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1、Chapter 01Financial Statements and Business Decisions True / False Questions1.Accounting is a system that collects and processes financial information about an organization and reports that information to decision makers.TrueFalse2.Assets on the balance sheet are recorded at market value or replacem

2、ent cost.TrueFalse3.In accounting and reporting for a business entity, the accounting and reporting for the business must be kept separate from other economic affairs of its owners.TrueFalse4.The accounting period in which service revenue is recognized (i.e., revenue for services rendered) is genera

3、lly the period in which the cash is collected.TrueFalse5.Total assets are $70,000, total liabilities, $40,000 and contributed capital is $20,000; therefore, retained earnings are $15,000.TrueFalse6.The payment of a cash dividend to stockholders increases stockholders equity.TrueFalse7.The accounting

4、 model for the balance sheet is: Assets + Liabilities = Stockholders Equity.TrueFalse8.A decision maker who wants to understand a companys financial statements must carefully read the notes to the financial statements because the notes provide useful supplemental information.TrueFalse9.The financial

5、 statement that shows an entitys economic resources and its liabilities is the statement of cash flows.TrueFalse10.Companies prepare financial statements at the end of each year and more often as needed.TrueFalse11.A note payable is a borrowing instrument that generally does not involve the payment

6、of interest.TrueFalse12.The amount of cash paid by a business for office utilities would be reported on the statement of cash flows as an operating activity.TrueFalse13.The income statement equation is Expenses - Revenues = Net Income.TrueFalse14.Generally accepted accounting principles almost never

7、 change once created.TrueFalse15.The Financial Accounting Standards Board (FASB) is an agency of the federal government that establishes generally accepted accounting principles for businesses.TrueFalse16.Since 2002, there has been substantial movement to develop international financial reporting st

8、andards.TrueFalse17.An audit guarantees that the financial statements are free of all misstatements.TrueFalse18.An auditor who fails to detect a material misstatement of a businesss financial statements may be sued by anyone who suffered a loss from relying on the financial statements.TrueFalse19.In

9、 terms of economic importance, partnerships are the dominant form of organization in the U.S. because of their ease of formation.TrueFalse20.One of the advantages of a corporation when compared to a partnership is the limited liability of the owners.TrueFalseMultiple Choice Questions21.The primary p

10、urpose of the balance sheet is toA.measure the net income of a business up to a particular point in time.B.report the difference between cash inflows and cash outflows for the period.C.report the financial position of the reporting entity at a particular point in time.D.report the current value of t

11、he business.22.The Beta Corporation had 2009 revenues of $200,000, expenses of $140,000, and an income tax rate of 30 percent. Net income after taxes would beA.$60,000.B.$18,000.C.$42,000.D.$48,000.23.Atlantic Corporation reported the following amounts at the end of the first year of operations: con

12、tributed capital $100,000; sales revenue $400,000; total assets $300,000; $20,000 dividends; and total liabilities $160,000. Retained earnings and total expenses would beA.retained earnings $40,000 and expenses $340,000.B.retained earnings $60,000 and expenses $320,000.C.retained earnings $140,000 a

13、nd expenses $240,000.D.retained earnings $160,000 and expenses $220,000.24.The financial statement that reports the financial position of a business is theA.income statement.B.balance sheet.C.statement of cash flows.D.footnotes to the financial statements.25.Which of the following reports the cash i

14、nflows, cash outflows, and change in cash for period?A.Income statement.B.Balance sheet.C.Statement of cash flows.D.Auditors report.26.For a business, a supplierA.is a company or individual that owns shares of the business.B.is a company or individual to whom the business sells goods or services.C.p

15、rovides goods and services used by the business.D.makes loans to the company to help finance its activities.27.For a business, an example of an internal decision maker isA.a loan officer at a bank.B.a supplier who sells goods to the company on account.C.one of the businesss long-term customers.D.one

16、 of the businesss managers.28.Financial accountingA.provides information primarily for external decision makers.B.is required for corporations but probably would not be done by other business entities.C.provides information primarily for the use of managers of the company.D.has been practiced in thi

17、s country for approximately the last 15 years.29.Accounting information developed primarily for internal decision makers is calledA.management accounting.B.risk accounting.C.auditing.D.financial accounting.30.What financial statement would you look at to determine the dividends declared by a busines

18、s?A.income statement.B.statement of retained earnings.C.statement of cash flows.D.balance sheet.31.Which of Chaos financial statements would you look at to determine whether Chao will be able to pay for the goods when payment is due in 30 days?A.income statement.B.balance sheet.C.statement of retain

19、ed earnings.D.statement of cash flows.32.Which of the following is not considered to be a liability?A.accounts payableB.notes payableC.wages payableD.cost of goods sold33.A businesss assets areA.equal to liabilities minus stockholders equity.B.the economic resources of the business.C.Reported at cur

20、rent cost.D.Reported on the income statement.34.Assets for a particular business might includeA.cash, accounts payable, and notes payable.B.cash, retained earnings, and accounts receivable.C.cash, accounts receivable, and inventory.D.inventories, property and equipment, and contributed capital.35.A

21、businesss balance sheet cannot be used to accurately predict what the business might be sold for becauseA.it identifies all the revenues and expenses of the business.B.assets are generally listed on the balance sheet at their historical cost, not their current value.C.it gives the results of operati

22、ons for the current period.D.some of the assets and liabilities on the balance sheet may actually be those of another entity.36.Liabilities and stockholders equity areA.sources of financing for economic resources.B.economic resources used by a business entity.C.increases in assets resulting from pro

23、fitable operations.D.shown on the income statement in calculating net income.37.The accounting equation (balance sheet equation) isA.Assets + Liabilities = Stockholders equity.B.Assets + Stockholders equity = Liabilities.C.Assets = Liabilities + Stockholders equity.D.Revenues - Expenses = Net income

24、.38.Downard Bank, in deciding whether to make a loan to Rodney Company, would be interested in the amount of liabilities Rodney has on its balance sheet becauseA.the liabilities represent resources that could be used to repay the loan.B.if Rodney already has many other obligations, it might not be a

25、ble to repay the loan.C.existing liabilities give an indication of how profitable Rodney has been in the past.D.Downard would be interested in the amount of Rodneys assets but not the amount of liabilities.39.The two categories of stockholders equity usually found on the balance sheet of a corporati

26、on areA.contributed capital and long-term liabilities.B.contributed capital and property, plant, and equipment.C.retained earnings and notes payable.D.contributed capital and retained earnings.40.Which financial statement for a business would you look at to determine the companys earnings performanc

27、e during an accounting period?A.balance sheet.B.statement of retained earnings.C.income statement.D.statement of cash flows.41.The income statement equation isA.Assets - Liabilities = Stockholders Equity.B.Assets + Stockholders equity = Liabilities.C.Net income = Revenues - Expenses.D.Expenses - Net

28、 income = Revenues.42.Most businesses earn revenuesA.when they collect accounts receivable.B.through sales of goods or services to customers.C.by borrowing money from a bank.D.by selling shares of stock to stockholders.43.Accounts receivable represents:A.amounts which are owed to the company by its

29、customers resulting from credit sales.B.amounts which are owed by the company to its suppliers for past purchases.C.amounts which have been borrowed to finance operations.D.amounts which are due to stockholders.44.InventoriesA.are an asset.B.result from paying for a product that has now been sold to

30、 a customer.C.will result in a liability being charged sometime in the future.D.are an expense.45.The amount of revenue recognized in the income statement by a company that sells goods to customers would beA.the cash collected from customers during the current period.B.total sales, both cash and cre

31、dit sales, for the period.C.total sales minus beginning amount of accounts receivable.D.the amount of cash collected plus the beginning amount of accounts receivable.46.On January 1, 2009 Mammoth Corporation had retained earnings of $4,000,000. During 2009, they reported net income of $750,000 and d

32、ividends of $100,000. What is the amount of Mammoths retained earnings at the end of 2009?A.$4,000,000B.$4,450,000C.$4,650,000D.$4,850,00047.What are the categories of cash flows that appear on a statement of cash flows?A.cash flows from investing, financing, and service activitiesB.cash flows from

33、operating, production, and internal activitiesC.cash flows from financing, production, and growth activitiesD.cash flows from operating, investing, and financing activities48.On the statement of cash flows, an amount paid for utilities would be classified asA.an operating activity.B.an investing act

34、ivity.C.a financing activity.D.a production activity.49.A company would report a net loss whenA.retained earnings decreased due to paying dividends to stockholders.B.its assets decreased during an accounting period.C.its liabilities increased during an accounting period.D.its expenses exceeded its r

35、evenues for an accounting period.50.The amount of insurance expense reported on the income statement isA.the amount of cash paid for insurance in the current period.B.the amount of cash paid for insurance in the current period less any unpaid insurance at the end of the period.C.the amount of insura

36、nce used up (incurred) in the current period to help generate revenue.D.an increase in net income.51.What events cause changes in a corporations retained earnings?A.Net income or net loss and declaration of dividends.B.Declaration of dividends and issuance of stock to new stockholders.C.Net income,

37、issuance of stock, and borrowing from a bank.D.Declaration of dividends and purchase of new machinery.52.The operating activities section is often believed to be the most important part of a statement of cash flows becauseA.it gives the most information about how operations have been financed.B.it s

38、hows the dividends that have been paid to stockholders.C.it indicates a companys ability to generate cash from sales to meet current cash payments for goods or services.D.it shows the net increase or decrease in cash during the period.53.If you wanted to know what accounting rules a company follows

39、related to its inventory, where would you look?A.the balance sheetB.the income statementC.the notes to the financial statementsD.the headings to the financial statements54.At the beginning of 2009, Buck Corporation had assets of $540,000 and liabilities of $320,000. During the year, assets increased

40、 by $50,000 and liabilities decreased by $10,000. What was the total amount of stockholders equity at the end of 2009?A.$220,000B.$280,000C.$380,000D.$500,00055.The term used for economic resources owned by an entity as a result of past transactions isA.assets.B.liabilities.C.revenues.D.retained ear

41、nings.56.How are the differing claims of creditors and investors recognized by a corporation?A.The claims of creditors are liabilities; those of investors are assets.B.The claims of both creditors and investors are liabilities, but only the claims of investors are considered to be long term.C.The cl

42、aims of creditors are liabilities; the claims of investors are recorded as stockholders equity.D.The claims of creditors and investors are considered to be essentially equivalent.57.In what order would the items on the balance sheet appear?A.assets, retained earnings, liabilities, contributed capita

43、lB.contributed capital, retained earnings, liabilities, assetsC.assets, liabilities, contributed capital, retained earningsD.contributed capital, assets, liabilities, retained earnings58.Which of the following would increase retained earnings?A.an increase to an expenseB.an increase to a revenueC.a

44、cash dividendD.issuance of additional common stock59.The ending retained earnings balance of Juans Mexican Restaurant chain increased by $3.2 million from the beginning of the year. The company had declared a dividend of $1.3 million during the year. What was the net income earned during the year?A.

45、$1.9 millionB.$3.2 millionC.$4.5 billionD.There is not enough information given to determine net income.60.Which of the following items is an expense?A.Accounts PayableB.Cost of Goods SoldC.Accounts ReceivableD.Sales Revenue61.Which of the following activities would cause investors to overpay for th

46、e acquisition of a company from its current owners?A.Overstated accounts payable and understated inventoryB.Understated revenues and overstated expensesC.Understated assets and overstated expensesD.Overstated accounts payable and overstated inventory62.The government regulatory agency that has the l

47、egal authority to prescribe financial reporting requirements for corporations that sell their securities to the public is theA.FASB.B.FTC.C.SEC.D.APB.63.The part of the federal government that has broad powers to determine measurement rules for financial statements of public companies isA.the Intern

48、al Revenue Service.B.the Securities and Exchange Commission.C.the General Accounting Office.D.the Supreme Court.64.Identify the potential economic consequences of the public learning a company did not follow generally accepted accounting principles (GAAP).A.It could increase the stock price of the c

49、ompany.B.It could increase management and employee bonuses.C.It could result in legal liability for the company.D.It could increase a companys market share.65.The nature of generally accepted accounting principles (GAAP) is important to large corporations becauseA.a change in GAAP will not likely af

50、fect the selling price of the companys stock.B.a change in GAAP will not likely affect the amount of bonuses paid to managers and employees.C.a change in GAAP will not likely affect a corporations competitive position.D.a change in GAAP will likely affect a companys financial statements66.The Intern

51、ational Accounting Standards Board has worked to develop global accounting standards known asA.generally accepted accounting principles.B.globally accepted financial standards.C.international financial reporting standards.D.worldwide financial standards.67.Which of the following statements is true a

52、bout the price earnings (P/E) ratio?A.It is a ratio of importance to creditors.B.A high P/E ratio indicates investors have little confidence in the future earnings potential of the company.C.The P/E ratio could be used to approximate the value investors would be willing to pay for the companys acqui

53、sition from existing owners.D.The P/E ratio is of value is estimating future dividend payments.68.Charlie Company bought Tolar Company for $2,000,000. If Tolars income was understated by $10,000 and the P/E ratio is 5, how much should Charlie have paid for Tolar?A.$2,000,000B.$2,050,000C.$1,950,000D

54、.$1,990,00069.What is another name for the P/E ratio?A.Price/earnings marginB.Price/earnings multipleC.Payment/equity marginD.Payment/equity multiple70.An examination of the financial statements of a business to ensure that they conform with generally accepted accounting principles is calledA.a cert

55、ification.B.an audit.C.a verification.D.a validation.71.The purpose of an audit is toA.prove the accuracy of an entitys financial statements.B.lend credibility to an entitys financial statements.C.endorse the quality of leadership that managers provide for a corporation.D.establish that a corporatio

56、ns stock is a sound investment.72.Why do the managers of a corporation hire independent auditors?A.To guarantee annual and quarterly financial statements.B.To handle some personnel issues and problems.C.To audit and report on the fairness of financial statement presentation.D.To lobby the FASB for c

57、hanges in generally accepted accounting principles.73.The CPAs role in performing audits is important to our society becauseA.auditors provide direct financial advice to potential investors.B.auditors have the primary responsibility for the information contained in financial statements.C.auditors is

58、sue reports on the accuracy of each financial transaction.D.an audit of financial statements helps investors and others to know that they can rely on the information presented in the financial statements.74.Which of the following is NOT one of the three steps taken by a corporation to ensure the acc

59、uracy of its records?A.implementing a system of controlsB.hiring an independent auditorC.hiring a financial analystD.forming a committee made up of board of directors members to oversee the records75.Which of the following groups has primary responsibility for the information contained in the financ

60、ial statements?A.the companys managementB.the companys auditorC.the companys investorsD.the SEC76.The private sector body recently given the primary responsibility to work out detailed auditing standards is called the:A.FASB.B.SEC.C.PCAOB.D.AICPA.77.Which group maintains the professional code of eth

61、ics to which CPAs must adhere?A.AICPAB.FASBC.AAAD.FTC78.One of the disadvantages of a corporation when compared to a partnership is thatA.the stockholders have limited liability.B.the corporation is treated as a separate legal entity from the stockholders.C.the corporation and its stockholders are subject to double taxation.D.the corporation must account for the businesss transactions separate and apart from those of the owners.79.Which of the following statements is true about a sole proprietorship?A.The owner and the business are separate legal entities but