Financial & Managerial Accounting for Undergraduates 2nd Edition by Wallace

Topic: Sources of GAAP LO: 4 11. Federal income tax regulations constitute a primary source of generally accepted accounting principles. Answer: False Rationale: FASB, AICPA, and SEC have been instrumental in the development of GAAP in the United States. Topic: Sources of GAAP LO: 4 12. Currently, the organization in the private sector with the primary responsibility for formulating accounting principles is the Financial Accounting Standards Board. Answer: True Rationale: TheFinancial Accounting Standards Board has been instrumental in the development of generally accepted accounting principles in the United States. Topic: Accounting Equation LO: 5 13. Assets must always equal the sum of liabilities plus stockholders’ equity. Answer:True Rationale: The accounting equation is Assets = Liabilities + Stockholders’ Equity. This relation must always exist. Topic: Balance Sheet LO: 5 14. If a company reports retained earnings of $22.4 million on its balance sheet, it will also report $22.4 million in cash. Answer: False Rationale: The accounting equation requires total assets to equal the sum of total liabilities plus stockholders’ equity. That does not imply, however, that liability and stockholders’ equity accounts relate directly to specific assets. Topic: Accounting Equation LO: 5 15. The accounting equation states that the economic resources of an entity are equal to the claims on those resources. Answer: True Rationale:The accounting equation: Assets = Liabilities + Stockholder’s equity, states that a firm’s assets equal the sum of its liabilities plus its stockholders’ equity. Throughout the accounting process, the accounting equation must always remain in balan