 44

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

Question 45

The financial statement listing revenues,starting with sales revenue (service revenue),is called the ____________________.

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

External users and outside decision makers use ____________________ accounting.

Question 52

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

Question 53

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

Question 54

____________________ are cash and other assets that are reasonably expected to be converted into cash within one year or operating cycle,whichever is longer.

Question 55

The statement of cash flows classifies cash flow into these three categories: ____________________,____________________,and ____________________.

Question 56

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

Question 57

The fundamental accounting equation is ____________________ = ____________________ + ____________________.

Question 58

____________________ have claims to an entity's economic resources.

Question 59

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

Question 60

Current assets minus current liabilities is called ____________________.

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.)

-Inventory

A)assets
B)liabilities
C)revenues
D)expenses
E)shareholders' equity

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.)

-Research and development expense

A)assets
B)liabilities
C)revenues
D)expenses
E)shareholders' equity

Question 63

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.)

-Retained earnings

A)assets
B)liabilities
C)revenues
D)expenses
E)shareholders' equity

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.)

-Long-term notes payable

A)assets
B)liabilities
C)revenues
D)expenses
E)shareholders' equity

Question 65

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.)

-profitability of the company based upon the tax authorities

A)investors
B)management
C)supplier
D)banker
E)government
F)employees
G)labour union
H)investors and banker
I)supplier and banker

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.)

-prospects for getting a raise this year

A)investors
B)management
C)supplier
D)banker
E)government
F)employees
G)labour union
H)investors and banker
I)supplier and banker

Question 67

Match each statement to the item listed below.

-cash flows directly related to earning income

A)cash flows from financing activities
B)cash flows from investing activities
C)cash flows from operating activities

Question 68

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.)

-Net sales

A)assets
B)liabilities
C)revenues
D)expenses
E)shareholders' equity

Question 69

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.)

-ability of the company to pay its debts as they become due

A)investors
B)management
C)supplier
D)banker
E)government
F)employees
G)labour union
H)investors and banker
I)supplier and banker

Question 70

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.)

-Interest income

A)assets
B)liabilities
C)revenues
D)expenses
E)shareholders' equity

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.)

-company's labour rate agreed to on the last contract

A)investors
B)management
C)supplier
D)banker
E)government
F)employees
G)labour union
H)investors and banker
I)supplier and banker

Question 72

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.)

-Unearned revenue

A)assets
B)liabilities
C)revenues
D)expenses
E)shareholders' equity

Question 73

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.)

-exact amount of profit on each product of the company

A)investors
B)management
C)supplier
D)banker
E)government
F)employees
G)labour union
H)investors and banker
I)supplier and banker

Question 74

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.)

-prospects for future dividend payments

A)investors
B)management
C)supplier
D)banker
E)government
F)employees
G)labour union
H)investors and banker
I)supplier and banker

Question 75

Match each statement to the item listed below.

-cash flows related to obtaining capital for the company

A)cash flows from financing activities
B)cash flows from investing activities
C)cash flows from operating activities

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.)

-Cash

A)assets
B)liabilities
C)revenues
D)expenses
E)shareholders' equity

Question 77

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.)

-Accounts receivable

A)assets
B)liabilities
C)revenues
D)expenses
E)shareholders' equity

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.)

-effectiveness of the last advertising campaign

A)investors
B)management
C)supplier
D)banker
E)government
F)employees
G)labour union
H)investors and banker
I)supplier and banker

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.)

-Common shares

A)assets
B)liabilities
C)revenues
D)expenses
E)shareholders' equity

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.)

-Patents

A)assets
B)liabilities
C)revenues
D)expenses
E)shareholders' equity