TEST BANK for Fundamentals of Financial Accounting 8th Edition By Phillips, Clor-Proell, Robert Libby and Patricia Libby

Test Bank Fundamentals of Financial Accounting, 8th Edition by Fred Phillips



Chapter 01 8e Phillips Answers Included
1) Creditors are owners of a corporation.
⊚ true
⊚ false



2) All corporations acquire financing by issuing stock on public stock exchanges.
⊚ true
⊚ false



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 paying $100,000 (or $10 million × 1%) of the amount owed to the creditors.
⊚ true
⊚ false



4) Cash paid for wages is an example of an operating activity on the statement of cash flows.
⊚ true
⊚ false



5) Borrowing money from a bank is a financing activity on the statement of cash flows.
⊚ true
⊚ false



6) The daily business 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.
⊚ true
⊚ false



7) Stockholders' equity is the difference between a company's assets and its liabilities.
⊚ true
⊚ false




1

,8) A company owes $200,000 on a bank loan. It will be reported by the company as Accounts Pa
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk




yable.
⊚ true
j k




⊚ false
j k




9) The amounts reported on financial statements are sometimes rounded to the nearest thousand o
jk jk jk jk jk jk jk jk jk jk jk jk jk




r million.
jk




⊚ true j k




⊚ false j k




10) Accounts Payable, Notes Payable, and Salaries and Wages Payable are examples of li
jk jk jk jk jk jk jk jk jk jk jk jk




abilities.
⊚ true j k




⊚ false j k




11) Dividends are subtracted from revenues on the income statement.
jk jk jk jk jk jk jk jk




⊚ true j k




⊚ false j k




12) If a company reports net income on the income statement, then the statement of cash flows wi
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk




ll report the same amount as cash flows from operating activities for the period.
jk jk jk jk jk jk jk jk jk jk jk jk jk




⊚ true j k




⊚ false j k




13) Revenue is reported on the income statement only if cash was received at the point of sale.
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk




⊚ true j k




⊚ false j k




14) Generally Accepted Accounting Principles (GAAP) require profitable companies to d
jk jk jk jk jk jk jk jk jk




istribute some of their earnings to their stockholders.
jk jk jk jk jk jk jk




⊚ true j k




⊚ false j k




2

,15) Common Stock is reported as an asset on the balance sheet.
jk jk jk jk jk jk jk jk jk jk




⊚ true j k




⊚ false j k




16) Investors are mainly interested in the profitability of a company.
jk jk jk jk jk jk jk jk jk




⊚ true j k




⊚ false j k




17) A stock that does not pay a dividend is an undesirable investment.
jk jk jk jk jk jk jk jk jk jk jk




⊚ true j k




⊚ false j k




18) To ensure that companies produce useful information, it must have two fundamental c
jk jk jk jk jk jk jk jk jk jk jk jk




haracteristics: reliability and understandability. jk jk jk




⊚ true j k




⊚ false j k




19) The Securities and Exchange Commission (SEC) is the government agency that has primary re
jk jk jk jk jk jk jk jk jk jk jk jk jk




sponsibility for setting accounting standards in the U.S.
jk jk jk jk jk jk jk




⊚ true j k




⊚ false j k




20) The Sarbanes-
jk




Oxley Act (SOX) requires top management of companies to sign a report certifying that t
jk jk jk jk jk jk jk jk jk jk jk jk jk jk




he financial statements are free of error.
jk jk jk jk jk jk




⊚ true j k




⊚ false j k




21) Companies must use a December 31st year-end for all financial statements.
jk jk jk jk jk jk jk jk jk jk




⊚ true j k




⊚ false j k




3

, 22) Public corporations are businesses:
jk jk jk




A) owned by two or more people, each of whom is personally liable for the debts of the bu
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk




siness.
B) whose stock is bought and sold on a stock exchange.
jk jk jk jk jk jk jk jk jk




C) whose stock is bought and sold privately. jk jk jk jk jk jk




D) where stock is not used as evidence of ownership.
jk jk jk jk jk jk jk jk




23) The owner(s) of a business are not taxed on the profits of the business if the business is a:
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk




A) sole proprietorship. jk




B) partnership.
C) corporation.
D) public partnership. jk




24) Which of the following is typically considered a disadvantage of sole proprietorships?
jk jk jk jk jk jk jk jk jk jk jk




A) Income taxes are paid by both the business and its owner.jk jk jk jk jk jk jk jk jk jk




B) The business is considered a separate legal entity from its owner.
jk jk jk jk jk jk jk jk jk jk




C) Establishing the business usually requires legal assistance. jk jk jk jk jk jk




D) Owner is personally liable for all debts of the business.
jk jk jk jk jk jk jk jk jk




25) Considering the targeted audience for financial accounting reports, which of the following p
jk jk jk jk jk jk jk jk jk jk jk jk




arties is not an external user?
jk jk jk jk jk




A) Directors of the company issuing the reports jk jk jk jk jk jk




B) Creditors of the company issuing the reports jk jk jk jk jk jk




C) Managers of the company issuing the reports jk jk jk jk jk jk




D) Stockholders of the company issuing the reports jk jk jk jk jk jk




26) Accounting systems: jk




A) are summarized in publicly published reports.
jk jk jk jk jk




B) analyze, record, and summarize the activities affecting its financial condition and p
jk jk jk jk jk jk jk jk jk jk jk




erformance.
C) monitor business activities only in financial terms. jk jk jk jk jk jk




D) capture only the information that is needed by the owners of the company.
jk jk jk jk jk jk jk jk jk jk jk jk




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