True False Questions

1-1 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 01 A Framework for Financial Accounting True / False Questions 1.Accounting is a system of maintaining records of a company's operations and communicating that information to decision makers.True False 2.Accounting information is used by investors to decide whether to invest in a company's stock.True False 3.Accounting information is used by creditors to decide whether to invest in a company's stock.True False 4.The primary functions of financial accounting are to measure business activities of a company and to communicate those measurements to internal parties for decision-making purposes.True False 5.Financing activities are transactions involving externals sources of funding.True False 6.Investing activities include the purchase and sale of long-term resources.True False Financial Accounting, 4e David Spiceland Wayne Thomas Don Herrmann (Test Bank All Chapters, 100% Original Verified, A+ Grade) Answers At The End Of Each Chapter 1 / 4

1-2 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• Operating activities include transactions that relate to the primary operations of the

company.

True False

• A corporation is an entity that is legally separate from its owners.

True False

• Cash, inventory, supplies, and buildings are examples of liabilities.

True False

• Amounts owed to suppliers, employees, the government in the form of taxes, and utility

companies are examples of liabilities.

True False

• If total assets of a company equal $12,000 and total stockholders' equity equals $4,000, then

total liabilities equal $8,000.

True False

• If total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000,

then total assets equal $7,000.

True False

• The accounting equation shows that a company's resources equal creditors' and owners'

claims to those resources.

True False

• The costs related to rent, utilities, and salaries in the current reporting period are examples of

liabilities.

True False

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1-3 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• The difference between revenues and expenses is referred to as net income or net loss.

True False

• If a company reports revenues of $17,000 and expenses of $12,000, then net income equals

$5,000.

True False

• Expenses are regular cash payments by a corporation to its stockholders.

True False

• Dividends represent a return of the company's profits to its owners, the stockholders.

True False

• One of the differences between a partnership and a corporation is that owners of a

partnership have limited liability.

True False

• Limited liability means the stockholders are not held personally responsible for the financial

obligations of the corporation.

True False

• One advantage of the corporate form of business is double taxation.

True False

• Double taxation refers to a corporation's income being taxed twice—first when the company

pays corporate income taxes on income it earns, and then again when stockholders pay personal income taxes when the company distributes that income as dividends to them.

True False

• / 4

1-4 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• Financial statements are periodic reports published by the company for the purpose of

providing information to managers.

True False

• The balance sheet is a financial statement that reports the company's revenues and

expenses over an interval of time.

True False

• The statement of stockholders' equity is a financial statement that summarizes the changes

in stockholders' equity over an interval of time.

True False

• The two primary components of stockholders' equity include common stock and revenue.

True False

• Common stock represents an external source of stockholders' equity, whereas retained

earnings represents an internal source.

True False

• Retained earnings represents the cumulative amount of net income, over the life of the

company, that has not been distributed to stockholders as dividends.

True False

• Dividends are considered an expense in running the business and reported in the income

statement.

True False

• All cash transactions reported in the statement of cash flows are classified as (1) operating

activities, (2) investing activities, or (3) financing activities.

True False

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