Financial Accounting, 5e (Spiceland)
Chapter 1 A Framework for Financial Accounting
1) Accounting is a system of maintaining records of a company's operations and communicating
that information to decision makers.
Answer: TRUE
Difficulty: 1 Easy
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
2) Accounting information is used by investors to decide whether to invest in a company's stock.
St
Answer: TRUE
Difficulty: 1 Easy
Topic: Defining Accounting
ud
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
yN
3) Accounting information is used by creditors to decide whether to invest in a company's stock.
Answer: FALSE
Explanation: Creditors lend money to a company.
Difficulty: 1 Easy
Topic: Defining Accounting
es
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
t
4) The primary functions of financial accounting are to measure business activities of a company
and to communicate those measurements to internal parties for decision-making purposes.
Answer: FALSE
Explanation: Financial accounting primarily serves to provide information to external parties.
Difficulty: 2 Medium
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
,5) Financing activities are transactions involving external sources of funding.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Measurement
6) Investing activities include the purchase and sale of long-term resources.
Answer: TRUE
Difficulty: 1 Easy
St
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Remember
ud
AACSB: Reflective Thinking
AICPA: FN Measurement
7) Operating activities include transactions that relate to the primary operations of the company.
yN
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Remember
es
AACSB: Reflective Thinking
AICPA: FN Measurement
8) A corporation is an entity that is legally separate from its owners.
t
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
,9) Cash, inventory for sale to customers, supplies, and buildings are examples of liabilities.
Answer: FALSE
Explanation: These are examples of assets.
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
10) Amounts owed to suppliers, employees, the government in the form of taxes, and utility
companies are examples of liabilities.
St
Answer: TRUE
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
ud
measures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
yN
11) If total assets of a company equal $12,000 and total stockholders' equity equals $4,000, then
total liabilities equal $8,000.
Answer: TRUE
Difficulty: 3 Hard
Topic: Measuring Business Activities
es
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA: FN Measurement
t
, 12) If total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000,
then total assets equal $7,000.
Answer: FALSE
Explanation: Total assets = Total liabilities ($16,000) + Total stockholders' equity ($9,000) =
$25,000.
Difficulty: 3 Hard
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA: FN Measurement
13) The accounting equation shows that a company's resources equal creditors' and owners'
St
claims to those resources.
Answer: TRUE
Difficulty: 2 Medium
ud
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Understand
AACSB: Reflective Thinking
yN
AICPA: FN Measurement
14) The costs related to rent, utilities, and salaries in the current reporting period are examples of
liabilities.
Answer: FALSE
es
Explanation: These are examples of expenses.
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
t
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
Chapter 1 A Framework for Financial Accounting
1) Accounting is a system of maintaining records of a company's operations and communicating
that information to decision makers.
Answer: TRUE
Difficulty: 1 Easy
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
2) Accounting information is used by investors to decide whether to invest in a company's stock.
St
Answer: TRUE
Difficulty: 1 Easy
Topic: Defining Accounting
ud
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
yN
3) Accounting information is used by creditors to decide whether to invest in a company's stock.
Answer: FALSE
Explanation: Creditors lend money to a company.
Difficulty: 1 Easy
Topic: Defining Accounting
es
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
t
4) The primary functions of financial accounting are to measure business activities of a company
and to communicate those measurements to internal parties for decision-making purposes.
Answer: FALSE
Explanation: Financial accounting primarily serves to provide information to external parties.
Difficulty: 2 Medium
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
,5) Financing activities are transactions involving external sources of funding.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Measurement
6) Investing activities include the purchase and sale of long-term resources.
Answer: TRUE
Difficulty: 1 Easy
St
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Remember
ud
AACSB: Reflective Thinking
AICPA: FN Measurement
7) Operating activities include transactions that relate to the primary operations of the company.
yN
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Remember
es
AACSB: Reflective Thinking
AICPA: FN Measurement
8) A corporation is an entity that is legally separate from its owners.
t
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
,9) Cash, inventory for sale to customers, supplies, and buildings are examples of liabilities.
Answer: FALSE
Explanation: These are examples of assets.
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
10) Amounts owed to suppliers, employees, the government in the form of taxes, and utility
companies are examples of liabilities.
St
Answer: TRUE
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
ud
measures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
yN
11) If total assets of a company equal $12,000 and total stockholders' equity equals $4,000, then
total liabilities equal $8,000.
Answer: TRUE
Difficulty: 3 Hard
Topic: Measuring Business Activities
es
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA: FN Measurement
t
, 12) If total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000,
then total assets equal $7,000.
Answer: FALSE
Explanation: Total assets = Total liabilities ($16,000) + Total stockholders' equity ($9,000) =
$25,000.
Difficulty: 3 Hard
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA: FN Measurement
13) The accounting equation shows that a company's resources equal creditors' and owners'
St
claims to those resources.
Answer: TRUE
Difficulty: 2 Medium
ud
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom's: Understand
AACSB: Reflective Thinking
yN
AICPA: FN Measurement
14) The costs related to rent, utilities, and salaries in the current reporting period are examples of
liabilities.
Answer: FALSE
es
Explanation: These are examples of expenses.
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
t
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
