TEST BANK FOR FINANCIAL ACCOUNTING FOR MBAS
n7 n7 n7 n7 n7 n7
8TH EDITION BY EASTON
n7 n7 n7 n7
, Module 1 n7
Financial Accounting for MBAs n7 n7 n7
Learning Objs – Coverage by question n7 n7 n7 n7 n7
True/False Multiple Choice
n7
LO1 – Explain and assess the four main business
n7 n7 n7 n7 n7 n7 n7 n7
activities.
n7
LO2 – Identify and discuss the users and
n7 n7 n7 n7 n7 n7 n7
1- 4 n7 1, 2
n7
suppliers of financial statement information.
n7 n7 n7 n7 n7
LO3 – Describe and examine the four financial
n7 n7 n7 n7 n7 n7 n7
5-10 3-19
statements, and define the accounting equation.
n7 n7 n7 n7 n7 n7
LO4 – Explain and apply the basics of profitability
n7 n7 n7 n7 n7 n7 n7 n7
11-13 20-25
analysis.
n7
LO5 – Assess business operations within the
n7 n7 n7 n7 n7 n7
14 26, 27
n7
context of a competitive environment.
n7 n7 n7 n7 n7
LO6 – Access reports filed with the SEC (Appendix
n7 n7 n7 n7 n7 n7 n7 n7
1A).
n7
LO7 – Describe the accounting principles and
n7 n7 n7 n7 n7 n7
regulations that frame financial statements
n7 n7 n7 n7 n7 15 28-30
(Appendix 1B).
n7 n7
These questions are available to assign in myBusinessCourse.
n7 n7 n7 n7 n7 n7 n7
© n7Cambridge n7Business n7Publishers, n72021
1-1 Financial n7Accounting n7for n7MBAs, n78th n7Edition
,Module 1: Financial Accounting for MBAs
n7 n7 n7 n7 n7
True/False
TOPIC:Users of Financial Statement Information LO:
n7 n7 n7 n7 n7
2
1. Shareholders demand financial information primarily to assess profitability and risk whereas
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
bankers demand information primarily to assess cash flows to repay loan interest and
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
principal.
n7
ACCURATE ANSWER:-True n7
Reasoning:->>->>>While both shareholders and bankers are interested in all the information n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
companies provide, shareholders care about more about a firm‘s profitability and bankers
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
care more about solvency and creditworthiness.
n7 n7 n7 n7 n7 n7
TOPIC:Publicly Available Financial n7 n7
Reports LO: 2
n7 n7 n7
2. Publicly traded companies are required to provide quarterly financial reports directly to the public.
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>Companies provide electronic versions of quarterly financial statements to n7 n7 n7 n7 n7 n7 n7 n7
the SEC, which posts them to the Internet for the public to access them.
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
TOPIC:Users of Financial Statement Information LO:
n7 n7 n7 n7 n7
2
3. Publicly traded companies provide financial information primarily to
n 7 n 7 n 7 n 7 n 7 n 7 n 7 n 7 satisfy n 7 the
SEC and the tax authorities (that is, the Internal Revenue Service).
n 7 n 7 n 7 n 7 n7 n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning :->>->>>Demand for information extends to many users; the regulators such as the
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
SEC and the IRS are only one class of users.
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
TOPIC:SEC Filings LO: n7 n7
2
4. Publicly traded companies must provide to the Securities Exchange Commission
n 7 n 7 n 7 n 7 n 7 n 7 n 7 n 7 n 7
annual audited financial statements (10-K reports) and quarterly audited financial
n 7 n 7 n7 n7 n7 n7 n7 n7 n7 n7
statements (10-Q reports).
n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>Quarterly reports do not need to be audited. n7 n7 n7 n7 n7 n7 n7
TOPIC:Balance
Sheet LO: 3
n7 n7 n7
5. If a firm reports retained earnings of
n7 n7 n7 n7 n7 n7 n 7 $175.3 million on its balance sheet, it must also
n7 n7 n7 n7 n7 n7 n7 n7
report
n7
$175.3 million in cash. n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>The accounting equation requires total assets to equal total liabilities plus
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
stockholders‘ equity. That does not imply, however, that liability and equity accounts relate
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
directly to specific assets.
n7 n7 n7 n7
© n7Cambridge n7Business n7Publishers, n72021
Test n7Bank n7(T/F n7& n7MC), n7Module n71 1-2
, TOPIC:Balance
Sheet LO: 3
n7 n7 n7
6. A balance sheet shows a firm‘s position over a period of time, whereas an income
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
statement, statement of stockholders‘ equity, and statement of cash flows show its
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
position at a point in time.
n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>The statement is reversed: A balance sheet shows a firm‘s position at a n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
point in time, whereas an income statement, statement of equity, and statement of cash
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
flows show its position over a period of time.
n7 n7 n7 n 7 n 7 n7 n7 n7 n7
TOPIC:Accounting
Equation LO: 3
n7 n7 n7
7. Assets must always equal liabilities plus equity.
n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-True n7
Reasoning:->>->>>The accounting equation is Assets = Liabilities + Equity. This relation must always
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
hold.
n7
TOPIC:Income Statement LO: n7 n7
3
8. The income statement reports net income which is defined as the firm‘s profit after all
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
expenses and dividends have been paid.
n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>The statement contains two errors. First, net income does not include any
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
dividends during the period; these are a distribution of profits and not part of its calculation.
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
Second, the income statement is prepared on an accrual basis and thus includes expenses
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
incurred (as opposed to paid).
n7 n7 n7 n7 n7
TOPIC:Statement of Cash n7 n7
Flows LO: 3
n7 n7 n7
9. A statement of cash flows reports on cash flows for operating, investing and financing
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
activities at a point in time.
n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>A statement of cash flows reports on cash flows for operating, investing,
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
and financing activities over a period of time.
n7 n7 n7 n7 n7 n7 n7 n7
TOPIC:Statement of Stockholders’ Equity n7 n7 n7
LO: 3
n7 n7
10. An increase in common stock would be reflected in the statement of stockholders‘ equity.
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-True n7
Reasoning:->>->>>The statement of stockholders‘ equity reports on changes in the accounts n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
that make up stockholders‘ equity. This includes contributed capital, retained earnings, and
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
other equity.
n7 n7
1-3 Financial n7Accounting n7for n7MBAs, n78th n7Edition
n7 n7 n7 n7 n7 n7
8TH EDITION BY EASTON
n7 n7 n7 n7
, Module 1 n7
Financial Accounting for MBAs n7 n7 n7
Learning Objs – Coverage by question n7 n7 n7 n7 n7
True/False Multiple Choice
n7
LO1 – Explain and assess the four main business
n7 n7 n7 n7 n7 n7 n7 n7
activities.
n7
LO2 – Identify and discuss the users and
n7 n7 n7 n7 n7 n7 n7
1- 4 n7 1, 2
n7
suppliers of financial statement information.
n7 n7 n7 n7 n7
LO3 – Describe and examine the four financial
n7 n7 n7 n7 n7 n7 n7
5-10 3-19
statements, and define the accounting equation.
n7 n7 n7 n7 n7 n7
LO4 – Explain and apply the basics of profitability
n7 n7 n7 n7 n7 n7 n7 n7
11-13 20-25
analysis.
n7
LO5 – Assess business operations within the
n7 n7 n7 n7 n7 n7
14 26, 27
n7
context of a competitive environment.
n7 n7 n7 n7 n7
LO6 – Access reports filed with the SEC (Appendix
n7 n7 n7 n7 n7 n7 n7 n7
1A).
n7
LO7 – Describe the accounting principles and
n7 n7 n7 n7 n7 n7
regulations that frame financial statements
n7 n7 n7 n7 n7 15 28-30
(Appendix 1B).
n7 n7
These questions are available to assign in myBusinessCourse.
n7 n7 n7 n7 n7 n7 n7
© n7Cambridge n7Business n7Publishers, n72021
1-1 Financial n7Accounting n7for n7MBAs, n78th n7Edition
,Module 1: Financial Accounting for MBAs
n7 n7 n7 n7 n7
True/False
TOPIC:Users of Financial Statement Information LO:
n7 n7 n7 n7 n7
2
1. Shareholders demand financial information primarily to assess profitability and risk whereas
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
bankers demand information primarily to assess cash flows to repay loan interest and
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
principal.
n7
ACCURATE ANSWER:-True n7
Reasoning:->>->>>While both shareholders and bankers are interested in all the information n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
companies provide, shareholders care about more about a firm‘s profitability and bankers
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
care more about solvency and creditworthiness.
n7 n7 n7 n7 n7 n7
TOPIC:Publicly Available Financial n7 n7
Reports LO: 2
n7 n7 n7
2. Publicly traded companies are required to provide quarterly financial reports directly to the public.
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>Companies provide electronic versions of quarterly financial statements to n7 n7 n7 n7 n7 n7 n7 n7
the SEC, which posts them to the Internet for the public to access them.
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
TOPIC:Users of Financial Statement Information LO:
n7 n7 n7 n7 n7
2
3. Publicly traded companies provide financial information primarily to
n 7 n 7 n 7 n 7 n 7 n 7 n 7 n 7 satisfy n 7 the
SEC and the tax authorities (that is, the Internal Revenue Service).
n 7 n 7 n 7 n 7 n7 n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning :->>->>>Demand for information extends to many users; the regulators such as the
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
SEC and the IRS are only one class of users.
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
TOPIC:SEC Filings LO: n7 n7
2
4. Publicly traded companies must provide to the Securities Exchange Commission
n 7 n 7 n 7 n 7 n 7 n 7 n 7 n 7 n 7
annual audited financial statements (10-K reports) and quarterly audited financial
n 7 n 7 n7 n7 n7 n7 n7 n7 n7 n7
statements (10-Q reports).
n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>Quarterly reports do not need to be audited. n7 n7 n7 n7 n7 n7 n7
TOPIC:Balance
Sheet LO: 3
n7 n7 n7
5. If a firm reports retained earnings of
n7 n7 n7 n7 n7 n7 n 7 $175.3 million on its balance sheet, it must also
n7 n7 n7 n7 n7 n7 n7 n7
report
n7
$175.3 million in cash. n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>The accounting equation requires total assets to equal total liabilities plus
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
stockholders‘ equity. That does not imply, however, that liability and equity accounts relate
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
directly to specific assets.
n7 n7 n7 n7
© n7Cambridge n7Business n7Publishers, n72021
Test n7Bank n7(T/F n7& n7MC), n7Module n71 1-2
, TOPIC:Balance
Sheet LO: 3
n7 n7 n7
6. A balance sheet shows a firm‘s position over a period of time, whereas an income
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
statement, statement of stockholders‘ equity, and statement of cash flows show its
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
position at a point in time.
n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>The statement is reversed: A balance sheet shows a firm‘s position at a n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
point in time, whereas an income statement, statement of equity, and statement of cash
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
flows show its position over a period of time.
n7 n7 n7 n 7 n 7 n7 n7 n7 n7
TOPIC:Accounting
Equation LO: 3
n7 n7 n7
7. Assets must always equal liabilities plus equity.
n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-True n7
Reasoning:->>->>>The accounting equation is Assets = Liabilities + Equity. This relation must always
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
hold.
n7
TOPIC:Income Statement LO: n7 n7
3
8. The income statement reports net income which is defined as the firm‘s profit after all
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
expenses and dividends have been paid.
n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>The statement contains two errors. First, net income does not include any
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
dividends during the period; these are a distribution of profits and not part of its calculation.
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
Second, the income statement is prepared on an accrual basis and thus includes expenses
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
incurred (as opposed to paid).
n7 n7 n7 n7 n7
TOPIC:Statement of Cash n7 n7
Flows LO: 3
n7 n7 n7
9. A statement of cash flows reports on cash flows for operating, investing and financing
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
activities at a point in time.
n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-False n7
Reasoning:->>->>>A statement of cash flows reports on cash flows for operating, investing,
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
and financing activities over a period of time.
n7 n7 n7 n7 n7 n7 n7 n7
TOPIC:Statement of Stockholders’ Equity n7 n7 n7
LO: 3
n7 n7
10. An increase in common stock would be reflected in the statement of stockholders‘ equity.
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
ACCURATE ANSWER:-True n7
Reasoning:->>->>>The statement of stockholders‘ equity reports on changes in the accounts n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
that make up stockholders‘ equity. This includes contributed capital, retained earnings, and
n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7 n7
other equity.
n7 n7
1-3 Financial n7Accounting n7for n7MBAs, n78th n7Edition
