TEST BANK FOR FINANCIAL ACCOUNTING FOR MBAS
8TH EDITION BY EASTON
, Module 1
Financial Accounting for MBAs
Learning Objs – Coverage by question
True/False Multiple Choice
LO1 – Explain and assess the four main business
activities.
LO2 – Identify and discuss the users and suppliers of
1- 4 1, 2
financial statement information.
LO3 – Describe and examine the four financial
5-10 3-19
statements, and define the accounting equation.
LO4 – Explain and apply the basics of profitability
11-13 20-25
analysis.
LO5 – Assess business operations within the context
14 26, 27
of a competitive environment.
LO6 – Access reports filed with the SEC (Appendix
1A).
LO7 – Describe the accounting principles and
regulations that frame financial statements (Appendix 15 28-30
1B).
These questions are available to assign in myBusinessCourse.
© Cambridge Business Publishers, 2021
1-1 Financial Accounting for MBAs, 8th Edition
,Module 1: Financial Accounting for MBAs
True/False
TOP:Users of Financial Statement Information LO:
2
1. Shareholders demand financial information primarily to assess profitability and risk whereas bankers
demand information primarily to assess cash flows to repay loan interest and principal.
CORRECT ANS:True
Elaboration:->>>While both shareholders and bankers are interested in all the information companies
provide, shareholders care about more about a company’s profitability and bankers care more about
solvency and creditworthiness.
TOP:Publicly Available Financial Reports
LO: 2
2. Publicly traded companies are required to provide quarterly financial reports directly to the public.
CORRECT ANS:False
Elaboration:->>>Companies provide electronic versions of quarterly financial statements to the SEC,
which posts them to the Internet for the public to access them.
TOP:Users of Financial Statement Information LO:
2
3. Publicly traded companies provide financial information primarily to satisfy the SEC and the tax
authorities (that is, the Internal Revenue Service).
CORRECT ANS:False
Elaboration:->>>Demand for information extends to many users; the regulators such as the SEC and
the IRS are only one class of users.
TOP:SEC Filings LO:
2
4. Publicly traded companies must provide to the Securities Exchange Commission annual audited
financial statements (10-K reports) and quarterly audited financial statements (10-Q reports).
CORRECT ANS:False
Elaboration:->>>Quarterly reports do not need to be audited.
TOP:Balance Sheet
LO: 3
5. If a company reports retained earnings of $175.3 million on its balance sheet, it must also report
$175.3 million in cash.
CORRECT ANS:False
Elaboration:->>>The accounting equation requires total assets to equal total liabilities plus
stockholders’ equity. That does not imply, however, that liability and equity accounts relate directly to
specific assets.
© Cambridge Business Publishers, 2021
Test Bank (T/F & MC), Module 1 1-2
, TOP:Balance Sheet
LO: 3
6. A balance sheet shows a company’s position over a period of time, whereas an income statement,
statement of stockholders’ equity, and statement of cash flows show its position at a point in time.
CORRECT ANS:False
Elaboration:->>>The statement is reversed: A balance sheet shows a company’s position at a point in
time, whereas an income statement, statement of equity, and statement of cash flows show its
position over a period of time.
TOP:Accounting Equation
LO: 3
7. Assets must always equal liabilities plus equity.
CORRECT ANS:True
Elaboration:->>>The accounting equation is Assets = Liabilities + Equity. This relation must always hold.
TOP:Income Statement LO:
3
8. The income statement reports net income which is defined as the company’s profit after all expenses
and dividends have been paid.
CORRECT ANS:False
Elaboration:->>>The statement contains two errors. First, net income does not include any dividends
during the period; these are a distribution of profits and not part of its calculation. Second, the income
statement is prepared on an accrual basis and thus includes expenses incurred (as opposed to paid).
TOP:Statement of Cash Flows
LO: 3
9. A statement of cash flows reports on cash flows for operating, investing and financing activities at a
point in time.
CORRECT ANS:False
Elaboration:->>>A statement of cash flows reports on cash flows for operating, investing, and
financing activities over a period of time.
TOP:Statement of Stockholders’ Equity
LO: 3
10. An increase in common stock would be reflected in the statement of stockholders’ equity.
CORRECT ANS:True
Elaboration:->>>The statement of stockholders’ equity reports on changes in the accounts that make
up stockholders’ equity. This includes contributed capital, retained earnings, and other equity.
1-3 Financial Accounting for MBAs, 8th Edition
8TH EDITION BY EASTON
, Module 1
Financial Accounting for MBAs
Learning Objs – Coverage by question
True/False Multiple Choice
LO1 – Explain and assess the four main business
activities.
LO2 – Identify and discuss the users and suppliers of
1- 4 1, 2
financial statement information.
LO3 – Describe and examine the four financial
5-10 3-19
statements, and define the accounting equation.
LO4 – Explain and apply the basics of profitability
11-13 20-25
analysis.
LO5 – Assess business operations within the context
14 26, 27
of a competitive environment.
LO6 – Access reports filed with the SEC (Appendix
1A).
LO7 – Describe the accounting principles and
regulations that frame financial statements (Appendix 15 28-30
1B).
These questions are available to assign in myBusinessCourse.
© Cambridge Business Publishers, 2021
1-1 Financial Accounting for MBAs, 8th Edition
,Module 1: Financial Accounting for MBAs
True/False
TOP:Users of Financial Statement Information LO:
2
1. Shareholders demand financial information primarily to assess profitability and risk whereas bankers
demand information primarily to assess cash flows to repay loan interest and principal.
CORRECT ANS:True
Elaboration:->>>While both shareholders and bankers are interested in all the information companies
provide, shareholders care about more about a company’s profitability and bankers care more about
solvency and creditworthiness.
TOP:Publicly Available Financial Reports
LO: 2
2. Publicly traded companies are required to provide quarterly financial reports directly to the public.
CORRECT ANS:False
Elaboration:->>>Companies provide electronic versions of quarterly financial statements to the SEC,
which posts them to the Internet for the public to access them.
TOP:Users of Financial Statement Information LO:
2
3. Publicly traded companies provide financial information primarily to satisfy the SEC and the tax
authorities (that is, the Internal Revenue Service).
CORRECT ANS:False
Elaboration:->>>Demand for information extends to many users; the regulators such as the SEC and
the IRS are only one class of users.
TOP:SEC Filings LO:
2
4. Publicly traded companies must provide to the Securities Exchange Commission annual audited
financial statements (10-K reports) and quarterly audited financial statements (10-Q reports).
CORRECT ANS:False
Elaboration:->>>Quarterly reports do not need to be audited.
TOP:Balance Sheet
LO: 3
5. If a company reports retained earnings of $175.3 million on its balance sheet, it must also report
$175.3 million in cash.
CORRECT ANS:False
Elaboration:->>>The accounting equation requires total assets to equal total liabilities plus
stockholders’ equity. That does not imply, however, that liability and equity accounts relate directly to
specific assets.
© Cambridge Business Publishers, 2021
Test Bank (T/F & MC), Module 1 1-2
, TOP:Balance Sheet
LO: 3
6. A balance sheet shows a company’s position over a period of time, whereas an income statement,
statement of stockholders’ equity, and statement of cash flows show its position at a point in time.
CORRECT ANS:False
Elaboration:->>>The statement is reversed: A balance sheet shows a company’s position at a point in
time, whereas an income statement, statement of equity, and statement of cash flows show its
position over a period of time.
TOP:Accounting Equation
LO: 3
7. Assets must always equal liabilities plus equity.
CORRECT ANS:True
Elaboration:->>>The accounting equation is Assets = Liabilities + Equity. This relation must always hold.
TOP:Income Statement LO:
3
8. The income statement reports net income which is defined as the company’s profit after all expenses
and dividends have been paid.
CORRECT ANS:False
Elaboration:->>>The statement contains two errors. First, net income does not include any dividends
during the period; these are a distribution of profits and not part of its calculation. Second, the income
statement is prepared on an accrual basis and thus includes expenses incurred (as opposed to paid).
TOP:Statement of Cash Flows
LO: 3
9. A statement of cash flows reports on cash flows for operating, investing and financing activities at a
point in time.
CORRECT ANS:False
Elaboration:->>>A statement of cash flows reports on cash flows for operating, investing, and
financing activities over a period of time.
TOP:Statement of Stockholders’ Equity
LO: 3
10. An increase in common stock would be reflected in the statement of stockholders’ equity.
CORRECT ANS:True
Elaboration:->>>The statement of stockholders’ equity reports on changes in the accounts that make
up stockholders’ equity. This includes contributed capital, retained earnings, and other equity.
1-3 Financial Accounting for MBAs, 8th Edition
