,Fundamentals#of#Financial#Accounting,#6e#(Phillips)#Chapt
er#1# Business#Decisions#and#Financial#Accounting
1) Stockholders#are#owners#of#a#corporation.
Answer:# TRUE
Explanation:# Stockholders#are#the#owners#of#a#corporation.#Dif
ficulty:#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#Accessi
bility:# 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#c
ompanies#("go#public")#if#they#need#a#lot#of#financing.#Financing#can#also#be#acquired#by#borrowi
ng#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#Accessi
bility:# Keyboard#Navigation
3) You#paid#$10,000#to#buy#1%#of#the#stock#in#a#corporation#that#is#now#bankrupt.#The#company#o
wes#$10#million#dollars#to#its#creditors.#As#a#result#of#the#bankruptcy,#you#are#responsible#for#payi
ng#$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#b
oth#legal#and#accounting#perspectives.#This#means#that#a#corporation,#not#its#owners,#is#legally#resp
onsible#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#Accessi
bility:# Keyboard#Navigation
1
Copyright#2019#©#McGraw-
Hill#Education.#All#rights#reserved.#No#reproduction#or#distribution#without#the#prior#written#consent#of#McGraw-
Hill#Education.
,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#a
ctivities#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#activitie
s.
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#s
alaries#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#stat
ement#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
2
Copyright#2019#©#McGraw-
Hill#Education.#All#rights#reserved.#No#reproduction#or#distribution#without#the#prior#written#consent#of#McGraw-
Hill#Education.
, 7) Stockholders'#equity#is#the#difference#between#a#company's#assets#and#its#liabilities.
Answer:# TRUE
Explanation:# Assets#=#Liabilities#+#Stockholders'#Equity;#therefore,#Assets#–
#Liabilities#=#Stockholders'#Equity
Difficulty:#2#Medium
Topic:# The#Basic#Accounting#Equation
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
8) A#company#owes#$200,000#on#a#bank#loan.#It#will#be#reported#by#the#company#as#Accounts#P
ayable.
Answer:# FALSE
Explanation:# Formal#debt,#evidenced#by#a#written#contract#or#note,#is#reported#as#Notes#Payable.#Diffic
ulty:#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
9) Amounts#reported#on#financial#statements#are#sometimes#rounded#to#the#nearest#million.
Answer:# TRUE
Explanation:# Large#businesses#often#round#the#numbers#on#their#financial#statements#to#the#neare
st#thousand#or#million.
Difficulty:#1#Easy
Topic:# Financial#Statements
Learning#Objective:# 01-
02#Describe#the#purpose,#structure,#and#content#of#the#four#basic#financial#statements.
Bloom's:# Remember# AACSB
:# Analytical#Thinking
Accessibility:# Keyboard#Navigation
3
Copyright#2019#©#McGraw-
Hill#Education.#All#rights#reserved.#No#reproduction#or#distribution#without#the#prior#written#consent#of#McGraw-
Hill#Education.
er#1# Business#Decisions#and#Financial#Accounting
1) Stockholders#are#owners#of#a#corporation.
Answer:# TRUE
Explanation:# Stockholders#are#the#owners#of#a#corporation.#Dif
ficulty:#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#Accessi
bility:# 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#c
ompanies#("go#public")#if#they#need#a#lot#of#financing.#Financing#can#also#be#acquired#by#borrowi
ng#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#Accessi
bility:# Keyboard#Navigation
3) You#paid#$10,000#to#buy#1%#of#the#stock#in#a#corporation#that#is#now#bankrupt.#The#company#o
wes#$10#million#dollars#to#its#creditors.#As#a#result#of#the#bankruptcy,#you#are#responsible#for#payi
ng#$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#b
oth#legal#and#accounting#perspectives.#This#means#that#a#corporation,#not#its#owners,#is#legally#resp
onsible#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#Accessi
bility:# Keyboard#Navigation
1
Copyright#2019#©#McGraw-
Hill#Education.#All#rights#reserved.#No#reproduction#or#distribution#without#the#prior#written#consent#of#McGraw-
Hill#Education.
,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#a
ctivities#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#activitie
s.
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#s
alaries#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#stat
ement#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
2
Copyright#2019#©#McGraw-
Hill#Education.#All#rights#reserved.#No#reproduction#or#distribution#without#the#prior#written#consent#of#McGraw-
Hill#Education.
, 7) Stockholders'#equity#is#the#difference#between#a#company's#assets#and#its#liabilities.
Answer:# TRUE
Explanation:# Assets#=#Liabilities#+#Stockholders'#Equity;#therefore,#Assets#–
#Liabilities#=#Stockholders'#Equity
Difficulty:#2#Medium
Topic:# The#Basic#Accounting#Equation
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
8) A#company#owes#$200,000#on#a#bank#loan.#It#will#be#reported#by#the#company#as#Accounts#P
ayable.
Answer:# FALSE
Explanation:# Formal#debt,#evidenced#by#a#written#contract#or#note,#is#reported#as#Notes#Payable.#Diffic
ulty:#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
9) Amounts#reported#on#financial#statements#are#sometimes#rounded#to#the#nearest#million.
Answer:# TRUE
Explanation:# Large#businesses#often#round#the#numbers#on#their#financial#statements#to#the#neare
st#thousand#or#million.
Difficulty:#1#Easy
Topic:# Financial#Statements
Learning#Objective:# 01-
02#Describe#the#purpose,#structure,#and#content#of#the#four#basic#financial#statements.
Bloom's:# Remember# AACSB
:# Analytical#Thinking
Accessibility:# Keyboard#Navigation
3
Copyright#2019#©#McGraw-
Hill#Education.#All#rights#reserved.#No#reproduction#or#distribution#without#the#prior#written#consent#of#McGraw-
Hill#Education.
