Exam (elaborations)

FINANCIAL ACCOUNTING 7TH EDITION BY MICHELLE HANLON, ROBERT MAGEE, GLENN PFEIFFER TEST BANK

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Course
FINANCIAL ACCOUNTING

Institution
FINANCIAL ACCOUNTING

Multiple Choice Topic: Business organizations LO: 1 1. Which of the following forms of business organizations exists as a legal entity? A) A sole proprietorship B) A partnership C) A corporation D) A labor union Answer: C Rationale: A corporation is a form of business organization that ex...

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Uploaded on September 17, 2024
Number of pages 371
Written in 2024/2025
Type Exam (elaborations)
Contains Questions & answers

financial accounting 7th edition by michelle hanlo
which of the following forms of business organiza
all of the following are proper uses of financial
which one of the following is not an external use

Institution FINANCIAL ACCOUNTING
Course FINANCIAL ACCOUNTING

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, Chapter 1
Introducing Financial Accounting

Learning Objectives – Coverage by question
Multiple Essay
True/False Choice Exercises Problems Questions

LO1-1 Identify the users of
accounting information and
1, 2 1-3 1, 2 2, 5, 6
discuss the costs and benefits of
disclosure. (p. 1-3)

LO1-2 Describe a company's
business activities and explain
how these activities are 3-6 4, 5 3 1, 6
represented by the accounting
equation. (p. 1-7)

LO1-3 Introduce the four key
financial statements including the
balance sheet, income statement,
7-9 4, 6-11 4-11 1-5
statement of stockholders' equity,
and statement of cash flows.
(p. 1-11)

LO1-4 Describe the institutions
that regulate financial accounting
and their role in establishing 10-12 12, 19, 20 3, 4
generally accepted accounting
principles. (p. 1-16)

LO1-5 Compute two key ratios
that are commonly used to
assess profitability and risk - 13, 14 13-18 13, 14
return on equity and the debt-to-
equity ratio. (p. 1-21)

LO1-6 Appendix 1A: Explain the
conceptual framework for 15, 16 21, 22 12 3, 5
financial reporting. (p. 1-25)

.
1-1 Financial Accounting, 7th Edition

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,Chapter 1: Introducing Financial Accounting

True/False

Topic: Cost and benefits of disclosure
LO: 1
1. One reason companies are motivated to disclose financial information to external decision makers is
that it may lower financing and operating costs.

Answer: True
Rationale: For example, when a company applies for a loan, the bank uses the company’s financial
statements to help determine the appropriate interest rate. Without this financial information, a company
may have a higher cost of borrowing or not obtain the loan at all.

Topic: Demand for accounting information
LO: 1
2. Financial accounting is designed primarily for decision makers within the company.

Answer: False
Rationale: Financial accounting is designed primarily to provide information to decision makers outside
of the company, while managerial accounting is designed primarily for decision makers within the
company.

Topic: Investing activities
LO: 2
3. Investing activities are the acquiring and disposing of liabilities that a company needs in order to finance
its operating activities.

Answer: False
Rationale: Investing activities are the acquiring and disposing of assets that a company needs for the
production and sale of a company’s products and services.

Topic: Accounting equation
LO: 2
4. Assets must always equal liabilities plus stockholders’ equity.

Answer: True
Rationale: The accounting equation is Assets = Liabilities + Stockholders’ Equity. This relation must
always stay in balance.

.
Test Bank, Chapter 1 1-2

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, Topic: Financing activities
LO: 2
5. Other than operating profit, there are three main sources of external financing.

Answer: False
Rationale: There are two main sources of financing: owner (also called shareholder or equity) financing
and nonowner (also called creditor or lender) financing.

Topic: Financing and investing activities
LO: 2
6. Financing activities are defined as the acquiring and disposing of resources for the purpose
of selling products and services.

Answer: False
Rationale: Financing activities are defined as methods a company uses to raise funds to pay for
resources. Investing activities are defined as the acquiring and disposing of resources for the purpose
of selling products and services.

Topic: Statement of cash flows
LO: 3
7. A statement of cash flows reports on cash flows for operating, investing and financing activities at a
point 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: Retained earnings
LO: 3
8. Retained earnings are present on both the income statement and the statement of stockholders’ equity.

Answer: False
Rationale: Retained earnings are present in the statement of stockholders’ equity and the balance
sheet. The income statement represents current period earnings.

Topic: Balance sheet
LO: 3
9. If Beatty Company reports retained earnings of $242.6 million on its balance sheet, it will also
report $242.6 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.

.
1-3 Financial Accounting, 7th Edition

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Exam (elaborations)

FINANCIAL ACCOUNTING 7TH EDITION BY MICHELLE HANLON, ROBERT MAGEE, GLENN PFEIFFER TEST BANK

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