Deck 1: Accounting and the Financial Statements

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

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

Internal users of accounting information include present creditors and management.

Question 8

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 9

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

Question 10

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

Question 11

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

Question 12

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 13

Stockholders equity is composed of contributed capital and retained earnings.

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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.

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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 33

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

Question 34

Net loss reduces a company's retained earnings balance.

Question 35

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 36

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

Question 37

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

Question 38

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 39

Dividend payments appear on the Statement of Retained Earnings.

Question 40

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

Question 41

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

Question 42

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

Question 43

Current assets minus current liabilities is called ____________________.

Question 44

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

Question 45

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

Question 46

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

Question 47

The fundamental accounting equation is ____________________ = ____________________ + ____________________

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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 54

External users and outside decision makers use ____________________ accounting.

Question 55

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

Question 56

Net Income from the Income Statement increases ____________________.

Question 57

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

Question 58

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

Question 59

____________________ have claims to an entity's economic resources

Question 60

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

Question 61

What is the name for a person who lends funds to a business entity and expects repayment with interest?

A)Creditor
B)Owner
C)Proprietor
D)Stockholder

Question 62

Which financial statement would you refer to in order to determine how much resources (assets)the company owned?

A)Balance Sheet
B)Statement of Retained Earnings
C)Income Statement
D)Statement of Cash Flows

Question 63

Which of the following is not a form of a business entity?

A)Sole proprietorship
B)Partnership
C)Cooperative
D)Corporation

Question 64

Which one of the following financial statements show the end of the year cash balance for a business entity?

A)Income Statement and Statement of Retained Earnings
B)Balance Sheet and Statement of Cash Flows
C)Statement of Retained Earnings and Statement of Cash Flows
D)Balance Sheet and Statement of Retained Earnings

Question 65

On January 1,2012,a company reported assets of $1,000,000 and liabilities of $600,000.During 2012,assets decreased by $100,000 and Stockholders' Equity decreased $200,000.What is the amount of liabilities at December 31,2012?

A)$200,000
B)$500,000
C)$600,000
D)$700,000

Question 66

Which one of the following is an internal user of financial information?

A)Company management
B)Governments
C)Creditors
D)Investors

Question 67

Which one of the following correctly represents one of the basic financial statement models?

A)Assets - Liabilities = Net Income
B)Assets + Liabilities = Total Assets
C)Revenues + Expenses = Net Income
D)Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

Question 68

What is unearned revenue?

A)Stockholders' equity
B)Liability
C)Asset
D)Revenue

Question 69

Which of the following best describes the term "expenses"?

A)The cost of assets used in the investing activities of a business.
B)The amount of interest or claim that the owners have in the business.
C)The future economic resources of a business entity.
D)The cost of assets used in the operations of a business.

Question 70

Which of the following invests funds into a business and is considered an owner?

A)Stockholders
B)Creditors
C)Bankers
D)Lenders

Question 71

Which financial statement would you analyze to assess a firm's operating performance for the past year?

A)Balance Sheet
B)Statement of Retained Earnings
C)Income Statement
D)Statement of Public Accounting

Question 72

Which one of the following is not one of the three business activities?

A)Financing
B)Operating
C)Investing
D)Measuring

Question 73

In which form of organization are the owners' legal responsibility for the debt of the business limited to the amount they invested in the business?

A)Cooperative
B)Corporation
C)Partnership
D)Proprietorship

Question 74

Which one of the following is a correct fundamental accounting equation?

A)Assets + Liabilities = Stockholders' Equity
B)Assets + Retained Earnings = Stockholders' Equity
C)Assets + Stockholders' Equity = Liabilities
D)Assets = Liabilities + Stockholders' Equity

Question 75

Which one of the following is not an external user of financial statements?

A)Internal Revenue Service
B)Creditors
C)Stockholders
D)The Company's President

Question 76

You are a potential creditor and are concerned that a particular company you are ready to give a loan to might have too much debt.Which financial statement would provide you information needed in order to evaluate your concern?

A)Balance Sheet
B)Income Statement
C)Statement of Retained Earnings
D)Statement of Public Accounting

Question 77

"Revenues" are best described as:

A)decreases in assets resulting from the sale of goods or services.
B)increases in assets resulting from the sale of products or services.
C)assets used or consumed in the sale of products or services.
D)an increase in the financing activities.

Question 78

Businesses engage in which of the following three main activity categories?

A)Financing,Investing,Operating
B)Cash,Credit,Noncash
C)Financing,Credit,Operating
D)Financing,Management,Operating

Question 79

What is the name of the branch of accounting concerned with providing outside decision makers with information to assess the amounts,timing and uncertainties of the company's future cash flows?

A)Financial Accounting
B)Auditing
C)Managerial Accounting
D)Bookkeeping

Question 80

Which one of the following groups is considered an internal user of financial statements?

A)A supplier considering selling to the company on credit.
B)The labor union representing employees of a company that is involved in labor negotiations
C)The financial analysts for a brokerage firm who are preparing recommendations for the firm's brokers on companies in a certain industry,
D)Managers of the company that supervise production workers.