LEARNING OBJECTIVES: FACC.PONO.13.02-01 - LO: 03-01

Chapter 2: Financial Statements and the Annual Report

© 2017 Cengage Learning ® . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.True / False

• Financial statements are intended to tell the reader the value of a company.
• True

b.False

ANSWER:False

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-01 - LO: 03-01

KEYWORDS: Bloom's: Remembering

• Accountants are the main reason financial statements are prepared.
• True

b.False

ANSWER:False

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-01 - LO: 03-01

KEYWORDS: Bloom's: Remembering

• The SEC created the objectives of financial reporting.
• True

b.False

ANSWER:False

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-01 - LO: 03-01

KEYWORDS: Bloom's: Remembering

• The purpose of financial reporting is to provide economic information to external decision makers only.
• True

b.False

ANSWER:False

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-01 - LO: 03-01

KEYWORDS: Bloom's: Remembering

• An objective of financial reporting is to reflect economic information concerning a company's cash flows.
• True

b.False

ANSWER:True

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-01 - LO: 03-01

KEYWORDS: Bloom's: Remembering Financial Accounting The Impact on Decision Makers 10th Edition Porter Test Bank Visit TestBankDeal.com to get complete for all chapters

Chapter 2: Financial Statements and the Annual Report

© 2017 Cengage Learning ® . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

• The concept of conservatism is the capacity of information to make a difference in a decision.
• True

b.False

ANSWER:False

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-02 - LO: 02-02

KEYWORDS: Bloom's: Remembering

• Materiality deals with the insignificance of an error in accounting information.
• True

b.False

ANSWER:False

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-02 - LO: 02-02

KEYWORDS: Bloom's: Remembering

• Most businesses have an operating cycle of greater than one year.
• True

b.False

ANSWER:False

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-03 - LO: 02-03

KEYWORDS: Bloom's: Remembering

• Current assets, other than cash, are expected to be sold or consumed beyond a company's normal operating cycle.
• True

b.False

ANSWER:False

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-03 - LO: 02-03

KEYWORDS: Bloom's: Remembering

• Obligations related to operating activities that will be paid within the company's operating cycle must be reported as

current liabilities on a classified balance sheet.

• True

b.False

ANSWER:True

DIFFICULTY: Moderate

LEARNING OBJECTIVES: FACC.PONO.13.02-03 - LO: 02-03

KEYWORDS: Bloom's: Remembering

Chapter 2: Financial Statements and the Annual Report

© 2017 Cengage Learning ® . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

• The operating cycle for all businesses is one year.
• True

b.False

ANSWER:False

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-03 - LO: 02-03

KEYWORDS: Bloom's: Remembering

• A construction company that builds skyscrapers is likely to have an operating cycle longer than one year.
• True

b.False

ANSWER:True

DIFFICULTY: Moderate

LEARNING OBJECTIVES: FACC.PONO.13.02-03 - LO: 02-03

KEYWORDS: Bloom's: Applying

• Three common categories of long-term assets are: 1) property, plant, and equipment, 2) investments, and 3)

intangibles.

• True

b.False

ANSWER:True

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-03 - LO: 02-03

KEYWORDS: Bloom's: Remembering

• In the stockholders' equity section of a classified balance sheet, a distinction is made between amounts invested by

owners and amounts accumulated from business earnings.

• True

b.False

ANSWER:True

DIFFICULTY: Moderate

LEARNING OBJECTIVES: FACC.PONO.13.02-03 - LO: 02-03

KEYWORDS: Bloom's: Remembering

• One primary purpose of a classified balance sheet is to help users evaluate the liquidity of a company.
• True

b.False

ANSWER:True

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-04 - LO: 02-04

KEYWORDS: Bloom's: Remembering

Chapter 2: Financial Statements and the Annual Report

© 2017 Cengage Learning ® . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

• Companies prepare classified financial statements because they are required by international accounting principles.
• True

b.False

ANSWER:False

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-04 - LO: 02-04

KEYWORDS: Bloom's: Remembering

• The current ratio is irrelevant in liquidity analysis for service companies because they do not have inventories among

their current assets

• True

b.False

ANSWER:False

DIFFICULTY: Moderate

LEARNING OBJECTIVES: FACC.PONO.13.02-04 - LO: 02-04

KEYWORDS: Bloom's: Remembering

• An advantage of the current ratio is that it considers the makeup of the current assets.
• True

b.False

ANSWER:False

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-04 - LO: 02-04

KEYWORDS: Bloom's: Remembering

• The excess of current assets over current liabilities is referred to as working capital.
• True

b.False

ANSWER:True

DIFFICULTY: Easy

LEARNING OBJECTIVES: FACC.PONO.13.02-04 - LO: 02-04

KEYWORDS: Bloom's: Remembering

• A balance sheet shows cash, $75,000; marketable securities, $115,000; accounts receivable, $150,000 and $222,500 of

inventories. Current liabilities are $225,000. The current ratio is 2.5 to 1.

• True

b.False

ANSWER:True

DIFFICULTY: Moderate

LEARNING OBJECTIVES: FACC.PONO.13.02-04 - LO: 02-04

KEYWORDS: Bloom's: Analyzing