Type:
Test Bank
Resource:
Financial Accounting in an Economic Context
Edition:
8th Edition
Author(s):
Jamie Pratt
Chapter 1 Financial Accounting and Its Economic Context
MULTIPLE CHOICE QUESTIONS 1.
The balance sheet communicates a. proof to the investor that the company is profitable. b. assets, liabilities, and shareholders’ equity with all transactions reflected through the year. c. assets, liabilities, and shareholders’ equity as of a certain date. d. operating, investing, and financing activities. Ans: C KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
2.
The income statement communicates a. assets, liabilities, and shareholders’ equity as of a certain date. b. how much cash the owner received during the period. c. information about dividends the company paid to its owners. d. revenues less expenses during a period of time. Ans: D KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
3.
Who prepares financial reports for a particular company? a. The Securities and Exchange Commission b. The Board of Directors c. The company’s management d. The company’s auditors Ans: C KP 5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
4.
To run a company effectively, which one of the following might be a source from which management might acquire capital? a. Customers b. FASB c. Debt and equity investors d. Auditors Ans: C KP 4 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
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Test Bank – Chapter 1 – Financial Accounting and Its Economic Context
5.
Considering and understanding how business decisions affect the financial statements is a. the sole responsibility of the Securities and Exchange Commission. b. provided in the auditor’s report. c. referred to as an economic consequence perspective. d. interpreted strictly by the company’s suppliers. Ans: C KP 1,2,5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
6.
A Certified Public Accountant a. reviews every transaction that a company conducts during any given year. b. performs a company’s audit. c. is one of the investors of a company. d. is responsible for the preparation and integrity of a company’s financial statements. Ans: B KP 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
7.
Footnotes to financial statements a. more fully explain certain items in the financial statements. b. reflect financial notes personalized by the company’s executive team. c. show the detail of salaries of every employee. d. justify fraudulent business practices. Ans: A KP 2,3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
8.
An internal control system a. is maintained to ensure that transactions of a company are properly recorded and reported and the assets are safeguarded. b. is included in the set of footnotes to the financial statements. c. is an estimate of the profits a company expects to earn in the future. d. measures how much control management has over its staff. Ans: A KP 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
9.
Where would you find information on the amount of net income for the year? a. Factory production reports on units produced b. Auditor’s report c. Income statement d. Internal Revenue Service Ans: C KP 3 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
Test Bank – Chapter 1 – Financial Accounting and Its Economic Context
10.
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The statement of cash flows communicates a. assets, liabilities, and owners’ equity at a point of time. b. operating, investing, and financing activities. c. beginning balance plus income less dividends. d. how much cash the company owes its employees. Ans: B KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
11.
The retained earnings section of the statement of shareholders’ equity communicates a. beginning balance plus income less dividends. b. revenues less expenses during a period of time. c. how much cash that management has paid for bonuses. d. operating, investing, and financing activities. Ans: A KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
12.
An investor wants to find the amount of cash and land that a company has. Where will the investor look? a. Statement of shareholders’ equity b. Income statement c. Balance sheet d. Statement of cash flows Ans: C KP 3 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
13.
Dividends declared and paid to the owners are found in the a. management letter. b. income statement. c. dividends statement. d. statement of shareholders’ equity. Ans: D KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
14.
Cash received by a company from its regular operations during the year is found in its a. balance sheet. b. statement of cash flows. c. statement of shareholders’ equity. d. auditor’s report. Ans: B KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
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Test Bank – Chapter 1 – Financial Accounting and Its Economic Context
15.
A company’s profits during its most recent year are found in its a. balance sheet and income statement. b. statement of cash flows only. c. statement of shareholders’ equity only. d. income statement and statement of shareholders’ equity. Ans: D KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
16.
The cash paid during the year to satisfy a company’s debt is found in its a. statement of cash flows. b. income statement. c. statement of shareholders’ equity. d. auditor’s report. Ans: A KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
17.
The amount which a company’s customers owe the company for products delivered or services rendered is found in the a. footnotes only. b. income statement. c. balance sheet. d. statement of cash flows. Ans: C KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
18.
Solvency may be described as a. an amount owed that must be paid in the future. b. amounts that can be distributed to owners only. c. the amount invested in the firm by its owners. d. the ability to generate enough cash to pay its debt as the amounts become due. Ans: D KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
19.
Retained earnings may be described as a. the total past profits retained in the business. b. a company’s future growth. c. the amount invested in the firm by its owners. d. amounts retained for payments to vendors. Ans: A KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
Test Bank – Chapter 1 – Financial Accounting and Its Economic Context
20.
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Liabilities may be described as a. amounts that will be used for future growth. b. the amounts owed that must be paid in the future. c. the total measured past growth of a firm less the amount distributed to the owners. d. amounts the company paid during the past year. Ans: B KP 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
21.
Public stock exchanges a. are operated by managers of a company. b. are markets that sell annual reports. c. provide a forum for buying and selling of equity interests in other companies. d. are used to evaluate debt and equity investments. Ans: C KP 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
22.
A statement that “the financial statements were prepared in accordance with generally accepted accounting principles” is found in the a. collateral. b. stock market. c. footnotes to the balance sheet. d. auditor’s report. Ans: D KP 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
23.
A statement that financial statement information “is the responsibility of the company” issuing the statements is found in the a. footnotes to the financial statements. b. loan contract. c. management letter. d. board of directors’ report. Ans: C KP 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
24.
CPA is an abbreviation for a. Certified Public Accountant. b. Certified Production Accountant. c. Consumer Protection Agency. d. Certified Permissible Accounting. Ans: A KP 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
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Test Bank – Chapter 1 – Financial Accounting and Its Economic Context
25.
An equity investor is a. a person who provides money to a company with the expectation that it will be paid back with interest. b. a creditor that has a regular trade relationship. c. a person who provides money to a company as a gift with a stipulation that it will be used as agreed. d. a person who provides money to a company, though the original money never has to be repaid, and who may be entitled to receive periodic cash payments. Ans: D KP 4 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
26.
An explanation about the assumptions, estimates, and choices of alternative accounting methods used in the financial statements is found in the a. footnotes to the balance sheet. b. auditor’s report. c. statement of shareholders’ equity. d. president’s letter to the shareholders. Ans: A KP 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
27.
A debt investor is a. a person who provides money to a company with the expectation that it will be paid back with interest. b. a person who provides money to a company and expects periodic cash payments in return, though the original money never has to be repaid. c. a person who provides money to a company as a gift with a stipulation that it will be used as agreed. d. often referred to as a stockholder. Ans: A KP 4 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
28.
The board of directors a. provides money to a company with the expectation that it will be paid back with interest. b. makes corporate decisions such as hiring and firing management and setting company policy. c. is responsible for the future profits of a company. d. is in charge of accounting and human resources on a daily basis. Ans: B KP 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting