1
,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
2
,8) A company owes $200,000 on a bank loan. It will be reported by the company as Accounts
Payable.
⊚ true
⊚ false
9) The amounts reported on financial statements are sometimes rounded to the nearest thousand
or million.
⊚ true
⊚ false
10) Accounts Payable, Notes Payable, and Salaries and Wages Payable are examples of
liabilities.
⊚ true
⊚ false
11) Dividends are subtracted from revenues on the income statement.
⊚ true
⊚ false
12) If a company reports net income on the income statement, then the statement of cash flows
will report the same amount as cash flows from operating activities for the period.
⊚ true
⊚ false
13) Revenue is reported on the income statement only if cash was received at the point of sale.
⊚ true
⊚ false
14) Generally Accepted Accounting Principles (GAAP) require profitable companies to
distribute some of their earnings to their stockholders.
⊚ true
⊚ false
3
, 15) Common Stock is reported as an asset on the balance sheet.
⊚ true
⊚ false
16) Investors are mainly interested in the profitability of a company.
⊚ true
⊚ false
17) A stock that does not pay a dividend is an undesirable investment.
⊚ true
⊚ false
18) To ensure that companies produce useful information, it must have two fundamental
characteristics: reliability and understandability.
⊚ true
⊚ false
19) The Securities and Exchange Commission (SEC) is the government agency that has primary
responsibility for setting accounting standards in the U.S.
⊚ true
⊚ false
20) The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report
certifying that the financial statements are free of error.
⊚ true
⊚ false
21) Companies must use a December 31st year-end for all financial statements.
⊚ true
⊚ false
4
,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
2
,8) A company owes $200,000 on a bank loan. It will be reported by the company as Accounts
Payable.
⊚ true
⊚ false
9) The amounts reported on financial statements are sometimes rounded to the nearest thousand
or million.
⊚ true
⊚ false
10) Accounts Payable, Notes Payable, and Salaries and Wages Payable are examples of
liabilities.
⊚ true
⊚ false
11) Dividends are subtracted from revenues on the income statement.
⊚ true
⊚ false
12) If a company reports net income on the income statement, then the statement of cash flows
will report the same amount as cash flows from operating activities for the period.
⊚ true
⊚ false
13) Revenue is reported on the income statement only if cash was received at the point of sale.
⊚ true
⊚ false
14) Generally Accepted Accounting Principles (GAAP) require profitable companies to
distribute some of their earnings to their stockholders.
⊚ true
⊚ false
3
, 15) Common Stock is reported as an asset on the balance sheet.
⊚ true
⊚ false
16) Investors are mainly interested in the profitability of a company.
⊚ true
⊚ false
17) A stock that does not pay a dividend is an undesirable investment.
⊚ true
⊚ false
18) To ensure that companies produce useful information, it must have two fundamental
characteristics: reliability and understandability.
⊚ true
⊚ false
19) The Securities and Exchange Commission (SEC) is the government agency that has primary
responsibility for setting accounting standards in the U.S.
⊚ true
⊚ false
20) The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report
certifying that the financial statements are free of error.
⊚ true
⊚ false
21) Companies must use a December 31st year-end for all financial statements.
⊚ true
⊚ false
4
