Financial Accounting 6th Edition Test Bank | Jay S. Rich & Jeff Jones | Latest Update 2026 | Exam Prep Q&A

Test Bank for Financial Accounting, 6th Edition 6e by Jay S. Rich, Jeff Jones


Chap 01 6e Rich
Answers Included
Indicate whether the statement is true or false.
1. A company with healthy cash flows from operating activities is in a good position to repay its debts.
a. True
b. False

ANSWER: True

2. Dividend payments appear on the retained earnings statement.
a. True
b. False

ANSWER: True
3. Contributed capital is the residual interest that remains after deducting liabilities from stockholders' equity.
a. True
b. False

ANSWER: False
4. Creditors use accounting information to evaluate whether to loan money to a company.
a. True
b. False

ANSWER: True
5. The three main business activities are financing, operating, and investing.
a. True
b. False

ANSWER: True
6. Internal users of accounting information include present creditors and management.
a. True
b. False

ANSWER: False
7. Current assets include cash, inventory, equipment, supplies, and accounts receivable.
a. True
b. False

ANSWER: False




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,Name: Class: Date:

Chap 01 6e Rich

8. The 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.
a. True
b. False

ANSWER: False
9. The classifications in the balance sheet are to help users determine how a company obtained its resources.
a. True
b. False

ANSWER: True
10. One primary purpose of the classified balance sheet is to help users evaluate the working capital of a company.
a. True
b. False

ANSWER: True
11. When an entity's stock issuances exceed its expenses for a period of time, the entity will report net income.
a. True
b. False

ANSWER: False
12. Stockholders' equity is composed of contributed capital and retained earnings.
a. True
b. False

ANSWER: True
13. The amount of earnings distributed to stockholders can be found on the income statement as an expense.
a. True
b. False

ANSWER: False
14. The owners of a sole proprietorship, a partnership, and corporations have limited liability.
a. True
b. False

ANSWER: False
15. The purpose of financial reporting is to provide economic information to investors, creditors, and other financial
statement users.
a. True
b. False

ANSWER: True
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,Name: Class: Date:

Chap 01 6e Rich

16. Income from operations is computed after taking into account interest revenue and interest expense because
these items are considered to be operating in nature.
a. True
b. False

ANSWER: False
17. Investing is the business activity that measures a company's ability to generate cash from its revenue and
expense activities.
a. True
b. False

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

ANSWER: False
19. 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.
a. True
b. False

ANSWER: False
20. The income statement summarizes the assets, liabilities, and stockholders' equity for a period of time.
a. True
b. False

ANSWER: False
21. The statement of cash flows, like the income statement, reports only the operating activities of a company.
a. True
b. False

ANSWER: False
22. Net loss reduces a company's retained earnings balance.
a. True
b. False

ANSWER: True




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, Name: Class: Date:

Chap 01 6e Rich

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

ANSWER: True
24. The only financial statement that reports the retained earnings balance at the end of the period is the retained
earnings statement.
a. True
b. False

ANSWER: False
25. The ending cash balance is shown on the balance sheet and the retained earnings statement.
a. True
b. False

ANSWER: False
26. 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.
a. True
b. False

ANSWER: False
27. The statement of cash flows shows cash inflows and cash outflows for a period of time.
a. True
b. False

ANSWER: True
28. Current liabilities are typically listed in the order in which they will be paid.
a. True
b. False

ANSWER: True
29. The four basic financial statements are the income statement, retained earnings statement, balance sheet, and
statement of cash flows.
a. True
b. False

ANSWER: True




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