Copyright © 2022 John Wiley & Sons, Inc. (For Instructor Use Only) CHAPTER 1 INTRODUCTION TO FINANCIAL STATEMENTS CHAPTER LEARNING OBJECTIVES 1. Identify the forms of business organization and the uses of accounting information. A sole proprietorship is a business owned by one person. A partnership is a business owned by two or more people associated as partners. A corporation is a separate legal entity for which evidence of ownership is provided by shares of stock. Internal user s are managers who need accounting information to plan, organize, and run business operations. The primary external users are investors and creditors. Investors (stockholders) use accounting information to decide whether to buy, hold, or sell shares of a c ompany‘s stock. Creditors (suppliers and bankers) use accounting information to assess the risk of granting credit or loaning money to a business. Other groups who have an indirect interest in a business are taxing authorities, customers, labor unions, and regulatory agencies. 2. Explain the three principal types of business activity. Financing activities involve collecting the necessary funds to support the business. Investing activities involve acquiring the resources necessary to run the business. Operat ing activities involve putting the resources of the business into action to generate a profit. 3. Describe the four financial statements and how they are prepared . An income statement presents the revenues and expenses of a company for a specific period of time. A retained earnings statement summarizes the changes in retained earnings that have occurred for a specific period of time. A balance sheet reports the assets, liabilities, and stockholders‘ equity of a business at a specific date. A statement of ca sh flows summarizes information concerning the cash inflows (receipts) and outflows (payments) for a specific period of time. Assets are resources owned by a business. Liabilities are the debts and obligations of the business. Liabilities represent claims of creditors on the assets of the business. Stockholders‘ equity represents the claims of owners on the assets of the business. Stockholders‘ equity is subdivided into two parts: common stock and retained earnings. The basic accounting equation is Assets = Liabilities + Stockholders‘ Equity . Within the annual report, t he management discussion and analysis provides management‘s interpretation of the company‘s results and financial position as well as a discussion of plans for the future. Notes to the financial statements provide additional explanation or detail to make the financial statements more informative. The auditor‘s report expresses an opinion as to whether the financial statements present fairly the company‘s results of operations and financi al position. *4. Explain the career opportunities in accounting. Accounting offers many different jobs in fields such as public and private accounting, governmental, and forensic accounting. Accounting is a popular major because there are many different ty pes of jobs, with unlimited potential for career advancement NURSEDOCS Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e Copyright © 2022 John Wiley & Sons, Inc. (For Instructor Use Only) 2-2 Difficulties: Easy: 143 Medium: 101 Hard: 12 Question List by Section Business Organization and Accounting Information Uses : Forms of Business Organization; 47, 48, 202, 246 Sole Proprietorship: 5, 44, 49, 58, 59 Partnership: 1, 4, 46, 56 Corporation: 2, 3, 45, 50, 51, 52, 53, 55, 57, 233, 245 Hybrid Forms of Organization: 60, 61 Users and Uses of Financial Information: 6, 7, 11, 74, 87 Internal Users: 62, 63, 64, 75, 77, 82, 234 External Users: 8, 9, 10, 12, 65, 76, 78, 79, 80, 81, 83, 84, 85, 86, 88, 89 Data Analytics: 66, 67, 68, 69, 70, 235, 236 Ethics in Financial Reporting: 71, 72, 73, 237, 255 The Three Types of Busi ness Activity: 97 Financing Activities: 13, 15, 18, 90, 91, 93, 94, 95, 96, 97, 102, 109, 117, 118, 119, 238 Investing Activities: 14, 16, 98, 99, 115, 116 Operating Activities: 17, 19, 20, 100, 101, 103, 104, 105, 106, 107, 108, 110, 111, 112, 113, 114 The Four Financial Statements : Income Statement: 21, 22, 23, 24,127, 128, 132, 133, 134, 138, 142, 143 Retained Earnings Statement: 120, 122, 123, 124, 125, 126, 129, 130, 131, 135, 137, 139, 140, 141, 144, 145, 146, 147, 148, 149, 150, 154, 164, 169, 178, 181, 252 Balance Sheet: 25, 27, 28, 29, 30, 31, 32, 33, 34, 35, 136, 151, 152, 153, 163, 165, 166, 168, 170, 173, 177, 179, 180, 182, 185, 186 , 187, 188, 199, 200, 201, 207, 208, 213, 214, 215, 216, 217, 218, 219, 220, 221, 222, 225, 229, 239, 240, 241, 253 Statement of Cash Flows: 26, 121, 171, 174, 183, 242, 249 Interrelationships of Statements: 155, 156, 157, 158, 159, 160, 161, 162, 16 7, 175, 176, 184, 250, 251, 256 Elements of an Annual Report: 36, 41, 192, 196, 197 Management Discussion and Analysis: 40, 191 Notes to the Financial Statements: 37, 42, 190, 193, 194, 198, 254 Auditor‘s Report: 38, 39, 195 NURSEDOCS A Further Look at Financial Statements Copyright © 2022 John Wiley & Sons, Inc. (For Instructor Use Only) 2-3 TRUE -FALSE STATEMENTS 1. A business organized as a separate legal entity and owned by stockholders is a partnership. Ans: F, LO: 1, Section: Business Organization and Accounting Information Uses , Subsection: Partnership, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 2. Corporate stockholders have no personal liability for the debts of the corporation . Ans: T, LO: 1, Section: Business Organization and Accounting Inform ation Uses , Subsection: Corporation, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 3. The liability of corporate stockholders is limited to the amount of their invest ment. Ans: T, LO: 1, Section: Business Organization and Accounting Information Uses , Subsection: Corporation, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 4. The majority of U.S. business is transacted by partnerships . Ans: F, LO: 1, Bloom: K, Section: Business Organization and Accounting Information Uses , Subsection: Partnership , Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AI CPA PC: None, IMA: Reporting and Control 5. Sole proprietorships in the United States generate more revenue than the other two forms of business enterprise. Ans: F, LO: 1, Section: Business Organization and Accounting Information Uses , Subsection: Sole Propriet orship, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 6. Owners of business firms are the only people who need accounting information. Ans: F, LO: 1, Section: Business Organization and Accounting Information Uses , Subsection: Users and Uses of Financial Information, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 7. Some users of accounting information are internal to the company while others are external . Ans: T, LO: 1, Section: Business Organization and Accounting Information Uses , Subsection: Users and Uses of Financial Information, Bloom: K, Difficulty: Easy, Mi n: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 8. Management of a business enterprise is the major external user of accounting information. Ans: F, LO: 1, Section: Business Organization and Accounting Information Uses , Subsection: External Users, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 9. External users of accounting information include managers wh o plan, organize, and run a business. Ans: F, LO: 1, Section: Business Organization and Accounting Information Uses , Subsection: External Users, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 10. The accounting information needs and questions of external users vary considerably. Ans: T, LO: 1, Section: Business Organization and Accounting Information Uses , Subsection: External Users, Bloom: K, Difficulty: Easy, Mi n: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 11. Accounting communicates financial information about a business to both internal and external users. Ans: T, LO: 1, Section: Business Organizatio n and Accounting Information Uses , Subsection: Users and Uses of Financial Information, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 12. Two primary external users of accounting information are investors and creditors. Ans: T, LO: 1, Section: Business Organization and Accounting Information Uses , Subsection: External Users, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: N one, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 13. Financing activities for corporations include borrowing money and selling shares of their NURSEDOCS Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e Copyright © 2022 John Wiley & Sons, Inc. (For Instructor Use Only) 2-4 own stock. Ans: T, LO: 2, Section: The Three Types of Business Activity , Subsection: Finan cing Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 14. Investing activities involve collecting the necessary funds to support the business. Ans: F, LO: 2, Section: The Three Types of Business Activity , Subsection: Investing Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 15. The purchase of equipment is an example of a financing activity. Ans: F, LO: 2, Section: The Three Types of Business Activity , Subsection: Financing Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 16. Assets are resources owned by a business that provide future services or benefits to the business. Ans: T, LO: 2, Section: The Three Types of Business Activity , Subsection: Investing Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: K nowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 17. Payments by the business to its owners are operating activities. Ans: F, LO: 2, Section: The Three Types of Business Activity , Subsection: Operating Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 18. The economic resources owned by a business are called stockholders‘ equity. Ans: F, LO: 2, Section: The Three Types of Business Activity , Subsection: Financing Activities Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 19. Operating activities i nvolve putting the resources of the business into action to generate a profit. Ans: T, LO: 2, Section: The Three Types of Business Activity , Subsection: Operating Activities, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 20. A business is usually involved in only two types of activit ies—financing and investing. Ans: F, LO: 2, Section: The Three Types of Business Activity , Subsection: Operating Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 21. Net income for the period is determined by subtracting expenses and dividends from revenues. Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Income Statement, Bloom: K, Difficulty: Medium , Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 22. A different set of financial statements is usually prepared for each user. Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Income Statement, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 23. The heading for an income statement prepared for the year ending December 31, 2025 will include the line ―As of December 31, 2025.‖ Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Income Statement, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 24. Net income is another term for revenue. Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Income Statement, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 25. Cash is another term for stockholders‘ equity. Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Balance Sheet, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge , AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control 26. The primary purpose of the statement of cash flow s is to provide information about the NURSEDOCS
