Cornerstones of Financial Accounting, Rich - Exam Preparation Test Bank (Downloadable Doc)

Chapter 1—Accounting and the Financial Statements




TRUE/FALSE



1. There are more corporations than sole proprietorships and partnerships in the United States.


ANS: F PTS: 1 DIF: Difficulty: Easy

OBJ: LO: 1-1 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-01-Purpose KEY: Bloom's: Knowledge

NOT: 1 min.



2. The three main business activities are financing, operating, and investing.


ANS: T PTS: 1 DIF: Difficulty: Easy

OBJ: LO: 1-2 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-03-Business Forms KEY: Bloom's: Knowledge

NOT: 1 min.



3. Internal users of accounting information include present creditors and management.


ANS: F PTS: 1 DIF: Difficulty: Easy

OBJ: LO: 1-1 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-01-Purpose KEY: Bloom's: Knowledge

NOT: 1 min.



4. The income statement summarizes the assets, liabilities and stockholders’ equity for a period of
time.

, ANS: F PTS: 1 DIF: Difficulty: Easy

OBJ: LO: 1-3 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement

KEY: Bloom's: Knowledge NOT: 1 min.



5. The four basic financial statements are the Income Statement, Statement of Retained Earnings,
Balance Sheet, and Statement of Cash Flows.


ANS: T PTS: 1 DIF: Difficulty: Easy

OBJ: LO: 1-3 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement

KEY: Bloom's: Knowledge NOT: 1 min.



6. The amount of earnings distributed to stockholders can be found in the income statement as an
expense.


ANS: F PTS: 1 DIF: Difficulty: Moderate

OBJ: LO: 1-5 | LO: 1-6 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement

KEY: Bloom's: Knowledge NOT: 1 min.



7. Stockholders' equity is composed of two main sources: liabilities and contributed capital.


ANS: F PTS: 1 DIF: Difficulty: Easy

REF: CS1-2 OBJ: LO: 1-4 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement

KEY: Bloom's: Knowledge NOT: 1 min.

, 8. The first step in preparing the classified balance sheet is to list the assets in order of liquidity.


ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: CS1-2 OBJ: LO: 1-4 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement

KEY: Bloom's: Knowledge NOT: 1 min.



9. The only financial statement that reports the retained earnings balance at the end of the period is
the Statement of Retained Earnings.


ANS: F PTS: 1 DIF: Difficulty: Moderate

OBJ: LO: 1-4 | LO: 1-6 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement

KEY: Bloom's: Knowledge NOT: 1 min.



10. An income statement provides information at one specific point in time, while the other basic
financial statements provide information on activities that occur over a period of time.


ANS: F PTS: 1 DIF: Difficulty: Moderate

OBJ: LO: 1-5 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement

KEY: Bloom's: Knowledge NOT: 1 min.



11. When an entity's stock issuances exceed its expenses for a period of time, the entity will report
net income.


ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: CS1-3 OBJ: LO: 1-5 NAT: BUSPROG: Communication

STA: AICPA FN-Measurement | ACBSP-APC-09-Financial Statement

, KEY: Bloom's: Knowledge NOT: 1 min.



12. Contributed capital is the residual interest that remains after deducting liabilities from
stockholders' equity.


ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: CS1-2 OBJ: LO: 1-4 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement

KEY: Bloom's: Knowledge NOT: 1 min.



13. The four steps in preparing the Income Statement are: 1) Prepare heading, 2) List the revenues of
the company, 3) List the expenses of the company, 4) List the dividends of the company.


ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: CS1-3 OBJ: LO: 1-5 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement

KEY: Bloom's: Knowledge NOT: 1 min.



14. Stockholders equity is composed of contributed capital and retained earnings.


ANS: T PTS: 1 DIF: Difficulty: Moderate

OBJ: LO: 1-4 NAT: BUSPROG: Communication

STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement

KEY: Bloom's: Knowledge NOT: 1 min.



15. The primary objective of internal auditors who are employees of the company is to provide
assurance to the company’s stockholders that the financial statements are fairly presented.


ANS: F PTS: 1 DIF: Difficulty: Easy