TEST BANK FOR
Financial Accounting 6th Edition by David Spiceland, Wayne Thomas, Don
Herrmann
Chapter 1 A Framework for Financial Accounting
1) Accounting is a system of maintaining records of a company's operations and communicating
that information to decision makers.
Answer: TRUE
Difficulty: 1 Easy
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking g y
k
Answer: TRUE
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a n
2) Accounting information is used by investors to decide whether to invest in a company's stock.
Difficulty: 1 Easy
Topic: Defining Accounting
Bloom's: Remember F a
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
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AACSB: Reflective ThinkingM
AICPA: BB Critical Thinking
3) Accounting information is used by creditors to decide whether to invest in a company's stock.
Answer: FALSE
Explanation: Creditors lend money to a company.
Difficulty: 1 Easy
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
4) The primary functions of financial accounting are to measure business activities of a company
and to communicate those measurements to internal parties for decision-making purposes.
Answer: FALSE
Explanation: Financial accounting primarily serves to provide information to external parties.
Difficulty: 2 Medium
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
,Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
5) Financing activities are transactions involving external sources of funding.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Measurement
6) Investing activities include the purchase and sale of long-term resources.
Answer: TRUE
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k
Difficulty: 1 Easy
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Topic: Measuring Business Activities
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Learning Objective: 01-02 Understand the business activities that financial accounting measures.
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Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Measurement
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r a
7) Operating activities include transactions that relate to the primary operations of the company.
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Answer: TRUE
Difficulty: 1 Easy
M
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Measurement
8) A corporation is an entity that is legally separate from its owners.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
,9) Cash, inventory for sale to customers, supplies, and buildings are examples of liabilities.
Answer: FALSE
Explanation: These are examples of assets.
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
10) Amounts owed to suppliers, employees, the government in the form of taxes, and utility
companies are examples of liabilities.
Answer: TRUE
Difficulty: 2 Medium
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k
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Understand
AACSB: Reflective Thinking
g g
n
AICPA: FN Measurement
a
11) If total assets of a company equal $12,000 and total stockholders' equity equals $4,000, then
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total liabilities equal $8,000.
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Answer: TRUE
Difficulty: 3 Hard
M
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA: FN Measurement
, 12) If total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000,
then total assets equal $7,000.
Answer: FALSE
Explanation: Total assets = Total liabilities ($16,000) + Total stockholders' equity ($9,000) =
$25,000.
Difficulty: 3 Hard
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA: FN Measurement
13) The accounting equation shows that a company's resources equal creditors' and owners' claims
to those resources.
Answer: TRUE
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k
Difficulty: 2 Medium
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Topic: Measuring Business Activities
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Learning Objective: 01-02 Understand the business activities that financial accounting measures.
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Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
a
r a
14) The costs related to rent, utilities, and salaries in the current reporting period are examples of
F
liabilities.
Answer: FALSE
M
Explanation: These are examples of expenses.
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
Financial Accounting 6th Edition by David Spiceland, Wayne Thomas, Don
Herrmann
Chapter 1 A Framework for Financial Accounting
1) Accounting is a system of maintaining records of a company's operations and communicating
that information to decision makers.
Answer: TRUE
Difficulty: 1 Easy
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking g y
k
Answer: TRUE
g
a n
2) Accounting information is used by investors to decide whether to invest in a company's stock.
Difficulty: 1 Easy
Topic: Defining Accounting
Bloom's: Remember F a
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
r
AACSB: Reflective ThinkingM
AICPA: BB Critical Thinking
3) Accounting information is used by creditors to decide whether to invest in a company's stock.
Answer: FALSE
Explanation: Creditors lend money to a company.
Difficulty: 1 Easy
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
4) The primary functions of financial accounting are to measure business activities of a company
and to communicate those measurements to internal parties for decision-making purposes.
Answer: FALSE
Explanation: Financial accounting primarily serves to provide information to external parties.
Difficulty: 2 Medium
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.
,Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
5) Financing activities are transactions involving external sources of funding.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Measurement
6) Investing activities include the purchase and sale of long-term resources.
Answer: TRUE
y
k
Difficulty: 1 Easy
g
Topic: Measuring Business Activities
n
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
g
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Measurement
a
r a
7) Operating activities include transactions that relate to the primary operations of the company.
F
Answer: TRUE
Difficulty: 1 Easy
M
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: FN Measurement
8) A corporation is an entity that is legally separate from its owners.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
,9) Cash, inventory for sale to customers, supplies, and buildings are examples of liabilities.
Answer: FALSE
Explanation: These are examples of assets.
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
10) Amounts owed to suppliers, employees, the government in the form of taxes, and utility
companies are examples of liabilities.
Answer: TRUE
Difficulty: 2 Medium
y
k
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Understand
AACSB: Reflective Thinking
g g
n
AICPA: FN Measurement
a
11) If total assets of a company equal $12,000 and total stockholders' equity equals $4,000, then
a
total liabilities equal $8,000.
F r
Answer: TRUE
Difficulty: 3 Hard
M
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA: FN Measurement
, 12) If total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000,
then total assets equal $7,000.
Answer: FALSE
Explanation: Total assets = Total liabilities ($16,000) + Total stockholders' equity ($9,000) =
$25,000.
Difficulty: 3 Hard
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA: FN Measurement
13) The accounting equation shows that a company's resources equal creditors' and owners' claims
to those resources.
Answer: TRUE
y
k
Difficulty: 2 Medium
g
Topic: Measuring Business Activities
n
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
g
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
a
r a
14) The costs related to rent, utilities, and salaries in the current reporting period are examples of
F
liabilities.
Answer: FALSE
M
Explanation: These are examples of expenses.
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting measures.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
