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Test Bank for Cornerstones of Financial Accounting, 3rd Edition Jay Rich| Chapter 01 Accounting and the Financial Statements
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Test Bank for Cornerstones of Financial Accounting, 3rd Edition Jay Rich| Chapter 01 Accounting and the Financial Statements

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  • January 2, 2022
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  • 2022/2023
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  • 3rd edition jay rich
  • test bank for cornerstones of financial accounting
  • 3rd edition jay rich chapter 01
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Chapter 1—Accounting and the Financial Statements


TRUE/FALSE

1. There are more corporations than sole proprietorships and partnerships in the United States.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 1-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-01-Purpose KEY: Bloom's: Knowledge
NOT: 1 min.

2. The three main business activities are financing, operating, and investing.

ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 1-2 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-03-Business Forms KEY: Bloom's: Knowledge
NOT: 1 min.

3. Internal users of accounting information include present creditors and management.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 1-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-01-Purpose KEY: Bloom's: Knowledge
NOT: 1 min.

4. The income statement summarizes the assets, liabilities and stockholders’ equity for a period of time.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 1-3 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

5. The four basic financial statements are the Income Statement, Statement of Retained Earnings,
Balance Sheet, and Statement of Cash Flows.

ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 1-3 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

6. The amount of earnings distributed to stockholders can be found in the income statement as an
expense.

ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 1-5 | LO: 1-6 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

7. Stockholders' equity is composed of two main sources: liabilities and contributed capital.

ANS: F PTS: 1 DIF: Difficulty: Easy

, REF: CS1-2 OBJ: LO: 1-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

8. The first step in preparing the classified balance sheet is to list the assets in order of liquidity.

ANS: F PTS: 1 DIF: Difficulty: Moderate
REF: CS1-2 OBJ: LO: 1-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

9. The only financial statement that reports the retained earnings balance at the end of the period is the
Statement of Retained Earnings.

ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 1-4 | LO: 1-6 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

10. An income statement provides information at one specific point in time, while the other basic financial
statements provide information on activities that occur over a period of time.

ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 1-5 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

11. When an entity's stock issuances exceed its expenses for a period of time, the entity will report net
income.

ANS: F PTS: 1 DIF: Difficulty: Moderate
REF: CS1-3 OBJ: LO: 1-5 NAT: BUSPROG: Communication
STA: AICPA FN-Measurement | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

12. Contributed capital is the residual interest that remains after deducting liabilities from stockholders'
equity.

ANS: F PTS: 1 DIF: Difficulty: Moderate
REF: CS1-2 OBJ: LO: 1-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

13. The four steps in preparing the Income Statement are: 1) Prepare heading, 2) List the revenues of the
company, 3) List the expenses of the company, 4) List the dividends of the company.

ANS: F PTS: 1 DIF: Difficulty: Moderate
REF: CS1-3 OBJ: LO: 1-5 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

14. Stockholders equity is composed of contributed capital and retained earnings.

, ANS: T PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 1-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

15. The primary objective of internal auditors who are employees of the company is to provide assurance
to the company’s stockholders that the financial statements are fairly presented.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 1-9 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-01-Purpose KEY: Bloom's: Knowledge
NOT: 1 min.

16. The independent auditor's report conveys whether or not the business is a good investment.

ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 1-9 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-01-Purpose KEY: Bloom's: Knowledge
NOT: 1 min.

17. The Statement of Cash Flows shows cash inflows and cash outflows for a period of time.

ANS: T PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 1-7 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

18. Because the four financial statements are interrelated (i.e., there is a natural progression from one
financial statement to another), the balance sheet should be prepared first.

ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 1-8 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

19. The company's annual report includes an audit report, notes to the financial statements, but not
management's discussion and analysis.

ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 1-9 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-01-Purpose KEY: Bloom's: Knowledge
NOT: 1 min.

20. Investing is the business activity that measures the company’s ability to generate cash from its revenue
and expense activities.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 1-2 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-03-Business Forms KEY: Bloom's: Knowledge
NOT: 1 min.

21. The owners of a sole proprietorship, partnership and corporations have limited liability.

, ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 1-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-01-Purpose KEY: Bloom's: Knowledge
NOT: 1 min.

22. The purpose of financial reporting is to provide economic information to investors, creditors, and other
financial statement users.

ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 1-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-01-Purpose KEY: Bloom's: Knowledge
NOT: 1 min.

23. Creditors use accounting information to evaluate whether to loan money to a company.

ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 1-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-01-Purpose KEY: Bloom's: Knowledge
NOT: 1 min.

24. Current assets include all of the following: cash, inventory, equipment, supplies, and accounts
receivable.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 1-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

25. Current liabilities are typically listed in the order in which they will be paid.

ANS: T PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 1-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

26. Three common categories of long-term assets are: 1) property, plant, and equipment, 2) long-term
investments, and 3) intangibles.

ANS: T PTS: 1 DIF: Difficulty: Easy
REF: CS1-2 OBJ: LO: 1-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

27. In the stockholders' equity section of a classified balance sheet, a distinction is made between amounts
invested by owners and amounts financed by creditors.

ANS: F PTS: 1 DIF: Difficulty: Moderate
REF: CS1-2 OBJ: LO: 1-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-09-Financial Statement
KEY: Bloom's: Knowledge NOT: 1 min.

28. One primary purpose of a classified balance sheet is to help users evaluate the working capital of a
company.

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