Test Bank and Solutions For Financial Accounting 11th Edition By Robert Libby

Test Bank and Solutions For Financial Accounting 11th Edition By Robert Libby 1) A business entity's accounting system creates financial accounting reports which are provided to external decision makers. Answer: TRUE Explanation: The accounting system collects financial data and produces reports used by both internal decision makers and external decision makers. Difficulty: 1 Easy Topic: Accounting system-Information users Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers). Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 2) Business managers utilize managerial accounting reports to plan and manage the daily operations. Answer: TRUE Explanation: Managerial accounting reports are for internal use to assist managers with day-today operations. Unlike financial accounting reports, managerial reports are for internal use. Difficulty: 1 Easy Topic: Accounting system-Information users Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers). Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 3) Borrowing money is an investing activity. Answer: FALSE Explanation: Borrowing money is a form of financing and therefore is a financing activity. Difficulty: 1 Easy Topic: Accounting system-Information conveyed Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers). Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 1 Downloaded by Study Clock () lOMoARcPSD| For All Chapters à 4) The balance sheet includes assets, liabilities, and stockholders' equity as of a point in time. Answer: TRUE Explanation: The balance sheet reports the amount of assets, liabilities, and stockholders' equity of an entity at a point in time. The balance sheet is referred to as a financial position statement; listing assets, liabilities, and equity accounts as of a specific date. Difficulty: 1 Easy Topic: Financial statements—Balance sheet Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers). Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 5) Revenue is recognized within the income statement during the period in which cash is collected. Answer: FALSE Explanation: Revenue is recognized within the income statement during the period in which revenue is earned. Difficulty: 1 Easy Topic: Financial statements—Income statement Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers). Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 6) Total assets are $37,500, total liabilities are $20,000 and common stock is $10,000; therefore, retained earnings are $7,500. Answer: TRUE Explanation: $37,500 = $20,000 + $10,000 + X; X = $7,500 Difficulty: 2 Medium Topic: Financial statements—Balance sheet Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers). Bloom's: Apply AACSB: Knowledge Application Accessibility: Keyboard Navigation 2 Downloaded by Study Clock () lOMoARcPSD| For All Chapters à 7) For the current year, net income of Carol Company is $20,000 and dividends declared are $6,000; therefore, retained earnings have increased $26,000 during the year. Answer: FALSE Explanation: Retained earnings = Net income less dividends declared. Therefore, retained earnings have increased by $20,000 less $6,000 = $14,000. Difficulty: 1 Easy Topic: Financial statements—Stockholders equity Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers). Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 8) The income statement is a measure of an entity's economic performance for a period of time. Answer: TRUE Explanation: The income statement reports the performance of a business during the accounting period. Difficulty: 1 Easy Topic: Financial statements—Income statement Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers). Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 9) The accounting equation states that Assets = Liabilities + Stockholders' Equity. Answer: TRUE Explanation: The accounting equation, also known as the balance sheet equation, states that Assets = Liabilities + Stockholders' Equity. Difficulty: 1 Easy Topic: Financial statements—Balance sheet Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers). Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 3 Downloaded by Study Clock () lOMoARcPSD| For All Chapters à 10) A decision maker who wants to understand a company's financial statements must carefully read the notes to the financial statements because these disclosures provide useful supplemental information. Answer: TRUE Explanation: The notes provide supplem