True False Questions

1-1 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 01 Financial Statements and Business Decisions True / False Questions 1.A business entity's accounting system creates financial accounting reports which are provided to external decision makers.True False 2.Business managers utilize managerial accounting reports to plan and manage the daily operations.True False 3.The balance sheet includes assets, liabilities, and stockholders' equity as of a point in time.True False 4.Revenue is recognized within the income statement during the period in which cash is collected.True False 5.Total assets are $37,500, total liabilities are $20,000 and common stock is $10,000; therefore, retained earnings are $7,500.True False Financial Accounting, 8th Global Edition By Robert Libby Patricia Libby Daniel Short (Test Bank All Chapters, 100% Original Verified, A+ Grade) Answers At The End Of Each Chapter 1 / 4

1-2 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

6.The income statement is a measure of an entity's economic performance for a period of time.True False 7.The accounting equation states that Assets = Liabilities + Stockholders' Equity.True False 8.A decision maker who wants to understand a company's financial statements must carefully read the notes to the financial statements because these disclosures provide useful supplemental information.True False 9.The financial statement that shows an entity's economic resources and claims against those resources is the balance sheet.True False 10.Stockholders' equity on the balance sheet includes common stock and retained earnings.True False 11.The amount of cash paid by a business for dividends would be reported as an operating activity cash flow on the statement of cash flows.True False 12.A company's retained earnings balance increased $50,000 last year; therefore, net income last year must have been $50,000.True False 2 / 4

1-3 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• The statement of stockholders' equity explains the change in the retained earnings balance

caused by stockholder investments and dividend declarations.

True False

• The Financial Accounting Standards Board (FASB) has been given the authority by the

Securities and Exchange Commission (SEC) to develop generally accepted accounting principles.

True False

• In the United States, the Securities and Exchange Commission (SEC) is considering requiring

the use of International Financial Reporting Standards (IFRS) by U.S. companies for their financial reporting in the U.S.

True False

• The primary responsibility for the content of the financial statements lies with the external

auditor.

True False

• An audit is an examination of the financial statements provided by management to ensure

that they represent what they claim and to make sure that they are in compliance with generally accepted accounting principles.

True False

• The auditor can be held liable for malpractice in situations where the investors suffered

losses while relying on the financial statements.

True False

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1-4 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• One of the advantages of a corporation when compared to a partnership is the limited liability

of the owners.

True False

• Due to the relationships among financial statements, the statement of stockholders' equity

links the income statement to the balance sheet.

True False

Multiple Choice Questions

• Which of the following describes the primary objective of the balance sheet?

• To measure the net income of a business up to a particular point in time.

• To report the difference between cash inflows and cash outflows for the period.

• To report the financial position of the reporting entity at a particular point in time.

• To report the market value of assets, liabilities, and stockholders' equity at a particular

point in time.

• During the fiscal year ended 2014, a company had revenues of $400,000, cost of goods sold

of $280,000, and an income tax rate of 30 percent on income before income taxes. What was the company's 2014 net income?

A. $120,000.

B. $36,000.

C. $84,000.

D. $400,000.

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