Test Bank for Fundamentals Of Financial Accounting 6th
Canadian Edition Fred Phillips, Robert Libby, Patricia
Libby With Questions And Correct Answers
CHAPTER 1 - CORRECT ANSWERS-...
Assets: - CORRECT ANSWERS-An economic resource presently controlled by the
company; it has measurable value and is expected to benefit the company by producing
cash inflows or reducing cash outflows in the future
Assets represent: - CORRECT ANSWERS-The resources owned or controlled by a
company
Liabilities: - CORRECT ANSWERS-Measurable amounts that the company owes to
creditors
Liabilities on the balance sheet would include: - CORRECT ANSWERS-Accounts
payable, notes payable, and wages payable
Stockholders' Equity: - CORRECT ANSWERS-Represents the owners' claims on the
business. Profits belong to the company's owners, so they increase Stockholders'
Equity
Stockholders' Equity claims arise for two reasons: - CORRECT ANSWERS-1.)
Contributed Capital (paid in by stockholders)
2.) Retained Earnings (earned by the company)
Two components of profit: - CORRECT ANSWERS-Revenues and Expenses
Revenues: - CORRECT ANSWERS-Are earned by selling goods or services to
customers
Expenses: - CORRECT ANSWERS-Are all costs of doing business that are necessary
to earn revenues
Net Income (the preferred term in accounting for "profit"): - CORRECT ANSWERS-
Calculated as revenues minus expenses. If revenues are less than expenses, the
company would have a net loss. To be profitable, its revenues must be greater than its
expenses
Net Income Equation: - CORRECT ANSWERS-Revenues - Expenses = Net Income
(Profit generated)
By generating net income, a company increases its stockholders' equity
, Dividends: - CORRECT ANSWERS-A company's profits are accumulated in Retained
Earnings until a decision is made to distribute them to stockholders in what is called a
"dividend"
Is the simplest type of Dividend: - CORRECT ANSWERS-A dividend paid in cash;
Dividends are not an expense incurred to generate earnings, rather they are a
distribution of earnings
Investors and creditors look at the balance sheet to see whether the company: -
CORRECT ANSWERS-Owns enough assets to pay what it owes to creditors
The Income Statement reports: - CORRECT ANSWERS-The amount of revenues
earned and expenses incurred during the period
What would affect stockholders' equity? - CORRECT ANSWERS-A company receives
$100 million from an investor in exchange for stock
The WC Company borrowed $26,500 from a bank during 2012: - CORRECT
ANSWERS-This would be listed as $26,500 under financing activities on the statement
of cash flows
Investors are often interested in the amount of net income distributed as dividends. In
which section of the financial statements would investors look to find this amount? -
CORRECT ANSWERS-Statement of retained earnings
What is Accounting? - CORRECT ANSWERS-A system of analyzing, recording, and
summarizing the results of a business's activities and then reporting the results to
decision makers
The 3 Organizational Forms: - CORRECT ANSWERS-1) Sole Proprietorship
2) Partnership
3) Corporation
Sole Proprietorship - CORRECT ANSWERS-Form of business owned (and usually
operated) by one individual. Easiest form of business to start b/c it doesn't require any
special legal maneuvers
Partnership - CORRECT ANSWERS-Similar to sole proprietorship; except that profits,
taxes, and legal liability are the responsibility of two or more owners instead of just one.
Slightly more expensive to form (than sole pro.) b/c a lawyer is usually needed to draw
up a partnership agreement
Corporation - CORRECT ANSWERS-Unlike the first two, this is a separate entity from
both a legal and accounting perspective. This means that the ___ is legally responsible,
not its owners, for its own taxes and debts.
Canadian Edition Fred Phillips, Robert Libby, Patricia
Libby With Questions And Correct Answers
CHAPTER 1 - CORRECT ANSWERS-...
Assets: - CORRECT ANSWERS-An economic resource presently controlled by the
company; it has measurable value and is expected to benefit the company by producing
cash inflows or reducing cash outflows in the future
Assets represent: - CORRECT ANSWERS-The resources owned or controlled by a
company
Liabilities: - CORRECT ANSWERS-Measurable amounts that the company owes to
creditors
Liabilities on the balance sheet would include: - CORRECT ANSWERS-Accounts
payable, notes payable, and wages payable
Stockholders' Equity: - CORRECT ANSWERS-Represents the owners' claims on the
business. Profits belong to the company's owners, so they increase Stockholders'
Equity
Stockholders' Equity claims arise for two reasons: - CORRECT ANSWERS-1.)
Contributed Capital (paid in by stockholders)
2.) Retained Earnings (earned by the company)
Two components of profit: - CORRECT ANSWERS-Revenues and Expenses
Revenues: - CORRECT ANSWERS-Are earned by selling goods or services to
customers
Expenses: - CORRECT ANSWERS-Are all costs of doing business that are necessary
to earn revenues
Net Income (the preferred term in accounting for "profit"): - CORRECT ANSWERS-
Calculated as revenues minus expenses. If revenues are less than expenses, the
company would have a net loss. To be profitable, its revenues must be greater than its
expenses
Net Income Equation: - CORRECT ANSWERS-Revenues - Expenses = Net Income
(Profit generated)
By generating net income, a company increases its stockholders' equity
, Dividends: - CORRECT ANSWERS-A company's profits are accumulated in Retained
Earnings until a decision is made to distribute them to stockholders in what is called a
"dividend"
Is the simplest type of Dividend: - CORRECT ANSWERS-A dividend paid in cash;
Dividends are not an expense incurred to generate earnings, rather they are a
distribution of earnings
Investors and creditors look at the balance sheet to see whether the company: -
CORRECT ANSWERS-Owns enough assets to pay what it owes to creditors
The Income Statement reports: - CORRECT ANSWERS-The amount of revenues
earned and expenses incurred during the period
What would affect stockholders' equity? - CORRECT ANSWERS-A company receives
$100 million from an investor in exchange for stock
The WC Company borrowed $26,500 from a bank during 2012: - CORRECT
ANSWERS-This would be listed as $26,500 under financing activities on the statement
of cash flows
Investors are often interested in the amount of net income distributed as dividends. In
which section of the financial statements would investors look to find this amount? -
CORRECT ANSWERS-Statement of retained earnings
What is Accounting? - CORRECT ANSWERS-A system of analyzing, recording, and
summarizing the results of a business's activities and then reporting the results to
decision makers
The 3 Organizational Forms: - CORRECT ANSWERS-1) Sole Proprietorship
2) Partnership
3) Corporation
Sole Proprietorship - CORRECT ANSWERS-Form of business owned (and usually
operated) by one individual. Easiest form of business to start b/c it doesn't require any
special legal maneuvers
Partnership - CORRECT ANSWERS-Similar to sole proprietorship; except that profits,
taxes, and legal liability are the responsibility of two or more owners instead of just one.
Slightly more expensive to form (than sole pro.) b/c a lawyer is usually needed to draw
up a partnership agreement
Corporation - CORRECT ANSWERS-Unlike the first two, this is a separate entity from
both a legal and accounting perspective. This means that the ___ is legally responsible,
not its owners, for its own taxes and debts.
