, 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: Moderate OBJ: 1-4 | 1-6
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-09-Financial Statement
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: Moderate OBJ: 1-5
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-09-Financial Statement
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: Moderate REF: CS1-3
OBJ: 1-5
NAT: AICPA FN-Measurement | AACSB Communication | ACBSP-APC-09-Financial Statement
12. Contributed capital is the residual interest that remains after deducting liabilities from stockholders'
equity.
ANS: F PTS: 1 DIF: Moderate REF: CS1-2
OBJ: 1-4
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-09-Financial Statement
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: Moderate REF: CS1-3
OBJ: 1-5
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-09-Financial Statement
14. Stockholders equity is composed of contributed capital and retained earnings.
ANS: T PTS: 1 DIF: Moderate OBJ: 1-4
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-09-Financial Statement
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: Easy OBJ: 1-9
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-01-Purpose
16. The independent auditor's report conveys whether or not the business is a good investment.
ANS: F PTS: 1 DIF: Moderate OBJ: 1-9
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-01-Purpose
, 17. The Statement of Cash Flows shows cash inflows and cash outflows for a period of time.
ANS: T PTS: 1 DIF: Moderate OBJ: 1-7
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-09-Financial Statement
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: Moderate OBJ: 1-8
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-09-Financial Statement
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: Moderate OBJ: 1-9
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-01-Purpose
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: Easy OBJ: 1-2
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-03-Business Forms
21. The owners of a sole proprietorship, partnership and corporations have limited liability.
ANS: F PTS: 1 DIF: Easy OBJ: 1-1
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-01-Purpose
22. The purpose of financial reporting is to provide economic information to investors, creditors, and other
financial statement users.
ANS: T PTS: 1 DIF: Easy OBJ: 1-1
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-01-Purpose
23. Creditors use accounting information to evaluate whether to loan money to a company.
ANS: T PTS: 1 DIF: Easy OBJ: 1-1
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-01-Purpose
24. Current assets include all of the following: cash, inventory, equipment, supplies, and accounts
receivable.
ANS: F PTS: 1 DIF: Easy OBJ: 1-4
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-09-Financial Statement
25. Current liabilities are typically listed in the order in which they will be paid.
ANS: T PTS: 1 DIF: Moderate OBJ: 1-4
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-09-Financial Statement
26. Three common categories of long-term assets are: 1) property, plant, and equipment, 2) long-term
investments, and 3) intangibles.
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