True False Questions

2-1 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 02 Investing and Financing Decisions and the Accounting System

True / False Questions

• The primary objective of financial reporting is to provide useful information to external decision

makers.

True False

• In order for information to be relevant, the information needs to be complete, neutral, and free

from error.

True False

• In order for information to be relevant, the information should have both predictive and/or

feedback value.

True False

• The continuity assumption states that a business will continue to operate into the foreseeable

future.

True False

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

• The current assets section of a balance sheet includes both inventory and prepaid expenses.

True False

• The stockholders' equity section of a balance sheet includes capital contributed by owners and

also retained earnings.

True False

• Under the stable monetary unit assumption, accounting information should be measured and

reported in terms of the national monetary unit, with an adjustment for changes in purchasing power.

True False

• Assets are reported on the balance sheet in the order of liquidity.

True False

• Many valuable assets such as trademarks and copyrights are not reported on a company's balance

sheet.

True False

• Stockholders' equity reflects the financing provided by owners.

True False

• Common stock and additional-paid in capital represent the financing sources from shareholders.

True False

2-3 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• Financial reporting focuses on reporting the impact of transactions on an entity's financial

position.

True False

• Unearned revenue is reported on the balance sheet as a liability and represents amounts paid to

an entity in exchange for future services and/or goods.

True False

• A transaction may be an exchange of assets or services by one business for assets, services, or

promises to pay from a different business.

True False

• The dual effects concept implies that every transaction has at least two effects on the accounting

equation.

True False

• The accounting equation does not have to be in balance after the recording of each transaction.

True False

• Additional-paid in capital is reported on the balance sheet as a component of shareholders'

equity.

True False

2-4 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• Common stock and additional-paid in capital are both reported on the balance sheet as a

component of shareholders' equity.

True False

• A company's assets and stockholders' equity both increase when the company sells additional

shares of stock in exchange for cash.

True False

• Purchasing supplies for cash results in an increase in total assets for the purchasing company.

True False

• The normal balance for an asset account is a debit and the normal balance for a liability account is

a credit.

True False

• The recording of a journal entry precedes the posting to the general ledger.

True False

• An asset account normally has a debit balance and is increased by debiting the account.

True False

• Liability and stockholders' equity accounts normally have credit balances and are decreased by

debiting the accounts.

True False