Test Bank For Financial

Test Bank For Financial and Managerial Accoun�ng for MBAs 3 rd Edi�on By Easton Halsey McAnally Hartgraves Morse (All Chapters 100% Original Verified A+ Grade) 1 / 4

©Cambridge Business Publishers, 2013 Test Bank, Module 1 1-1 Module 1

Financial Accounting for MBAs

Learning Objectives – coverage by question

True/False Multiple Choice Exercises Problems Essays LO1 – Identify and discuss the users and suppliers of financial statement information.

1-4 1-2 - 1 1-2

LO2 – Identify and explain the four financial statements, and define the accounting equation.

5-10 3-19 1-8 2-5 3

LO3 – Explain and apply the basics of profitability analysis.

11-13 20-25 9-10 6-7 4

LO4 – Describe business analysis within the context of a competitive environment.

14 26-27 - 8 -

LO5 – Describe the accounting principles and regulations that frame financial statements.

15 28-30 - 9-10 5

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©Cambridge Business Publishers, 2013 1-2 Financial & Managerial Accounting for MBAs, 3 rd Edition

Module 1: Financial Accounting for MBAs

True/False

Topic: Users of Financial Statement Information

LO: 1

• Shareholders demand financial information primarily to assess profitability and risk whereas bankers

demand information primarily to assess cash flows to repay loan interest and principal.

Answer: True

Rationale: While both shareholders and bankers are interested in all the information companies provide, shareholders care about more about a company’s profitability and bankers care more about solvency and creditworthiness.

Topic: Publicly Available Financial Reports

LO: 1

• Publicly traded companies are required to provide quarterly financial reports directly to the public.

Answer: False

Rationale: Companies provide electronic versions of quarterly financial statements to the SEC, which posts them to the Internet for the public to access them.

Topic: Users of Financial Statement Information

LO: 1

• Publicly traded companies provide financial information primarily to satisfy the SEC and the tax

authorities (that is, the Internal Revenue Service).

Answer: False

Rationale: Demand for information extends to many users; the regulators such as the SEC and the IRS are only one class of users.

Topic: SEC Filings

LO: 1

• Publicly traded companies must provide to the Securities Exchange Commission annual audited

financial statements (10K reports) and quarterly audited financial statements (10Q reports).

Answer: False

Rationale: Quarterly reports do not need to be audited.

Topic: Balance Sheet

LO: 2

• If a company reports retained earnings of $175.3 million on its balance sheet, it must also report

$175.3 million in cash.

Answer: False

Rationale: The accounting equation requires total assets to equal total liabilities plus stockholders’ equity. That does not imply, however, that liability and equity accounts relate directly to specific assets. 3 / 4

©Cambridge Business Publishers, 2013 Test Bank, Module 1 1-3

Topic: Balance Sheet

LO: 2

• A balance sheet shows a company’s position over a period of time, whereas an income statement,

statement of stockholders’ equity, and statement of cash flows show its position at a point in time.

Answer: False

Rationale: The statement is reversed: A balance sheet shows a company’s position at a point in time, whereas an income statement, statement of equity, and statement of cash flows show its position over a period of time.

Topic: Accounting Equation

LO: 2

• Assets must always equal liabilities plus equity.

Answer: True

Rationale: The accounting equation is Assets = Liabilities + Equity. This relation must always hold.

Topic: Income Statement

LO: 2

• The income statement reports net income which is defined as the company’s profit after all expenses

and dividends have been paid.

Answer: False

Rationale: The statement contains two errors. First, net income does not include any dividends during the period; these are a distribution of profits and not part of its calculation. Second, the income statement is prepared on an accrual basis and thus includes expenses incurred (as opposed to paid).

Topic: Statement of Cash Flows

LO: 2

• A statement of cash flows reports on cash flows for operating, investing and financing activities at a

point in time.

Answer: False

Rationale: A statement of cash flows reports on cash flows for operating, investing, and financing activities over a period of time.

Topic: Statement of Stockholders’ Equity

LO: 2

• An increase in treasury stock would be reflected in the statement of stockholders’ equity.

Answer: True

Rationale: The statement of stockholders’ equity reports on changes in the accounts that make up stockholders’ equity. This includes contributed capital, retained earnings, and treasury stock.

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