Exam (elaborations) Financial Accounting Information for Decisions John Wild 5th Ed. Test Bank Chapter 1

TEST BANK with Complete Questions and Solutions. To clarify, this is the TEST BANK, not the textbook. You get immediate access to download your test bank. You will receive a complete test bank; in other words, all chapters will be there. Test banks come in PDF format; therefore, you do not need specialized software to open them. Exam (elaborations) Financial Accounting Information for Decisions John Wild 5th Ed. Test Bank Chapter 1 Chapter 01 Introducing Accounting in Business True / False Questions 1. Accounting is an information and measurement system that identifies records and communicates financial information to users. True False 2. Bookkeeping is the sole purpose of accounting. True False 3. Bookkeeping is the recording of transactions and events and is only part of accounting. True False 4. Accounting is one way important information about businesses is reported to decision makers. True False 5. Managerial accounting is an area of accounting that provides internal reports to assist the decision making needs of internal users. True False 6. The internal operating functions of businesses include research and development, distribution and human resources. True False 7. The primary objective of financial accounting is to provide general-purpose financial statements to help external users analyze and interpret an organization's activities. True False Chapter 01 - Introducing Accounting in Business 1-2 8. An external audit report is a professional opinion about whether the financial statements are prepared according to generally accepted accounting principles. True False 9. External users of accounting information include lenders, shareholders, customers and regulators. True False 10. Internal users of accounting information include lenders, shareholders, brokers and managers. True False 11. Job-related opportunities in accounting include auditing, management consulting and tax planning. True False 12. Accounting information is communicated to various parties through financial statements. True False 13. Identifying the proper ethical path is always easy. True False 14. Ethics are not important to the primary functions of accounting. True False 15. Good ethics are good business. True False Chapter 01 - Introducing Accounting in Business 1-3 16. Auditors are banned from direct investment in their clients. True False 17. A partnership is a business owned by two or more people. True False 18. Ownership of a corporation is divided into units called shares or stock. True False 19. In the partnership form of business, owners are called stockholders. True False 20. A sole proprietorship is one or more owners selling products or services for profit. True False 21. The Financial Accounting Standards Board is the private group that sets both broad and specific accounting principles. True False 22. The business entity assumption means that a business will continue operating for an indefinite period of time. True False 23. Generally accepted accounting principles are the basic assumptions, concepts and guidelines for preparing financial statements. True False Chapter 01 - Introducing Accounting in Business 1-4 24. The business entity assumption requires that a business be accounted for separately from other business entities, including its owner or owners. True False 25. As a rule, revenues must not be recognized in the accounting records until received in cash. True False 26. Specific accounting principles are basic assumptions, concepts and guidelines for preparing financial statements that arise out of long-used accounting practices. True False 27. Generally accepted accounting principles arise from long-used accounting practices. True False 28. A sole proprietorship is a business owned by one or more persons. True False 29. Unlimited liability is an advantage of all sole proprietorships. True False 30. Understanding generally accepted accounting principles is not necessary to use and interpret financial statements. True False 31. The International Accounting Standards Board (IASB) has the authority to impose its standards on companies around the world. True False Chapter 01 - Introducing Accounting in Business 1-5 32. The objectivity principle prescribes that financial accounting information is supported by independent unbiased evidence. True False 33. The assumption that a business will continue to operate only until it can sell its assets to pay its creditors is known as the going-concern principle. True False 34. According to the cost principle, it is preferable for managers to report the most current estimate of an asset's value. True False 35. The monetary unit principle prescribes that all international transactions must be expressed in dollars and euros. True False 36. The International Accounting Standards Board (IASB) is the government group that establishes reporting requirements for companies that issue stock to the public. True False 37. The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices. True False 38. The Securities and Exchange Commission (SEC) is an agency of the federal government that establishes reporting requirements for companies that issue stock to the public. True False Chapter 01 - Introducing Accounting in Business 1-6 39. The Securities and Exchange Commission (SEC) is the private group that sets both broad and specific accounting standards. True False 40. The three forms of business ownership are sole proprietorship, partnership and non-profit. True False 41. The three major activities of a business are operating, investing and financing. True False 42. Planning refers to defining an organization's ideas, goals and actions. True False 43. Strategic management is the process of determining the right mix of operating activities for the type of organization, its plans and its markets. True False 44. Planning activities are the means an organization uses to pay for resources like land, buildings and equipment to carry out its plans. True False 45. The three major activities of a business are recording, financing and investing. True False 46. Investing activities are the acquiring and selling of resources that an organization uses in its operations. True False Chapter 01 - Introducing Accounting in Business 1-7 47. Owner financing refers to resources contributed by creditors or lenders. True False 48. Revenues are increases in retained earnings from a company's earnings activities. True False 49. A net loss arises when revenues exceed expenses. True False 50. Net income occurs when revenues exceed expenses. True False 51. Expenses decrease retained earnings and are the costs of assets or services used to earn revenues. True False 52. Liabilities are the owner's claim on assets. True False 53. Assets are the resources owned or controlled by a business. True False 54. Dividends are expenses of a business. True False 55. The accounting equation can be restated as: Assets - Equity = Liabilities. True False Chapter 01 - Introducing Accounting in Business 1-8 56. Net income is the excess of expenses over revenues, whereas net loss is the excess of revenues over expenses. True False 57. EDGAR is a database of documents that public companies file electronically with the SEC. True False 58. The accounting equation implies that: Assets + Liabilities = Equity. True False 59. Revenues occur when expenses exceed assets. True False 60. A company might provide a service or product on credit. "On credit" implies that the cash payment will occur on a later date. True False 61. Contributed capital is the gross increase in equity from a company's earnings activities. True False 62. The legitimate claims of a business's creditors take precedence over the claims of its stockholders. True False 63. Every business transaction leaves the accounting equation in balance. True False Chapter 01 - Introducing Accounting in Business 1-9 64. An external transaction is an exchange of value within an organization. True False 65. From an accounting perspective, an event is a happening that affects an entity's accounting equation, but cannot be measured. True False 66. Retained earnings are increased when cash is received from customers in payment of previously recorded accounts receivable. True False 67. An owner's investment in a business always creates an asset (cash), a liability (note payable) and equity (common stock). True False 68. Net assets always increase when revenue is recorded. True False 69. Return on assets is often stated in ratio form and is computed as the amount of average total assets divided by income. True False 70. Return on assets is also known as return on investment. True False 71. Return on assets is useful to decision makers for evaluating management, analyzing and forecasting profits and in planning activities. True False Chapter 01 - Introducing Accounting in Business 1-10 72. Reebok's net income of $119 million and average assets of $1,400 million results in a return on assets of 8.5%. True False 73. Return on assets measures the ability of an organization to earn a profit based on the amount of its assets. True False 74. Risk is the amount of uncertainty about the return we expect to earn. True False 75. Generally, the lower the risk, the lower the return that can be expected. True False 76. U.S. Government Treasury bonds all provide high return and low risk to investors. True False 77. The balance sheet shows whether or not the firm achieved its primary objective of earning a profit. True False 78. The four basic financial statements include the balance sheet, income statement, statement of retained earnings and statement of cash flows. True False 79. An income statement reports only on investing and financing activities. True False Chapter 01 - Introducing Accounting in Business 1-11 80. A balance sheet covers a period of time such as a month or year. True False 81. The income statement is a financial statement that shows revenues earned and expenses incurred during a specified period of time. True False 82. The statement of cash flows shows the net effect of revenues and expenses for a reporting period. True False 83. The income statement shows the financial position of a business on a specific date. True False 84. The first section of the income statement reports cash from operations. True False 85. The balance sheet is based on the accounting equation. True False 86. Owner's investments and dividends are reported on the income statement. True False 87. Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business. True False Chapter 01 - Introducing Accounting in Business 1-12 88. Operating activities include long-term borrowing and repaying cash from lenders and cash