MULTIPLE CHOICE QUESTIONS

1-1 Chapter 1 Financial Accounting and Its Economic Context

MULTIPLE CHOICE QUESTIONS

• The balance sheet communicates
• proof to the investor that the company is profitable.
• assets, liabilities, and shareholders’ equity with all transactions reflected through the

year.

• assets, liabilities, and shareholders’ equity as of a certain date.
• 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
• assets, liabilities, and shareholders’ equity as of a certain date.
• how much cash the owner received during the period.
• information about dividends the company paid to its owners.
• 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?
• The Securities and Exchange Commission
• The Board of Directors
• The company’s management
• 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?

• Customers
• FASB
• Debt and equity investors
• 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 8th Edition Pratt Test Bank Visit TestBankDeal.com to get complete for all chapters

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

• Considering and understanding how business decisions affect the financial statements is
• the sole responsibility of the Securities and Exchange Commission.
• provided in the auditor’s report.
• referred to as an economic consequence perspective.
• 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
• reviews every transaction that a company conducts during any given year.
• performs a company’s audit.
• is one of the investors of a company.
• 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
• more fully explain certain items in the financial statements.
• reflect financial notes personalized by the company’s executive team.
• show the detail of salaries of every employee.
• 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
• is maintained to ensure that transactions of a company are properly recorded and

reported and the assets are safeguarded.

• is included in the set of footnotes to the financial statements.
• is an estimate of the profits a company expects to earn in the future.
• 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?
• Factory production reports on units produced
• Auditor’s report
• Income statement
• Internal Revenue Service

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

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

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