Type:
Test Bank
Cornerstones of Financial Resource: Accounting Edition:
2nd Edition
Author(s):
Jay S. Rich Jefferson Jones Maryanne Mowen Don Hansen Donald Jones Ralph Tassone
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Chapter 1 - Financial Statements and Decision Making True / False 1. The majority of business in Canada is conducted by corporations. a. True b. False ANSWER: True 2. The three main business activities are financing, operating, and investing. a. True b. False ANSWER: True 3. Internal users of accounting information include present creditors and management. a. True b. False ANSWER: False 4. The statement of earnings summarizes the assets, liabilities, and shareholders’ equity for a period of time. a. True b. False ANSWER: False 5. The four basic financial statements prepared by private companies are the statement of earnings, statement of retained earnings, statement of financial position (or statement of financial position), and statement of cash flows. a. True b. False ANSWER: True 6. The amount of earnings distributed to shareholders can be found in the statement of earnings as an expense. a. True b. False ANSWER: False 7. Shareholders’ equity is composed of two main sources: liabilities and contributed capital. a. True b. False ANSWER: False 8. Accounting standards require that the statement of financial position be prepared on a classified basis. a. True b. False ANSWER: True 9. For a private company, the only financial statement that reports the retained earnings balance at the end of the period is the statement of retained earnings. Copyright Cengage Learning. Powered by Cognero.
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Chapter 1 - Financial Statements and Decision Making a. True b. False ANSWER: False 10. A statement of earnings 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. a. True b. False ANSWER: False 11. When an entity’s share issuances exceed its expenses for a period of time, the entity will report net income. a. True b. False ANSWER: False 12. Contributed capital is the residual interest that remains after deducting liabilities from shareholders’ equity. a. True b. False ANSWER: False 13. Preparing a statement of earnings includes (1) preparing a heading; (2) listing the revenues of the company; (3) listing the expenses of the company; and (4) listing the dividends of the company. a. True b. False ANSWER: False 14. Shareholders’ equity arises primarily from contributed capital and retained earnings. a. True b. False ANSWER: True 15. A company can rely on its internal auditors, who are employees of the company, to provide assurance to the company’s shareholders that the financial statements are fairly presented. a. True b. False ANSWER: False 16. In order to provide assurance to users that the financial statements are a fair presentation of the company’s financial health, auditors retrace all transactions of the company for the entire accounting period. a. True b. False ANSWER: False 17. The statement of cash flows shows cash inflows and cash outflows for a period of time. a. True Copyright Cengage Learning. Powered by Cognero.
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Chapter 1 - Financial Statements and Decision Making b. False ANSWER: True 18. Because the four financial statements are interrelated (i.e., there is a natural progression from one financial statement to another), the statement of financial position should be prepared first. a. True b. False ANSWER: False 19. A publicly traded company’s annual report generally includes audited financial statements (with auditor’s report), notes to the financial statements, and management’s discussion and analysis. a. True b. False ANSWER: True 20. A company will classify the purchase of new equipment as a financing activity. a. True b. False ANSWER: False 21. In comparing sole proprietorships, partnerships, and corporations, the sole proprietorship provides an owner with the most decision-making control and the least liability. a. True b. False ANSWER: False 22. The purpose of financial reporting is to provide economic information to investors, creditors, and other financial statement users. a. True b. False ANSWER: True 23. External users of accounting information are most interested in whether or not the company will be able to pay them back their original investment. a. True b. False ANSWER: False 24. Current assets include all of the following: cash, inventory, equipment, supplies, and accounts receivable. a. True b. False ANSWER: False 25. Current liabilities should be typically listed in the order of increasing order of maturity (due date). a. True Copyright Cengage Learning. Powered by Cognero.
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Chapter 1 - Financial Statements and Decision Making b. False ANSWER: True 26. Three common categories of noncurrent assets are (1) property, plant, and equipment; (2) long-term investments; and (3) intangibles. a. True b. False ANSWER: True 27. In the shareholders’ equity section of a classified statement of financial position, a distinction is made between amounts invested by owners and amounts financed by creditors. a. True b. False ANSWER: False 28. One primary purpose of a classified statement of financial position is to help users evaluate the working capital of a company. a. True b. False ANSWER: True 29. A classified statement of financial position helps users determine how a company obtained its resources. a. True b. False ANSWER: True 30. The current ratio is useful in determining a company’s ability to pay obligations when they become due. a. True b. False ANSWER: True 31. Net income is the bottom line on every statement of earnings, regardless of whether the statement is presented as a single-step or multiple-step version. a. True b. False ANSWER: True 32. When expenses exceed revenues, a company’s retained earnings balance will decrease. a. True b. False ANSWER: True 33. For a private company, the amount of dividends declared during a period appears on the statement of retained earnings. a. True Copyright Cengage Learning. Powered by Cognero.
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Chapter 1 - Financial Statements and Decision Making b. False ANSWER: True 34. The statement of cash flows, like the statement of earnings, reports only operating activities of a company. a. True b. False ANSWER: False 35. For a private company, the ending cash balance is shown on both the statement of financial position and the statement of retained earnings. a. True b. False ANSWER: False 36. Information contained in the notes to the financial statements can be either quantitative (numerical) or qualitative (non-numerical). a. True b. False ANSWER: True 37. Independent auditors may provide an opinion that the financial statements do not fairly present a company’s financial position, operating results, and cash flows. a. True b. False ANSWER: True 38. An independent auditor’s report is a guarantee that the financial statements are free from fraud or material error. a. True b. False ANSWER: False 39. 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. a. True b. False ANSWER: False 40. A company with healthy cash flows from operating activities is generally in a good position to repay its debts. a. True b. False ANSWER: True 41. The International Accounting Standards Board (IASB) was created in response globalization creating a need for a common set of global accounting principles. a. True Copyright Cengage Learning. Powered by Cognero.
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Chapter 1 - Financial Statements and Decision Making b. False ANSWER: True 42. While International Financial Reporting Standards (IFRS) may have recently been adopted in Canada, not all companies are required to prepare their financial statements using these standards. a. True b. False ANSWER: True Multiple Choice 43. Which of the following is an internal user of financial information? a. company manager b. government c. creditor d. investor ANSWER: a 44. Which of the following statements is characteristic of external users of financial information? a. They need detailed records of the business to make informed decisions. b. They are primarily responsible for the preparation of financial statements. c. They rely on the financial statements to make informed decisions. d. They rely on management to tell them whether the company is a good investment. ANSWER: c 45. Who is considered an internal user of financial statements? a. a supplier considering selling to the company on credit b. a labour union representing employees of a company in labour negotiations c. a financial analyst preparing recommendations on companies in a certain industry d. a manager who is supervising production workers ANSWER: d 46. Who lends funds to a business entity and expects repayment with interest? a. owner b. creditor c. proprietor d. shareholder ANSWER: b 47. What branch of accounting is 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 Copyright Cengage Learning. Powered by Cognero.
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