MULTIPLE CHOICE QUESTIONS

1-1 Chapter 1 Financial Accounting and Its Economic Context

MULTIPLE CHOICE QUESTIONS

• The balance sheet communicates

a.proof to the investor that the company is profitable.b.assets, liabilities, and shareholders’ equity with all transactions reflected through the year.c.assets, liabilities, and shareholders’ equity as of a certain date.d.operating, investing, and financing activities.Ans: C KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• The income statement communicates

a.assets, liabilities, and shareholders’ equity as of a certain date.b.how much cash the owner received during the period.c.information about dividends the company paid to its owners.d.revenues less expenses during a period of time.Ans: D KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• Who prepares financial reports for a particular company?

a.The Securities and Exchange Commission b.The Board of Directors c.The company’s management d.The company’s auditors Ans: C KP 5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• To run a company effectively, which one of the following might be a source from which

management might acquire capital?a.Customers b.FASB c.Debt and equity investors d.Auditors Ans: C KP 4 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Financial Accounting in an Economic Context 8e Jamie Pratt (Test Bank All Chapters, 100% Original Verified, A+ Grade) 1 / 4

1-2 Test Bank – Chapter 1 – Financial Accounting and Its Economic Context

• Considering and understanding how business decisions affect the financial statements is

a.the sole responsibility of the Securities and Exchange Commission.b.provided in the auditor’s report.c.referred to as an economic consequence perspective.d.interpreted strictly by the company’s suppliers.Ans: C KP 1,2,5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• A Certified Public Accountant

a.reviews every transaction that a company conducts during any given year.b.performs a company’s audit.c.is one of the investors of a company.d.is responsible for the preparation and integrity of a company’s financial statements.Ans: B KP 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• Footnotes to financial statements

a.more fully explain certain items in the financial statements.b.reflect financial notes personalized by the company’s executive team.c.show the detail of salaries of every employee.d.justify fraudulent business practices.Ans: A KP 2,3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• An internal control system

a.is maintained to ensure that transactions of a company are properly recorded and reported and the assets are safeguarded.b.is included in the set of footnotes to the financial statements.c.is an estimate of the profits a company expects to earn in the future.d.measures how much control management has over its staff.Ans: A KP 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• Where would you find information on the amount of net income for the year?

a.Factory production reports on units produced b.Auditor’s report c.Income statement d.Internal Revenue Service Ans: C KP 3 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 2 / 4

Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 1-3

• The statement of cash flows communicates
• assets, liabilities, and owners’ equity at a point of time.
• operating, investing, and financing activities.
• beginning balance plus income less dividends.
• how much cash the company owes its employees.

Ans: B KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• The retained earnings section of the statement of shareholders’ equity communicates
• beginning balance plus income less dividends.
• revenues less expenses during a period of time.
• how much cash that management has paid for bonuses.
• operating, investing, and financing activities.

Ans: A KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• An investor wants to find the amount of cash and land that a company has. Where will

the investor look?

• Statement of shareholders’ equity
• Income statement
• Balance sheet
• Statement of cash flows

Ans: C KP 3 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• Dividends declared and paid to the owners are found in the
• management letter.
• income statement.
• dividends statement.
• statement of shareholders’ equity.

Ans: D KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• Cash received by a company from its regular operations during the year is found in its
• balance sheet.
• statement of cash flows.
• statement of shareholders’ equity.
• auditor’s report.

Ans: B KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

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1-4 Test Bank – Chapter 1 – Financial Accounting and Its Economic Context

• A company’s profits during its most recent year are found in its
• balance sheet and income statement.
• statement of cash flows only.
• statement of shareholders’ equity only.
• income statement and statement of shareholders’ equity.

Ans: D KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• The cash paid during the year to satisfy a company’s debt is found in its
• statement of cash flows.
• income statement.
• statement of shareholders’ equity.
• auditor’s report.

Ans: A KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• The amount which a company’s customers owe the company for products delivered or

services rendered is found in the

• footnotes only.
• income statement.
• balance sheet.
• statement of cash flows.

Ans: C KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• Solvency may be described as
• an amount owed that must be paid in the future.
• amounts that can be distributed to owners only.
• the amount invested in the firm by its owners.
• the ability to generate enough cash to pay its debt as the amounts become due.

Ans: D KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

• Retained earnings may be described as
• the total past profits retained in the business.
• a company’s future growth.
• the amount invested in the firm by its owners.
• amounts retained for payments to vendors.

Ans: A KP 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

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