Question 1

Why should the income statement be prepared first?

Accepted Answer

A) The statement of cash flows should be prepared first because it determines the sources of cash.That information is then used in preparing the income statement. 
B) Net income from the income statement flows into the retained earnings statement.The ending retained earnings balance then flows into the balance sheet. 
C) The income statement does not have to be prepared first.Financial statements can be prepared in any order. 
D) None of these answer choices are correct. 
A) The statement of cash flows should be prepared first because it determines the sources of cash.That information is then used in preparing the income statement. 
B) Net income from the income statement flows into the retained earnings statement.The ending retained earnings balance then flows into the balance sheet. 
C) The income statement does not have to be prepared first.Financial statements can be prepared in any order. 
D) None of these answer choices are correct.

Question 2

To show how successfully your business performed during a period of time, you would report its revenues and expenses in the

Accepted Answer

A) balance sheet. 
B) income statement. 
C) statement of cash flows. 
D) retained earnings statement. 
A) balance sheet. 
B) income statement. 
C) statement of cash flows. 
D) retained earnings statement.

Question 3

If total liabilities increased by $69,000 during a period of time and stockholders' equity decreased by $27,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total assets is a(n)

Accepted Answer

A) $69,000 increase. 
B) $96,000 increase. 
C) $42,000 decrease. 
D) $42,000 increase. 
A) $69,000 increase. 
B) $96,000 increase. 
C) $42,000 decrease. 
D) $42,000 increase.

Question 4

Liabilities of a company are owed to

Accepted Answer

A) debtors. 
B) owners. 
C) creditors. 
D) stockholders. 
A) debtors. 
B) owners. 
C) creditors. 
D) stockholders.

Question 5

The economic resources that are owned by a business are called stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 6

The proprietorship form of business organization

Accepted Answer

A) must have at least two owners in most states. 
B) generally receives favorable tax treatment relative to a corporation. 
C) combines the records of the business with the personal records of the owner. 
D) is classified as a separate legal entity. 
A) must have at least two owners in most states. 
B) generally receives favorable tax treatment relative to a corporation. 
C) combines the records of the business with the personal records of the owner. 
D) is classified as a separate legal entity.

Question 7

Which of the following groups uses accounting information to determine whether a marketing proposal will be cost effective?

Accepted Answer

A) Investors in common stock 
B) Marketing managers 
C) Creditors 
D) Chief Financial Officer 
A) Investors in common stock 
B) Marketing managers 
C) Creditors 
D) Chief Financial Officer

Question 8

A business organized as a separate legal entity is a

Accepted Answer

A) corporation. 
B) proprietor. 
C) government unit. 
D) partnership. 
A) corporation. 
B) proprietor. 
C) government unit. 
D) partnership.

Question 9

Which of the following is not a satisfactory statement of the accounting equation?

Accepted Answer

A) Assets = Stockholders' Equity - Liabilities 
B) Assets = Liabilities + Stockholders' Equity 
C) Assets - Liabilities = Stockholders' Equity 
D) Assets - Stockholders' Equity = Liabilities 
A) Assets = Stockholders' Equity - Liabilities 
B) Assets = Liabilities + Stockholders' Equity 
C) Assets - Liabilities = Stockholders' Equity 
D) Assets - Stockholders' Equity = Liabilities

Question 10

The balance sheet

Accepted Answer

A) summarizes the changes in retained earnings for a specific period of time. 
B) reports the changes in assets, liabilities, and stockholders' equity over a period of time. 
C) reports the assets, liabilities, and stockholders' equity at a specific date. 
D) presents the revenues and expenses for a specific period of time. 
A) summarizes the changes in retained earnings for a specific period of time. 
B) reports the changes in assets, liabilities, and stockholders' equity over a period of time. 
C) reports the assets, liabilities, and stockholders' equity at a specific date. 
D) presents the revenues and expenses for a specific period of time.

Question 11

Retained earnings at the end of the period is equal to

Accepted Answer

A) retained earnings at the beginning of the period plus net income minus liabilities. 
B) retained earnings at the beginning of the period plus net income minus dividends. 
C) net income. 
D) assets plus liabilities. 
A) retained earnings at the beginning of the period plus net income minus liabilities. 
B) retained earnings at the beginning of the period plus net income minus dividends. 
C) net income. 
D) assets plus liabilities.

Question 12

Creditors' rights to assets supersede owners' rights to the assets.

Accepted Answer

A) True 
 B)False

Question 13

The financial statement that summarizes the changes in retained earnings for a specific period of time is the

Accepted Answer

A) balance sheet. 
B) income statement. 
C) statement of cash flows. 
D) retained earnings statement. 
A) balance sheet. 
B) income statement. 
C) statement of cash flows. 
D) retained earnings statement.

Question 14

The accounting equation can be expressed as Assets - Liabilities = Stockholders' Equity.

Accepted Answer

A) True 
 B)False

Question 15

The concern about international companies adopting SOX-type standards centers on

Accepted Answer

A) cost-benefit analysis. 
B) ethics issues. 
C) the governing authorities. 
D) comparability. 
A) cost-benefit analysis. 
B) ethics issues. 
C) the governing authorities. 
D) comparability.

Question 16

An annual report includes all of the following except

Accepted Answer

A) management discussion and analysis section. 
B) notes to the financial statements. 
C) an auditor's report. 
D) salary information for all the executives. 
A) management discussion and analysis section. 
B) notes to the financial statements. 
C) an auditor's report. 
D) salary information for all the executives.

Question 17

A business organized as a corporation

Accepted Answer

A) is not a separate legal entity in most states. 
B) requires that stockholders be personally liable for the debts of the business. 
C) is owned by its stockholders. 
D) has tax advantages over a proprietorship or partnership. 
A) is not a separate legal entity in most states. 
B) requires that stockholders be personally liable for the debts of the business. 
C) is owned by its stockholders. 
D) has tax advantages over a proprietorship or partnership.

Question 18

The balance sheet reports assets and claims to those assets at a specific point in time.

Accepted Answer

A) True 
 B)False

Question 19

Issuing shares of stock in exchange for cash is an example of a(n)

Accepted Answer

A) delivering activity. 
B) investing activity. 
C) financing activity. 
D) operating activity. 
A) delivering activity. 
B) investing activity. 
C) financing activity. 
D) operating activity.

Question 20

Notes to the financial statements

Accepted Answer

A) are optional. 
B) help clarify information presented in the financial statements. 
C) are generally brief and few in number. 
D) need not be read in detail if an unqualified opinion accompanies the financial statements. 
A) are optional. 
B) help clarify information presented in the financial statements. 
C) are generally brief and few in number. 
D) need not be read in detail if an unqualified opinion accompanies the financial statements.

Exam 1: Introduction to Financial Statements

Why should the income statement be prepared first?

To show how successfully your business performed during a period of time, you would report its revenues and expenses in the

If total liabilities increased by $69,000 during a period of time and stockholders' equity decreased by $27,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total assets is a(n)

Liabilities of a company are owed to

The economic resources that are owned by a business are called stockholders' equity.

The proprietorship form of business organization

Which of the following groups uses accounting information to determine whether a marketing proposal will be cost effective?

A business organized as a separate legal entity is a

Which of the following is not a satisfactory statement of the accounting equation?

The balance sheet

Retained earnings at the end of the period is equal to

Creditors' rights to assets supersede owners' rights to the assets.

The financial statement that summarizes the changes in retained earnings for a specific period of time is the

The accounting equation can be expressed as Assets - Liabilities = Stockholders' Equity.

The concern about international companies adopting SOX-type standards centers on

An annual report includes all of the following except

A business organized as a corporation

The balance sheet reports assets and claims to those assets at a specific point in time.

Issuing shares of stock in exchange for cash is an example of a(n)

Notes to the financial statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

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