Test Bank for Financial Accounting
for MBAs 8th Edition by Easton
And John Wild
, Module 1
Financial Accounting for MBAs
Learning Objectives – Coverage by question
True/False Multiple Choice
LO1 – Explain and assess the four main business
activities.
LO2 – Identify and discuss the users and suppliers of
1- 4 1, 2
financial staTement information.
LO3 – Describe and examine the four financial
5-10 3-19
staTements, and define the accounting
equation.
LO4 – Explain and apply the basics of profitability
11-13 20-25
analysis.
LO5 – Assess business operations within the context
14 26, 27
of a competitive environment.
LO6 – Access reports filed with the SEC (Appendix
1A).
LO7 – Describe the accounting principles and
regulations that frame financial staTements 15 28-30
(Appendix1B).
These questions are available to assign in myBusinessCourse.
,Module 1: Financial Accounting for MBAs
True/False
Topic: Users of Financial StaTement
InformationLO: 2
1. Shareholders demand financial information primarily to assess profitability and risk whereas bankers
demand information primarily to assess cash flows to repay loan interest and principal.
Answer: True
Rationale: While both shareholders and bankers are interested in all the information companies
provide, shareholders care about more about a entreprise’s profitability and bankers care more about
solvency and creditworthiness.
Topic: Publicly Available Financial Reports
LO: 2
2. Publicly traded companies are required to provide quarterly financial reports directly to the public.
Answer: False
Rationale: Companies provide electronic versions of quarterly financial staTements to the SEC, which
posts them to the Internet for the public to access them.
Topic: Users of Financial StaTement
InformationLO: 2
3. Publicly traded companies provide financial information primarily to satisfy the SEC and the tax
authorities (that is, the Internal Revenue Service).
Answer: False
Rationale: Demand for information extends to many users; the regulators such as the SEC and the
IRS are only one class of users.
Topic: SEC Filings
LO: 2
4. Publicly traded companies must provide to the Securities Exchange Commission annual audited
financial staTements (10-K reports) and quarterly audited financial staTements (10-Q reports).
Answer: False
Rationale: Quarterly reports do not need to be audited.
Topic: Balance Sheet
LO: 3
5. If a entreprise reports retained earnings of $175.3 million on its balance sheet, it must also report
$175.3 million in cash.
Answer: False
Rationale: The accounting equation requires total assets to equal total liabilities plus stockholders’
equity. That does not imply, however, that liability and equity accounts relate directly to specific
assets.
, Topic: Balance Sheet
LO: 3
6. A balance sheet shows a enterprise’s position over a period of time, whereas an income
staTement,staTement of stockholders’ equity, and staTement of cash flows show its position at a
point in time.
Answer: False
Rationale: The staTement is reversed: A balance sheet shows a enterprise’s position at a point in
time, whereas an income staTement, staTement of equity, and staTement of cash flows show its
positionover a period of time.
Topic: Accounting Equation
LO: 3
7. Assets must always equal liabilities plus equity.
Answer: True
Rationale: The accounting equation is Assets = Liabilities + Equity. This relation must always hold.
Topic: Income
StaTementLO: 3
8. The income staTement reports net income which is defined as the entreprise’s profit after all
expensesand dividends have been paid.
Answer: False
Rationale: The staTement contains two errors. First, net income does not include any dividends
during the period; these are a distribution of profits and not part of its calculation. Second, the income
staTement is prepared on an accrual basis and thus includes expenses incurred (as opposed to paid).
Topic: StaTement of Cash
FlowsLO: 3
9. A staTement of cash flows reports on cash flows for operating, investing and financing activities at
apoint in time.
Answer: False
Rationale: A staTement of cash flows reports on cash flows for operating, investing, and financing
activities over a period of time.
Topic: StaTement of Stockholders’
EquityLO: 3
10. An increase in common stock would be reflected in the staTement of stockholders’ equity.
Answer: True
Rationale: The staTement of stockholders’ equity reports on changes in the accounts that make up
stockholders’ equity. This includes contributed capital, retained earnings, and other equity.
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