, 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 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.
, Module 1: Financial Accounting for MBAs
Q1.
Which of the following is not one of the four main business activities?
A) Financing
B) Investing
C) Operating
D) Auditing
E) None of the above
Answer: D. Auditing
Rationale: The four primary business activities are financing, investing, operating, and reporting. Auditing is an
external verification process, not a business activity of the firm.
Q2.
Shareholders primarily use financial information to assess:
A) Solvency and repayment ability
B) Creditworthiness of management
C) Profitability and risk
D) Internal control weaknesses
E) Tax compliance
Answer: C. Profitability and risk
Rationale: Shareholders are interested in how much profit they can expect (return on investment) and the risk
associated with holding equity. Lenders, in contrast, emphasize solvency and repayment capacity
20230715194001_64b2f6118e78c_te…
.
Q3.
Which of the following is true regarding publicly available financial reports?
A) Companies file quarterly reports directly with the public.
B) Companies file quarterly reports with the SEC, which posts them online.
C) Only annual audited reports are required by the SEC.
D) Private companies must also file quarterly reports.
Answer: B. Companies file quarterly reports with the SEC, which posts them online
Rationale: Public companies provide quarterly 10-Q and annual 10-K filings electronically to the SEC. The SEC
then makes these available to the public.
Q4.
Which financial statement provides a snapshot at a point in time?
A) Income statement
B) Balance sheet
,C) Statement of cash flows
D) Statement of stockholders’ equity
Answer: B. Balance sheet
Rationale: The balance sheet reflects the company’s financial position at a single date, unlike the other statements,
which cover performance over a period
20230715194001_64b2f6118e78c_te…
.
Q5.
A company reports retained earnings of $200 million. Which of the following must be true?
A) The company has $200 million in cash.
B) The company’s total assets equal $200 million.
C) The company’s equity includes $200 million in accumulated net income not distributed as dividends.
D) The company is required to distribute $200 million in dividends.
Answer: C.
Rationale: Retained earnings represent cumulative net income less dividends, not cash or assets. It is an equity
account that reflects reinvested profits
20230715194001_64b2f6118e78c_te…
.
Q6.
Which of the following relationships must always hold?
A) Assets ≥ Liabilities
B) Assets = Liabilities + Equity
C) Liabilities = Assets + Equity
D) Assets – Equity = Net Income
Answer: B. Assets = Liabilities + Equity
Rationale: This is the fundamental accounting equation, which forms the basis of double-entry bookkeeping.
Q7.
Dividends are reported in which financial statement?
A) Income statement
B) Balance sheet
C) Statement of stockholders’ equity
D) Statement of cash flows (operating section only)
Answer: C. Statement of stockholders’ equity
Rationale: Dividends reduce retained earnings and are shown in the stockholders’ equity statement. They are not an
expense and thus are excluded from net income.
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 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.
, Module 1: Financial Accounting for MBAs
Q1.
Which of the following is not one of the four main business activities?
A) Financing
B) Investing
C) Operating
D) Auditing
E) None of the above
Answer: D. Auditing
Rationale: The four primary business activities are financing, investing, operating, and reporting. Auditing is an
external verification process, not a business activity of the firm.
Q2.
Shareholders primarily use financial information to assess:
A) Solvency and repayment ability
B) Creditworthiness of management
C) Profitability and risk
D) Internal control weaknesses
E) Tax compliance
Answer: C. Profitability and risk
Rationale: Shareholders are interested in how much profit they can expect (return on investment) and the risk
associated with holding equity. Lenders, in contrast, emphasize solvency and repayment capacity
20230715194001_64b2f6118e78c_te…
.
Q3.
Which of the following is true regarding publicly available financial reports?
A) Companies file quarterly reports directly with the public.
B) Companies file quarterly reports with the SEC, which posts them online.
C) Only annual audited reports are required by the SEC.
D) Private companies must also file quarterly reports.
Answer: B. Companies file quarterly reports with the SEC, which posts them online
Rationale: Public companies provide quarterly 10-Q and annual 10-K filings electronically to the SEC. The SEC
then makes these available to the public.
Q4.
Which financial statement provides a snapshot at a point in time?
A) Income statement
B) Balance sheet
,C) Statement of cash flows
D) Statement of stockholders’ equity
Answer: B. Balance sheet
Rationale: The balance sheet reflects the company’s financial position at a single date, unlike the other statements,
which cover performance over a period
20230715194001_64b2f6118e78c_te…
.
Q5.
A company reports retained earnings of $200 million. Which of the following must be true?
A) The company has $200 million in cash.
B) The company’s total assets equal $200 million.
C) The company’s equity includes $200 million in accumulated net income not distributed as dividends.
D) The company is required to distribute $200 million in dividends.
Answer: C.
Rationale: Retained earnings represent cumulative net income less dividends, not cash or assets. It is an equity
account that reflects reinvested profits
20230715194001_64b2f6118e78c_te…
.
Q6.
Which of the following relationships must always hold?
A) Assets ≥ Liabilities
B) Assets = Liabilities + Equity
C) Liabilities = Assets + Equity
D) Assets – Equity = Net Income
Answer: B. Assets = Liabilities + Equity
Rationale: This is the fundamental accounting equation, which forms the basis of double-entry bookkeeping.
Q7.
Dividends are reported in which financial statement?
A) Income statement
B) Balance sheet
C) Statement of stockholders’ equity
D) Statement of cash flows (operating section only)
Answer: C. Statement of stockholders’ equity
Rationale: Dividends reduce retained earnings and are shown in the stockholders’ equity statement. They are not an
expense and thus are excluded from net income.
