TOPIC:Users of Financial Statement Information LO: uc uc uc uc uc
2
1. Shareholders demand financial information primarily to assess profitability and risk whereas bankers d uc uc uc uc uc uc uc uc uc uc uc uc
emand information primarily to assess cash flows to repay loan interest and principal.
uc uc uc uc uc uc uc uc uc uc uc uc
ACCURATE ANSWER:-True uc
Reasoning:->>-
>>>While both shareholders and bankers are interested in all the information companies provide, share
uc uc uc uc uc uc uc uc uc uc uc uc uc
holders care about more about a firm’s profitability and bankers care more about solvency and creditwor
uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc
thiness.
TOPIC:Publicly Available Financial Reports uc uc uc
LO: 2
uc uc
2. Publicly traded companies are required to provide quarterly financial reports directly to the public.
uc uc uc uc uc uc uc uc uc uc uc uc uc
ACCURATE ANSWER:-False uc
Reasoning:->>-
>>>Companies provide electronic versions of quarterly financial statements to the SEC, which posts th uc uc uc uc uc uc uc uc uc uc uc uc uc
em to the Internet for the public to access them.
uc uc uc uc uc uc uc uc uc
TOPIC:Users of Financial Statement Information LO: uc uc uc uc uc
2
3. Publicly traded companies provide financial information primarily to satisfy the SEC and the
u c u c u c u c u c u c u c u c u c u c u c u c u
tax authorities (that is, the Internal Revenue Service).
c uc uc uc uc uc uc uc
ACCURATE ANSWER:-False uc
Reasoning :->>- uc
>>>Demand for information extends to many users; the regulators such as the SEC and the IRS are onl
uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc
y one class of users.
uc uc uc uc
TOPIC:SECFilings LO: uc uc
2
4. Publicly traded companies must provide to the Securities Exchange Commission annual audi
u c u c u c u c u c u c u c u c u c u c u c
Reasoning:->>->>>Quarterly reports do not need to be audited. uc uc uc uc uc uc uc
TOPIC:Balance She uc
et LO: 3
uc uc
5. If a firm reports retained earnings of $175.3 million on its balance sheet, it must also report
u c u c u c u c u c u c u c uc u c u c u c u c u c u c u c u c
$175.3 million in cash. uc uc uc
ACCURATE ANSWER:-False uc
Reasoning:->>-
>>>The accounting equation requires total assets to equal total liabilities plus stockholders’ equity. That
uc uc uc uc uc uc uc uc uc uc uc uc uc u
does not imply, however, that liability and equity accounts relate directly to specific assets.
c uc uc uc uc uc uc uc uc uc uc uc uc uc
Test Bank (T/F & MC), Module 1
uc uc uc uc uc uc 1-2
, TOPIC:Balance She uc
et LO: 3
uc uc
6. A balance sheet shows a firm’s position over a period of time, whereas an income statement, statem
uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc
ent of stockholders’ equity, and statement of cash flows show its position at a point in time.
uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc
ACCURATE ANSWER:-False uc
Reasoning:->>-
>>>The statement is reversed: A balance sheet shows a firm’s position at a point in time, whereas an inc
uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc
ome statement, statement of equity, and statement of cash flows show its position over a period of tim
uc uc uc uc uc uc uc uc uc uc uc u c u c uc uc uc uc
e.
TOPIC:Accounting Equati uc
on LO: 3 uc uc
7. Assets must always equal liabilities plus equity. uc uc uc uc uc uc
ACCURATE ANSWER:-True uc
Reasoning:->>->>>The accounting equation is Assets = Liabilities + Equity. This relation must always hold. uc uc uc uc uc uc uc uc uc uc uc uc uc
TOPIC:Income Statement LO: uc uc
3
8. The income statement reports net income which is defined as the firm’s profit after all expenses and div
uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc
idends have been paid. uc uc uc
ACCURATE ANSWER:-False uc
Reasoning:->>-
>>>The statement contains two errors. First, net income does not include any dividends during the perio
uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc
d; these are a distribution of profits and not part of its calculation. Second, the income statement is prepa
uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc
red on an accrual basis and thus includes expenses incurred (as opposed to paid).
uc uc uc uc uc uc uc uc uc uc uc uc uc
TOPIC:Statement of Cash Flow uc uc uc
s LO: 3
uc uc
9. A statement of cash flows reports on cash flows for operating, investing and financing activities at a p
uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc
oint in time. uc uc
ACCURATE ANSWER:-False uc
Reasoning:->>-
>>>A statement of cash flows reports on cash flows for operating, investing, and financing activities ove
uc uc uc uc uc uc uc uc uc uc uc uc uc uc uc
r a period of time.
uc uc uc uc
TOPIC:Statement of Stockholders’ Equity L uc uc uc uc
O: 3 uc
10. An increase in common stock would be reflected in the statement of stockholders’ equity.
uc uc uc uc uc uc uc uc uc uc uc uc uc
ACCURATE ANSWER:-True uc
Reasoning:->>-
>>>The statement of stockholders’ equity reports on changes in the accounts that make up stockholder
uc uc uc uc uc uc uc uc uc uc uc uc uc uc
s’ equity. This includes contributed capital, retained earnings, and other equity.
uc uc uc uc uc uc uc uc uc uc
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