, Module 1
FINANCIAL ACCOUNTING FOR MBAS
LEARNING OBJECTIVES + COVERAGE BY QUESTION
TRUE/FALSE MULTIPLE CHOICE
LO1 + EXPLAIN AND ASSESS THE FOUR MAIN
BUSINESS ACTIVITIES.
LO2 + IDENTIFY AND DISCUSS THE USERS AND
1- 4 1, 2
SUPPLIERS OF FINANCIAL STATEMENT
INFORMATION.
LO3 + DESCRIBE AND EXAMINE THE FOUR
5-10 3-19
FINANCIAL STATEMENTS, AND DEFINE THE
ACCOUNTING EQUATION.
LO4 + EXPLAIN AND APPLY THE BASICS OF
11-13 20-25
PROFITABILITY ANALYSIS.
LO5 + ASSESS BUSINESS OPERATIONS WITHIN THE
14 26, 27
CONTEXT OF A COMPETITIVE ENVIRONMENT.
LO6 + ACCESS REPORTS FILED WITH THE SEC
(APPENDIX 1A).
LO7 + DESCRIBE THE ACCOUNTING PRINCIPLES
AND REGULATIONS THAT FRAME FINANCIAL 15 28-30
STATEMENTS (APPENDIX 1B).
,MODULE 1: FINANCIAL ACCOUNTING FOR MBAS
Topic: 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
Rationale: 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.
Topic: Publicly Available Financial Reports
LO: 2
2. Publicly Traded Companies Are Required To Provide Quarterly Financial Reports Directly To The Public.
CORRECT ANS: False
Rationale: Companies Provide Electronic Versions Of Quarterly Financial Statements To The SEC,
Which Posts Them To The Internet For The Public To Access Them.
Topic: 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
Rationale: Demand For Information Extends To Many Users; The Regulators Such As The SEC And
The IRS Are Only One Class Of Users.
Topic: 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
Rationale: Quarterly Reports Do Not Need To Be Audited.
Topic: 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
Rationale: 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.
Topic: 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
Rationale: 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.
Topic: Accounting Equation
LO: 3
7. Assets Must Always Equal Liabilities Plus Equity.
CORRECT ANS: True
Rationale: The Accounting Equation Is Assets = Liabilities + Equity. This Relation Must Always Hold.
Topic: 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
Rationale: 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).
Topic: 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
Rationale: A Statement Of Cash Flows Reports On Cash Flows For Operating, Investing, And
Financing Activities Over A Period Of Time.
Topic: Statement Of Stockholders‟ Equity LO:
3
10. An Increase In Common Stock Would Be Reflected In The Statement Of Stockholders‟ Equity.
FINANCIAL ACCOUNTING FOR MBAS
LEARNING OBJECTIVES + COVERAGE BY QUESTION
TRUE/FALSE MULTIPLE CHOICE
LO1 + EXPLAIN AND ASSESS THE FOUR MAIN
BUSINESS ACTIVITIES.
LO2 + IDENTIFY AND DISCUSS THE USERS AND
1- 4 1, 2
SUPPLIERS OF FINANCIAL STATEMENT
INFORMATION.
LO3 + DESCRIBE AND EXAMINE THE FOUR
5-10 3-19
FINANCIAL STATEMENTS, AND DEFINE THE
ACCOUNTING EQUATION.
LO4 + EXPLAIN AND APPLY THE BASICS OF
11-13 20-25
PROFITABILITY ANALYSIS.
LO5 + ASSESS BUSINESS OPERATIONS WITHIN THE
14 26, 27
CONTEXT OF A COMPETITIVE ENVIRONMENT.
LO6 + ACCESS REPORTS FILED WITH THE SEC
(APPENDIX 1A).
LO7 + DESCRIBE THE ACCOUNTING PRINCIPLES
AND REGULATIONS THAT FRAME FINANCIAL 15 28-30
STATEMENTS (APPENDIX 1B).
,MODULE 1: FINANCIAL ACCOUNTING FOR MBAS
Topic: 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
Rationale: 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.
Topic: Publicly Available Financial Reports
LO: 2
2. Publicly Traded Companies Are Required To Provide Quarterly Financial Reports Directly To The Public.
CORRECT ANS: False
Rationale: Companies Provide Electronic Versions Of Quarterly Financial Statements To The SEC,
Which Posts Them To The Internet For The Public To Access Them.
Topic: 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
Rationale: Demand For Information Extends To Many Users; The Regulators Such As The SEC And
The IRS Are Only One Class Of Users.
Topic: 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
Rationale: Quarterly Reports Do Not Need To Be Audited.
Topic: 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
Rationale: 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.
Topic: 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
Rationale: 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.
Topic: Accounting Equation
LO: 3
7. Assets Must Always Equal Liabilities Plus Equity.
CORRECT ANS: True
Rationale: The Accounting Equation Is Assets = Liabilities + Equity. This Relation Must Always Hold.
Topic: 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
Rationale: 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).
Topic: 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
Rationale: A Statement Of Cash Flows Reports On Cash Flows For Operating, Investing, And
Financing Activities Over A Period Of Time.
Topic: Statement Of Stockholders‟ Equity LO:
3
10. An Increase In Common Stock Would Be Reflected In The Statement Of Stockholders‟ Equity.
