TEST BANK
Fundamentals of Financial Accounting
Fred Phillips
6th Edition
,Table of Contents
Part I: Introduction and Financial Statements
1. Accounting and Financial Statements
2. Investing and Financing Decisions and the Accounting
System
3. Operating Decisions and the Income Statement
4. Adjustments, Financial Statements, and the Quality of
Earnings
Part II: Operating Activities
5. Communicating and Interpreting Accounting Information
6. Reporting and Interpreting Sales Revenue, Receivables,
and Cash
7. Reporting and Interpreting Cost of Goods Sold and
Inventory
8. Reporting and Interpreting Property, Plant, and Equipment;
Natural Resources; and Intangibles
Part III: Financing Activities
9. Reporting and Interpreting Liabilities
10. Reporting and Interpreting Bonds
11. Reporting and Interpreting Stockholders’ Equity
Part IV: Additional Reporting Issues
12. The Statement of Cash Flows
13. Analyzing Financial Statements
14. Ethics, Fraud, and Corporate Governance
Appendices
A. Reporting and Interpreting Investments
B. Time Value of Money
C. Compound Interest Tables
D. Ratio Analysis Reference
E. Glossary
F. Index
,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
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.
Answer: FALSE
Explanation: Most corporations start out as private companies and will apply to become public
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
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
paying $100,000 (or $10 million × 1%) of the amount owed to the creditors.
Answer: FALSE
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
Learning Objective: 01-01 Describe various organizational forms and business decision makers.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
, 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
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.
Answer: TRUE
Explanation: On the statement of cash flows, borrowing and repaying bank loans are financing
activities.
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
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.
Answer: TRUE
Explanation: Buying supplies and paying salaries and wages are normal operating costs 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
financial statements.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Fundamentals of Financial Accounting
Fred Phillips
6th Edition
,Table of Contents
Part I: Introduction and Financial Statements
1. Accounting and Financial Statements
2. Investing and Financing Decisions and the Accounting
System
3. Operating Decisions and the Income Statement
4. Adjustments, Financial Statements, and the Quality of
Earnings
Part II: Operating Activities
5. Communicating and Interpreting Accounting Information
6. Reporting and Interpreting Sales Revenue, Receivables,
and Cash
7. Reporting and Interpreting Cost of Goods Sold and
Inventory
8. Reporting and Interpreting Property, Plant, and Equipment;
Natural Resources; and Intangibles
Part III: Financing Activities
9. Reporting and Interpreting Liabilities
10. Reporting and Interpreting Bonds
11. Reporting and Interpreting Stockholders’ Equity
Part IV: Additional Reporting Issues
12. The Statement of Cash Flows
13. Analyzing Financial Statements
14. Ethics, Fraud, and Corporate Governance
Appendices
A. Reporting and Interpreting Investments
B. Time Value of Money
C. Compound Interest Tables
D. Ratio Analysis Reference
E. Glossary
F. Index
,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
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.
Answer: FALSE
Explanation: Most corporations start out as private companies and will apply to become public
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
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
paying $100,000 (or $10 million × 1%) of the amount owed to the creditors.
Answer: FALSE
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
Learning Objective: 01-01 Describe various organizational forms and business decision makers.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
, 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
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.
Answer: TRUE
Explanation: On the statement of cash flows, borrowing and repaying bank loans are financing
activities.
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
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.
Answer: TRUE
Explanation: Buying supplies and paying salaries and wages are normal operating costs 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
financial statements.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
