TEST BANK
Financial Accounting, 6th Edition
Chapters 1 – 12 Complete
By David Spiceland, Wayne Thomas and Don Herrmann
,TABLE OF CONTENTS
Chapter 1: A Framework for Financial Accounting
Chapter 2: The Accounting Cycle: During the Period
Chapter 3: The Accounting Cycle: End of the Period
Chapter 4: Cash and Internal Controls
Chapter 5: Receivables and Sales
Chapter 6: Inventory and Cost of Goods Sold
Chapter 7: Long-Term Assets
Chapter 8: Current Liabilities
Chapter 9: Long-Term Liabilities
Chapter 10: Stockholders’ Equity
Chapter 11: Statement of Cash Flows
Chapter 12: Financial Statement Analysis
,Chapter 1 A Framework for Financial Accounting
1) Accounting is a system of maintaining records of a company's operations and communicating
that information to decision makers.
Answer: TRUE
Difficulty: 1 Easy
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.Bloom's:
Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
2) Accounting information is used by investors to decide whether to invest in a company's stock.
Answer: TRUE
Difficulty: 1 Easy
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.Bloom's:
Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
3) Accounting information is used by creditors to decide whether to invest in a company's stock.
Answer: FALSE
Explanation: Creditors lend money to a company.
Difficulty: 1 Easy
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.Bloom's:
Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
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.
Answer: FALSE
Explanation: Financial accounting primarily serves to provide information to external parties.
Difficulty: 2 Medium
Topic: Defining Accounting
Learning Objective: 01-01 Describe the two primary functions of financial accounting.Bloom's:
Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
,5) Financing activities are transactions involving external sources of funding.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Remember AACSB:
Reflective ThinkingAICPA:
FN Measurement
6) Investing activities include the purchase and sale of long-term resources.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Remember AACSB:
Reflective ThinkingAICPA:
FN Measurement
7) Operating activities include transactions that relate to the primary operations of the company.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Remember AACSB:
Reflective ThinkingAICPA:
FN Measurement
8) A corporation is an entity that is legally separate from its owners.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Remember AACSB:
Reflective ThinkingAICPA:
BB Critical Thinking
,9) Cash, inventory for sale to customers, supplies, and buildings are examples of liabilities.
Answer: FALSE
Explanation: These are examples of assets.Difficulty:
2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Understand AACSB:
Reflective ThinkingAICPA:
FN Measurement
10) Amounts owed to suppliers, employees, the government in the form of taxes, and utility
companies are examples of liabilities.
Answer: TRUE
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Understand AACSB:
Reflective ThinkingAICPA:
FN Measurement
11) If total assets of a company equal $12,000 and total stockholders' equity equals $4,000, then
total liabilities equal $8,000.
Answer: TRUE
Difficulty: 3 Hard
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA: FN Measurement
,12) If total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000,
then total assets equal $7,000.
Answer: FALSE
Explanation: Total assets = Total liabilities ($16,000) + Total stockholders' equity ($9,000) =
$25,000.
Difficulty: 3 Hard
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA: FN Measurement
13) The accounting equation shows that a company's resources equal creditors' and owners'
claims to those resources.
Answer: TRUE
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Understand AACSB:
Reflective ThinkingAICPA:
FN Measurement
14) The costs related to rent, utilities, and salaries in the current reporting period are examples of
liabilities.
Answer: FALSE
Explanation: These are examples of expenses.
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Understand AACSB:
Reflective ThinkingAICPA:
FN Measurement
,15) The difference between revenues and expenses is referred to as net income or net loss.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Remember AACSB:
Reflective ThinkingAICPA:
FN Measurement
16) If a company reports revenues of $17,000 and expenses of $12,000, then net income equals
$5,000.
Answer: TRUE
Difficulty: 3 Hard
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Apply
AACSB: Knowledge Application
AICPA: FN Measurement
17) Expenses include a company's costs of providing products and services to customers, as well as
cash payments to its stockholders.
Answer: FALSE
Explanation: Expenses include costs of providing products and services. Cash payments to
stockholders are called dividends.
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Understand AACSB:
Reflective ThinkingAICPA:
BB Critical Thinking
18) Dividends represent a return of the company's profits to its owners, the stockholders.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Remember AACSB:
Reflective ThinkingAICPA:
BB Critical Thinking
,19) One of the differences between a partnership and a corporation is that owners of a
partnership have limited liability.
Answer: FALSE
Explanation: Stockholders of a corporation have limited liability.Difficulty: 2
Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Understand AACSB:
Reflective ThinkingAICPA:
BB Critical Thinking
20) Limited liability means the stockholders are not held personally responsible for the financial
obligations of the corporation.
Answer: TRUE
Difficulty: 1 Easy
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Remember AACSB:
Reflective ThinkingAICPA:
BB Critical Thinking
21) A company's resources include assets and stockholders' equity.
Answer: FALSE
Explanation: Assets are resources of a company. Stockholders' equity represents stockholders'claims
to those resources.
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Understand AACSB:
Reflective ThinkingAICPA:
BB Critical Thinking
,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.
Answer: TRUE
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accountingmeasures.
Bloom's: Understand AACSB:
Reflective ThinkingAICPA:
BB Critical Thinking
23) Financial statements are periodic reports published by the company for the purpose of
providing information to managers.
Answer: FALSE
Explanation: Financial statements are designed to provide information to external users.
Difficulty: 1 Easy
Topic: Financial Statements - Income Statement
Learning Objective: 01-03 Determine how financial accounting information is communicatedthrough
financial statements.
Bloom's: Remember AACSB:
Reflective ThinkingAICPA:
FN Reporting
24) The balance sheet is a financial statement that reports the company's revenues and expenses
over an interval of time.
Answer: FALSE
Explanation: The income statement reports revenues and expenses.Difficulty:
1 Easy
Topic: Financial Statements - Balance Sheet
Learning Objective: 01-03 Determine how financial accounting information is communicatedthrough
financial statements.
Bloom's: Remember AACSB:
Reflective ThinkingAICPA:
FN Reporting
, 25) The statement of stockholders' equity is a financial statement that summarizes the changes in
stockholders' equity over an interval of time.
Answer: TRUE
Difficulty: 1 Easy
Topic: Financial Statements - Statement of Stockholders' Equity
Learning Objective: 01-03 Determine how financial accounting information is communicatedthrough
financial statements.
Bloom's: Remember AACSB:
Reflective ThinkingAICPA:
FN Reporting
26) The two primary components of stockholders' equity include common stock and revenue.
Answer: FALSE
Explanation: The two components of stockholders' equity include common stock and retained
earnings.
Difficulty: 2 Medium
Topic: Financial Statements - Statement of Stockholders' Equity
Learning Objective: 01-03 Determine how financial accounting information is communicatedthrough
financial statements.
Bloom's: Understand AACSB:
Reflective ThinkingAICPA:
FN Measurement
27) Common stock represents an external source of stockholders' equity, whereas retained
earnings represents an internal source.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial Statements - Statement of Stockholders' Equity
Learning Objective: 01-03 Determine how financial accounting information is communicatedthrough
financial statements.
Bloom's: Understand AACSB:
Reflective ThinkingAICPA:
FN Reporting
