TEST BANK
Fundamentals of Financial Accounting, | 6th Edition
By Fred Phillips, Robert Libby
SC
O
R
EG
U
ID
ES
, TABLE OF CONTENT
1. Business Decisions and Financial Accounting
2. The Balance Sheet
3. The Income Statement
4. Adjustments, Financial Statements, and Financial Results
5. Fraud, Internal Control, and Cash
SC
6. Merchandising Operations and the Multistep Income Statement
7. Inventory and Cost of Goods Sold
8. Receivables, Bad Debt Expense, and Interest Revenue
O
9. Long-Lived Tangible and Intangible Assets
10. Liabilities
R
11. Stockholders’ Equity
EG
12. Statement of Cash Flows
13. Measuring and Evaluating Financial Performance
U
ID
ES
,Fundamentals of Financial Accounting, 6e (Phillips)
Chapter 1 Business Decisions and Financial Accounting
1) Stockholders are owners of a corporation.
Answer: TRUE
Explanation: Stockholders are the owners of a corporation.
Difficulty: 1 Easy
SC
Topic: Accounting for Business Decisions
Learning Objective: 01-01 Describe various organizational forms and business decision makers.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) All corporations acquire financing by issuing stock for sale on public stock exchanges.
O
Answer: FALSE
Explanation: Most corporations start out as private companies and will apply to become public
R
companies ("go public") if they need a lot of financing. Financing can also be acquired by
borrowing from banks.
Difficulty: 2 Medium
Topic: Organizational Forms
EG
Learning Objective: 01-01 Describe various organizational forms and business decision makers.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) You paid $10,000 to buy 1% of the stock in a corporation that is now bankrupt. The company
owes $10 million dollars to its creditors. As a result of the bankruptcy, you are responsible for
U
paying $100,000 (or $10 million × 1%) of the amount owed to the creditors.
Answer: FALSE
ID
Explanation: Unlike sole proprietorships and partnerships, a corporation is a separate entity from
both legal and accounting perspectives. This means that a corporation, not its owners, is legally
responsible for its own taxes and debts.
Difficulty: 2 Medium
Topic: Organizational Forms
ES
Learning Objective: 01-01 Describe various organizational forms and business decision makers.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
1
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
, 4) Cash paid for wages is an example of an operating activity on the statement of cash flows.
Answer: TRUE
Explanation: Cash flows from running the business, including cash paid for wages, are operating
activities on the statement of cash flows.
Difficulty: 1 Easy
Topic: Financial Statements
Learning Objective: 01-02 Describe the purpose, structure, and content of the four basic
SC
financial statements.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) Borrowing money from a bank is a financing activity on the statement of cash flows.
O
Answer: TRUE
Explanation: On the statement of cash flows, borrowing and repaying bank loans are financing
activities.
R
Difficulty: 1 Easy
Topic: Financial Statements
Learning Objective: 01-02 Describe the purpose, structure, and content of the four basic
financial statements.
EG
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) The daily activities involved in running a business, such as buying supplies and paying
salaries and wages, are classified as operating activities on the statement of cash flows.
U
Answer: TRUE
Explanation: Buying supplies and paying salaries and wages are normal operating costs on the
statement of cash flows.
ID
Difficulty: 1 Easy
Topic: Financial Statements
Learning Objective: 01-02 Describe the purpose, structure, and content of the four basic
financial statements.
Bloom's: Understand
ES
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Fundamentals of Financial Accounting, | 6th Edition
By Fred Phillips, Robert Libby
SC
O
R
EG
U
ID
ES
, TABLE OF CONTENT
1. Business Decisions and Financial Accounting
2. The Balance Sheet
3. The Income Statement
4. Adjustments, Financial Statements, and Financial Results
5. Fraud, Internal Control, and Cash
SC
6. Merchandising Operations and the Multistep Income Statement
7. Inventory and Cost of Goods Sold
8. Receivables, Bad Debt Expense, and Interest Revenue
O
9. Long-Lived Tangible and Intangible Assets
10. Liabilities
R
11. Stockholders’ Equity
EG
12. Statement of Cash Flows
13. Measuring and Evaluating Financial Performance
U
ID
ES
,Fundamentals of Financial Accounting, 6e (Phillips)
Chapter 1 Business Decisions and Financial Accounting
1) Stockholders are owners of a corporation.
Answer: TRUE
Explanation: Stockholders are the owners of a corporation.
Difficulty: 1 Easy
SC
Topic: Accounting for Business Decisions
Learning Objective: 01-01 Describe various organizational forms and business decision makers.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) All corporations acquire financing by issuing stock for sale on public stock exchanges.
O
Answer: FALSE
Explanation: Most corporations start out as private companies and will apply to become public
R
companies ("go public") if they need a lot of financing. Financing can also be acquired by
borrowing from banks.
Difficulty: 2 Medium
Topic: Organizational Forms
EG
Learning Objective: 01-01 Describe various organizational forms and business decision makers.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) You paid $10,000 to buy 1% of the stock in a corporation that is now bankrupt. The company
owes $10 million dollars to its creditors. As a result of the bankruptcy, you are responsible for
U
paying $100,000 (or $10 million × 1%) of the amount owed to the creditors.
Answer: FALSE
ID
Explanation: Unlike sole proprietorships and partnerships, a corporation is a separate entity from
both legal and accounting perspectives. This means that a corporation, not its owners, is legally
responsible for its own taxes and debts.
Difficulty: 2 Medium
Topic: Organizational Forms
ES
Learning Objective: 01-01 Describe various organizational forms and business decision makers.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
1
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
, 4) Cash paid for wages is an example of an operating activity on the statement of cash flows.
Answer: TRUE
Explanation: Cash flows from running the business, including cash paid for wages, are operating
activities on the statement of cash flows.
Difficulty: 1 Easy
Topic: Financial Statements
Learning Objective: 01-02 Describe the purpose, structure, and content of the four basic
SC
financial statements.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) Borrowing money from a bank is a financing activity on the statement of cash flows.
O
Answer: TRUE
Explanation: On the statement of cash flows, borrowing and repaying bank loans are financing
activities.
R
Difficulty: 1 Easy
Topic: Financial Statements
Learning Objective: 01-02 Describe the purpose, structure, and content of the four basic
financial statements.
EG
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) The daily activities involved in running a business, such as buying supplies and paying
salaries and wages, are classified as operating activities on the statement of cash flows.
U
Answer: TRUE
Explanation: Buying supplies and paying salaries and wages are normal operating costs on the
statement of cash flows.
ID
Difficulty: 1 Easy
Topic: Financial Statements
Learning Objective: 01-02 Describe the purpose, structure, and content of the four basic
financial statements.
Bloom's: Understand
ES
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
