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Financial Accounting David Spiceland Wayne Thomas Don Herrmann 4th Edition- Test Bank
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Financial Accounting David Spiceland Wayne Thomas Don Herrmann 4th Edition- Test Bank
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, Chapter 01A 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
7. Operating activities include transactions that relate to the primary operations of the
company.
True False
8. A corporation is an entity that is legally separate from its owners.
True False
9. Cash, inventory, supplies, and buildings are examples of liabilities.
True False
1-1
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,10. Amounts owed to suppliers, employees, the government in the form of taxes, and
utility companies are examples of liabilities.
True False
11. If total assets of a company equal $12,000 and total stockholders' equity equals
$4,000, then total liabilities equal $8,000.
True False
12. If total liabilities of a company equal $16,000 and total stockholders' equity equals
$9,000, then total assets equal $7,000.
True False
13. The accounting equation shows that a company's resources equal creditors' and
owners' claims to those resources.
True False
14. The costs related to rent, utilities, and salaries in the current reporting period are
examples of liabilities.
True False
15. The difference between revenues and expenses is referred to as net income or net
loss.
True False
16. If a company reports revenues of $17,000 and expenses of $12,000, then net income
equals $5,000.
True False
17. Expenses are regular cash payments by a corporation to its stockholders.
True False
18. Dividends represent a return of the company's profits to its owners, the
stockholders.
True False
19. One of the differences between a partnership and a corporation is that owners of a
partnership have limited liability.
True False
20. Limited liability means the stockholders are not held personally responsible for the
financial obligations of the corporation.
True False
1-2
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, 21. One advantage of the corporate form of business is double taxation.
True False
22. 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
23. Financial statements are periodic reports published by the company for the purpose
of providing information to managers.
True False
24. The balance sheet is a financial statement that reports the company's revenues and
expenses over an interval of time.
True False
25. The statement of stockholders' equity is a financial statement that summarizes the
changes in stockholders' equity over an interval of time.
True False
26. The two primary components of stockholders' equity include common stock and
revenue.
True False
27. Common stock represents an external source of stockholders' equity, whereas
retained earnings represents an internal source.
True False
28. 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
29. Dividends are considered an expense in running the business and reported in the
income statement.
True False
30. 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
31. Investing cash flows generally include cash receipts and cash payments for
transactions involving revenue and expense activities during the period.
True False
1-3
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
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