Study Guide Essay

A business entity’s accounting system creates financial accounting reports which are provided to external decision makers. True False 2. Business managers utilize managerial accounting reports to plan and manage the daily operations. True False 3. The balance sheet includes assets, liabilities and stockholders’ equity as of a point in time. True False 4. Revenue is recognized within the income statement during the period in which cash is collected. True False . Total assets are $37,500, total liabilities are $20,000 and contributed capital is $10,000; therefore, retained earnings are $7,500. True False 6. The income statement is a measure of an entity’s economic performance for a period of time. True False 7. The accounting equation states that Assets = Liabilities + Stockholders’ Equity. True False 8. A decision maker who wants to understand a company’s financial statements must carefully read the notes to the financial statements because the notes provide useful supplemental information. True False 9.

The financial statement that shows an entity’s economic resources and claims against those resources is the balance sheet. True False 10. Assets are initially recorded on the balance sheet at the total cost paid to acquire the asset. True False 11. Stockholders’ equity on the balance sheet consists of contributed capital and retained earnings. True False 12. The amount of cash paid by a business for dividends would be reported on the statement of cash flows as an operating activity. True False 13. A company’s retained earnings balance increased $50,000 last year; therefore, net income last year must have been $50,000. True False 4. The statement of retained earnings explains the change in the retained earnings balance caused by stockholder investments and dividend declarations. True False 15. The Financial Accounting Standards Board (FASB) has been given the authority by the Securities and Exchange Commission (SEC) to develop generally accepted accounting principles. True False 16. In the United States, the Securities and Exchange Commission (SEC) is considering the adoption of International Financial Reporting Standards (IFRS). True False 17. The primary responsibility for the content of the financial statements lies with the external auditor.

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True False 18. An audit examines the financial statements provided by management to ensure that they represent what they claim and to make sure that they are in compliance with Generally Accepted Accounting Principles. True False 19. The auditor can be held liable for malpractice in situations where the investors suffered losses while relying on the financial statements. True False 20. One of the advantages of a corporation when compared to a partnership is the limited liability of the owners. True False 21. Which of the following describes the primary objective of the balance sheet?

A. B. C. D. To measure the net income of a business up to a particular point in time. To report the difference between cash inflows and cash outflows for the period. To report the financial position of the reporting entity at a particular point in time. To report the market value of assets, liabilities and stockholders’ equity at a particular point in time. 22. During the fiscal year ended 2010, a company had revenues of $400,000, expenses of $280,000, and an income tax rate of 30 percent. What was the company’s 2010 net income? A. B. C. D. $120,000 $36,000 $84,000 $400,000 3. Atlantic Corporation reported the following amounts at the end of the first year of operations: contributed capital $200,000; sales revenue $800,000; total assets $600,000; dividends declared $40,000; and total liabilities $320,000. What are Atlantics’ retained earnings at the end of the year and how much expenses were incurred during the year? A. B. C. D. Retained earnings are $80,000 and expenses incurred totaled $680,000. Retained earnings are $80,000 and expenses incurred totaled $720,000. Retained earnings are $280,000 and expenses incurred totaled $480,000.

Retained earnings are $280,000 and expenses incurred totaled $520,000. 24. Which of the following best describes the balance sheet? A. B. C. D. It includes a listing of assets at their market values. It includes a listing of assets, liabilities, and stockholders’ equity at their market values. It provides information pertaining to a company’s assets and the providers of the assets. It provides information pertaining to a company’s liabilities for a period of time. 25. Which of the following statements is correct? A. B. C. D. Assets on the balance sheet include retained earnings. Retained earnings include contributed capital.

The balance sheet equation states that assets equal contributed capital. A corporation’s net income does not necessarily equal its cash flow from operations. 26. Which of the following correctly describes the various financial statements? A. B. C. D. An income statement covers a period of time. The cash flow statement is a point in time financial statement. The balance sheet is a period of time financial statement. The statement of retained earnings is a point in time financial statement. 27. Which of the following accounts would not be reported on the balance sheet? A. B. C. D. Retained earnings Inventory Accounts payable Dividends 8. Which of the following would not be found on the statement of cash flows? A. B. C. D. Cost flow from manufacturing activities Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities 29. Which of the following accounts is not a liability on the balance sheet? A. B. C. D. Retained earnings Notes payable Taxes payable Interest payable 30. What financial statement would you look at to determine the dividends declared by a business? A. B. C. D. Income statement Statement of retained earnings Statement of cash flows Balance sheet 31.

Which financial statement would you utilize to determine whether a company will be able to pay liabilities which are due in 30 days? A. B. C. D. Income statement Balance sheet Statement of retained earnings Statement of cash flows 32. Which of the following is considered to be an expense on the income statement? A. B. C. D. Accounts payable Notes payable Wages payable Cost of goods sold 33. Which of the following best describes assets? A. B. C. D. They are equal to liabilities minus stockholders’ equity. They are considered to be the economic resources of the business. They are all reported on the balance sheet at their current market value.

They equal contributed capital. 34. Which of the following accounts would be reported as assets on the balance sheet? A. B. C. D. Cash, accounts payable, and notes payable. Cash, retained earnings, and accounts receivable. Cash, accounts receivable, and inventory. Inventories, property and equipment, and contributed capital. 35. Which of the following statements describes the balance sheet? A. B. C. D. It reports a company’s revenues and expenses. Assets are generally reported on the balance sheet at their historical cost. Stockholders’ equity includes only retained earnings. It reports a company’s cash flow from operations. 6. Which of the following best describes liabilities and stockholders’ equity? A. B. C. D. They are the sources of financing an entity’s assets. They are the economic resources used by a business entity. They are reported on the income statement. They both increase when assets increase. 37. Which of the following equations is the balance sheet equation? A. B. C. D. Assets + Liabilities = Stockholders’ Equity Assets + Stockholder’s Equity = Liabilities Assets = Liabilities + Stockholders’ Equity Assets = Liabilities + Contributed Capital 38. Willie Company’s retained earnings increased $20,000 during 2010.

What was Willie’s 2010 net income or loss given that Willie declared $25,000 of dividends during 2010? A. B. C. D. Net income was $5,000. Net income was $45,000. Net loss was $45,000. Net loss was $5,000. 39. Which of the following are the components of stockholders’ equity on the balance sheet? A. B. C. D. Contributed capital and long-term liabilities. Contributed capital and property, plant, and equipment. Retained earnings and notes payable. Contributed capital and retained earnings. 40. Which financial statement would you use to determine a company’s earnings performance during an accounting period? A. B.

C. D. Balance sheet Statement of retained earnings Income statement Statement of cash flows 41. Which of the following equations best describes the income statement? A. B. C. D. Assets – Liabilities = Stockholders’ Equity Net income = Revenues + Expenses Net income = Revenues – Expenses. Retained earnings = Net Income + Dividends 42. Lena Company has provided the following data (ignore income taxes): 2010 revenues were $99,000. 2010 expenses were $47,800. Dividends declared and paid during 2010 totaled $9,500. Total assets on December 31, 2010 were $177,000. Total liabilities on December 31, 2010 were $89,000.

Contributed capital on December 31, 2010 was $28,000. Which of the following is correct? A. B. C. D. 2010 net income was $41,700. Total stockholders’ equity on December 31, 2010 was $236,000. Retained earnings on December 31, 2010 were $60,000. Retained earnings on December 31, 2010 were $41,700. 43. Lena Company has provided the following data (ignore income taxes): 2010 revenues were $99,000. 2010 expenses were $47,800. Dividends declared and paid during 2010 totaled $9,500. Total assets on December 31, 2010 were $177,000. Total liabilities on December 31, 2010 were $89,000. Contributed capital on December 31, 2010 was $28,000.

Which of the following is not correct? A. B. C. D. 2010 net income was $51,200. Total stockholders’ equity on December 31, 2010 was $88,000. Retained earnings increased $41,700 during 2010. Retained earnings on December 31, 2010 were $41,700. 44. Madrid Company has provided the following data (ignore income taxes): 2010 revenues were $77,500. 2010 net income was $33,900. Dividends declared and paid during 2010 totaled $5,700. Total assets on December 31, 2010 were $217,000. Total stockholders’ equity on December 31, 2010 was $123,000. Retained earnings on December 31, 2010 were $83,000.

Which of the following is not correct? A. B. C. D. 2010 expenses were $43,600. Total liabilities on December 31, 2010 were $94,000. Retained earnings increased $33,900 during 2010. Contributed capital on December 31, 2010 was $40,000. 45. Madrid Company has provided the following data (ignore income taxes): 2010 revenues were $77,500. 2010 net income was $33,900. Dividends declared and paid during 2010 totaled $5,700. Total assets on December 31, 2010 were $217,000. Total stockholders’ equity on December 31, 2010 was $123,000. Retained earnings on December 31, 2010 were $83,000.

Which of the following is correct? A. B. C. D. 2010 expenses were $37,900. Total liabilities on December 31, 2010 were $11,000. Retained earnings increased $28,200 during 2010. Contributed capital on December 31, 2010 was $206,000. 46. Which of the following is the amount of revenue reported on the income statement of a retail company? A. B. C. D. The cash collected from customers during the current period. Both cash and credit sales for the period. Cash sales for the period. Cash sales and stockholders’ investments. 47. On January 1, 2010 Miller Corporation had retained earnings of $8,000,000.

During 2010, Miller reported net income of $1,500,000, declared dividends of $500,000, and issued stock for $1,000,000. What were Miller’s retained earnings on December 31, 2010? A. B. C. D. $7,000,000 $9,500,000 $9,000,000 $7,500,000 48. What are the categories of cash flows that appear on a statement of cash flows? A. B. C. D. Cash flows from investing, financing, and service activities. Cash flows from operating, production, and internal activities. Cash flows from financing, production, and growth activities. Cash flows from operating, investing, and financing activities. 49.

When would a company report a net loss on the income statement? A. B. C. D. When revenues are less than the sum of expenses plus dividends during an accounting period. If assets decreased during an accounting period. If liabilities increased during an accounting period. When expenses exceeded revenues for an accounting period. 50. Which of the following describes the amount of insurance expense reported on the income statement? A. The amount of cash paid for insurance in the current period. B. The amount of cash paid for insurance in the current period less any unpaid insurance at the end of the period. C.

The amount of insurance used up (incurred) in the current period to help generate revenue. D. The amount of cash paid for insurance that is reported within the statement of cash flows. 51. Which of the following would immediately cause a change in a corporation’s retained earnings? A. B. C. D. Net income or net loss and declaration of dividends. Declaration of dividends and issuance of stock to new stockholders. Net income and issuance of stock to new stockholders. Declaration of dividends and purchase of new machinery. 52. Which of the following describes the operations section of a cash flow statement? A.

It provides information about how operations have been financed. B. It provides information pertaining to dividend payments to stockholders. C. It provides information with respect to a company’s ability to generate cash flow to pay for goods and services. D. It provides the net increase or decrease in cash during the period. 53. Within which of the following would you find the inventory method(s) being used by a business entity? A. B. C. D. Balance sheet Income statement Notes to the financial statements Headings of the financial statements 54. At the beginning of 2010, a corporation had assets of $270,000 and liabilities of $160,000.

During 2010, assets increased $25,000 and liabilities increased $5,000. What was stockholders’ equity on December 31, 2010? A. B. C. D. $140,000 $130,000 $190,000 $80,000 55. During 2011, Canton Company’s assets increased $95,500 and their liabilities decreased $17,300. Canton Company’s stockholders’ equity on December 31, 2011 was $211,500. How much was stockholders’ equity on January 1, 2011? A. B. C. D. $98,700 $324,300 $133,300 $289,700 56. How are creditor and investor claims reported on a balance sheet? A. The claims of creditors are liabilities and those of investors are assets. B.

The claims of both creditors and investors are liabilities, but only the claims of investors are considered to be long-term. C. The claims of creditors are reported as liabilities while the claims of investors are recorded as stockholders’ equity. D. The claims of creditors and investors are considered to be essentially equivalent. 57. In what order would the items on the balance sheet appear? A. B. C. D. Assets, retained earnings, liabilities, and contributed capital. Contributed capital, retained earnings, liabilities, and assets. Assets, liabilities, contributed capital, and retained earnings.

Contributed capital, assets, liabilities, and retained earnings. 58. Which of the following would increase retained earnings? A. B. C. D. An increase in expenses. An increase in revenues. Declaring a cash dividend. Issuing additional common stock. 59. A company’s retained earnings increased $375,000 last year and its assets increased $973,000. The company declared a $79,000 cash dividend during the year. What was last year’s net income? A. B. C. D. $296,000 $375,000 $454,000 $519,000 60. Which of the following items is reported as an expense on the income statement? A. B. C. D.

Dividends declared Cost of goods sold Dividends paid Accounts payable 61. Which of the following has primary responsibility to develop Generally Accepted Accounting Principles? A. B. C. D. Financial Accounting Standards Board American Accounting Association Securities ; Exchange Commission Public Company Accounting Oversight Board 62. Which of the following has the legal authority to determine financial reporting in the United States? A. B. C. D. Financial Accounting Standards Board American Accounting Association Securities ; Exchange Commission Public Company Accounting Oversight Board 63.

Which of the following is not reported as a liability on a balance sheet? A. B. C. D. Income taxes payable Contributed capital Accounts payable Dividends declared 64. Which of the following transactions increases both cash and net income? A. B. C. D. Cash receipts from a bank loan. Cash receipts from sale of stock. Cash receipts from customers for services provided. Cash receipts from a bond issue. 65. Which of the following properly describes the impact on the financial statements when a company reports wage expense of $7,500, of which $2,500 remains unpaid? A. B. C. D. Net income decreased $9,000.

Cash decreased $2,500. Net income decreased $7,500. Cash decreased $7,500. 66. Which of the following properly describes the impact on the financial statements when a company purchases and pays $8,000 for supplies inventory, of which $2,000 remains unused at the end of the period? A. B. C. D. Net income decreased $6,000. Cash decreased $6,000. Net income decreased $8,000. Cash decreased $2,000. 67. Which of the following properly describes the impact on the financial statements when a company incurs operating expenses of $9,000, of which $3,000 remains unpaid? A. B. C. D. Net income decreased $9,000.

Cash increased $6,000. Net income decreased $3,000. Cash decreased $9,000. 68. Which of the following properly describes the impact on the financial statements when a company borrows $20,000 from a local bank? A. B. C. D. Net income decreased $20,000. Assets decreased $20,000. Stockholders’ equity increased $20,000. Liabilities increased $20,000. 69. Which of the following would not be reported in the operating activities section of a cash flow statement? A. B. C. D. Cash paid for dividends to stockholders. Cash paid for interest expense. Cash paid for employee wages. Cash received from customers. 70.

Which of the following would be reported in the financing section of a cash flow statement? A. B. C. D. Cash paid for dividends to stockholders. Cash paid for interest expense. Cash paid to acquire equipment. Cash received from sale of investments. 71. Which of the following would be reported in the investing section of a cash flow statement? A. B. C. D. Cash received from customers. Cash received from the issue of stock. Cash paid to repay a bank loan. Cash paid to acquire stock of another company. 72. Which of the following statements is correct? A. The payment of a cash dividend reduces net income. B.

Cash received from an issuance of stock to stockholders is reported as a financing cash flow within the statement of cash flows. C. Providing services to a customer on account doesn’t impact net income. D. Interest payments are reported within the statement of cash flows as a financing activity. 73. Husky Company has provided the following information for its most recent year of operation: Cash collected from customers totaled $89,300. Cash borrowed from banks totaled $31,700. Cash paid to employees totaled $32,100. Cash paid for interest totaled $2,900. Cash received from selling Husky stock to stockholders totaled $41,000.

Cash payments to banks for repayment of money borrowed totaled $7,500. Cash paid for operating expenses totaled $9,600. Land costing $25,000 was sold for $25,000 cash. Cash paid for dividends to stockholders totaled $3,300. How much was Husky’s cash flow from operating activities? A. B. C. D. $47,600 $44,700 $41,400 $37,200 74. Husky Company has provided the following information for its most recent year of operation: Cash collected from customers totaled $89,300. Cash borrowed from banks totaled $31,700. Cash paid to employees totaled $32,100. Cash paid for interest totaled $2,900.

Cash received from selling Husky stock to stockholders totaled $41,000. Cash payments to banks for repayment of money borrowed totaled $7,500. Cash paid for operating expenses totaled $9,600. Land costing $25,000 was sold for $25,000 cash. Cash paid for dividends to stockholders totaled $3,300. How much was Husky’s cash flow from financing activities? A. B. C. D. $72,700 $59,000 $65,200 $61,900 75. Sparty Corporation has provided the following information for its most recent year of operation: Revenues earned were $97,000, of which $9,000 were uncollected at the end of the year.

Operating expenses incurred were $39,000, of which $7,000 were unpaid at the end of the year. Dividends declared were $11,000, of which $3,000 were unpaid at the end of the year. Income tax expense is 30% of pretax income. How much net income was reported on Sparty’s income statement? A. B. C. D. $32,900 $39,300 $33,600 $40,600 76. Which of the following statements is correct? A. Revenues are reported on the income statement regardless of whether the customer has paid for the goods or services. B. Expenses are reported within the income statement during the period that they are paid for. C.

Net income includes a deduction for dividend payments made to stockholders. D. Net income normally equals the net cash generated by operations. 77. During 2010, Rock Company’s cash balance increased from $79,000 to $91,300. Rock’s net cash flow from operating activities was $37,300 and its net cash flow from financing activities was $11,100. How much was Rock’s net cash flow from investing activities? A. B. C. D. A net cash flow of $42,900. A net cash flow of ($36,100). A net cash flow of $60,700. A net cash flow of ($60,700). 78. Which of the following statements is false? A. A positive net income esults in an increase in retained earnings. B. The ending retained earnings balance from the statement of retained earnings is reported on the balance sheet. C. The change in the cash balance on the statement of cash flows added to the beginning cash balance equals the ending cash balance. D. The dividends reported on the statement of retained earnings are also reported as dividend expense on the income statement. 79. Which of the following is not a consequence to a company resulting from the issue of their financial statements? A. B. C. D. The effect on the selling price of their stock.

The providing of information to their competitors. The effect on bonus payments to its employees. The providing of information to their auditors. 80. Which of the following statements pertaining to the audit function is incorrect? A. The primary responsibility for the information in the financial statements lies with the auditors. B. The audit report describes the auditor’s opinion of the fairness of the financial statements. C. An audit ensures that the financial statements conform to generally accepted accounting principles. D. The auditor doesn’t examine all of the transactions an entity incurred. 81.

The International Accounting Standards Board has worked to develop global accounting standards known as A. B. C. D. generally accepted accounting principles. globally accepted financial standards. international financial reporting standards. worldwide financial standards. 82. An examination of the financial statements of a business to ensure that they conform to generally accepted accounting principles is called A. B. C. D. a certification. an audit. a verification. a validation. 83. Which of the following best describes the purpose of an audit? A. B. C. D. To prove the accuracy of an entity’s financial statements.

To lend credibility to an entity’s financial statements. To audit every transaction that an entity entered into. To establish that a corporation’s stock is a sound investment. 84. Why does a company hire independent auditors? A. B. C. D. To guarantee the accuracy of both annual and quarterly financial statements. To verify the accounting accuracy of every transaction entered into. To report on the fairness of financial statement presentation. The auditors are responsible for the content of the financial statements. 85. Why is the CPA’s role in performing audits important to our economic system?

A. The auditors provide direct financial advice to potential investors. B. The auditors have the primary responsibility for the information contained in financial statements. C. The auditors issue reports on the accuracy of each financial transaction. D The audit of financial statements helps investors and others to know that they can rely on the information . presented in the financial statements. 86. Which of the following is not one of the three steps taken by a corporation to assure the accuracy of its records? A. Implementing a system of internal controls. B.

The hiring of an independent auditor to report on the fairness of the financial statements. C. The hiring of a financial analyst. D. The formation of a committee made up of board of directors’ members to oversee the integrity of its safeguards utilized. 87. Which of the following groups has primary responsibility for the information contained in the financial statements? A. B. C. D. The company’s management The company’s auditors The company’s investors The company’s internal auditors 88. Which private sector body was given the primary responsibility to determine detailed auditing standards?

A. B. C. D. Financial Accounting Standards Board Securities & Exchange Commission Public Company Accounting Oversight Board American Institute of Certified Public Accountants 89. Which group maintains the professional code of ethics to which CPAs must adhere? A. B. C. D. American Institute of Certified Public Accountants Financial Accounting Standards Board Securities & Exchange Commission Public Company Accounting Oversight Board 90. Which of the following is a disadvantage of a corporation when compared to a partnership? A. The stockholders have limited liability. B.

The corporation is treated as a separate legal entity from the stockholders. C. The corporation and its stockholders are subject to double taxation. D. The corporation must account for the business’s transactions separate and apart from those of the owners. 91. Which of the following statements is true about a sole proprietorship? A. B. C. D. The owner and the business are separate legal entities but not separate accounting entities. The owner and the business are separate accounting entities but not separate legal entities. The owner and the business are separate legal entities and separate accounting entities.

Most large businesses in this country are organized as sole proprietorships. 92. For a business organized as a general partnership, which statement is true? A. B. C. D. The owners and the business are separate legal entities. Each partner is potentially responsible for the debts of the business. Formation of a partnership requires getting a charter from the state of incorporation. A partnership is not considered to be a separate accounting entity. 93. Which of the following would not be reported on a statement of retained earnings? A. B. C. D.

Dividend payments Net income Beginning retained earnings Ending retained earnings 94. Which of the following statements is correct? A. The statement of retained earnings always reports the same amount of dividend payments as does the statement of cash flows. B. The statement of cash flows has a relationship with the balance sheet. C Dividends paid are reported on the statement of cash flows as an operating cash flow and on the income . statement as a financing cash flow. D. Net income is reported on the income statement but not on the statement of retained earnings. 95.

Which of the following is not provided within the notes that accompany the financial statements? A. B. C. D. A description of the accounting rules applied. A description of the terms of a lease agreement. A description pertaining to a particular line on the financial statements. A description of net income for each of the prior three years. 96. Which of the following transactions affects both retained earnings and net income? A. B. C. D. The payment of a cash dividend. The recording of revenue for services provided. The issue of stock in exchange for cash. The borrowing of money from a bank. 97.

Which of the following transactions affects both the income statement and the statement of cash flows? A. B. C. D. Selling stock in exchange for cash. Declaring and paying a cash dividend. Selling a product to a customer which creates an account receivable. Paying employee wages as they are earned. 98. Which of the following would not be found within the investing section of the statement of cash flows? A. B. C. D. Cash paid to purchase a manufacturing building. Cash received from the sale of stock to stockholders. Cash received from the sale of manufacturing equipment. Cash paid to purchase land. 9. Which of the following is primarily responsible for the information provided in the financial statements? A. B. C. D. Chief Executive Officer External Auditors Board of Directors Internal Accounting Staff 100. Which of the following doesn’t represent a professional accounting certification? A. B. C. D. Certified Management Accountant Certified Public Accountant Certified Internal Auditor Certified Tax Accountant 101. Determine the missing amounts for each independent case below. Assume the amounts given are at the end of the company’s first year of operation. 102. Gail’s Greenhouse, Inc. a small retail store which sells house plants, started business on January 1, 2010. At the end of January, 2010, the following information was available: 103. Indicate on which financial statement you would expect to find each of the following. If an item can be found on more than one statement, list each statement. 104. For each of the following items that appear on the balance sheet, identify each as an asset (A), liability (L), or element of stockholders’ equity (SE). For any item that would not appear on the balance sheet, write the letter, N. 105. Rose Corporation began operations at the start of 2010.

During 2010, it made cash and credit sales totaling $500,000 and collected $420,000 in cash from its customers. It purchased inventory costing $250,000, paid $15,000 for dividends and the cost of goods sold was $210,000. The corporation incurred the following expenses during 2010: 106. Cosmos Corporation was established on December 31, 2010, by a group of investors who invested a total of $1,000,000 for shares of the new corporation’s stock. During the month of January, 2011, Cosmos provided services to customers for which the total revenue was $100,000. Of this amount, $10,000 had not been collected by the end of January.

Cosmos recorded salary expense of $20,000, of which 90% had been paid by the end of the month; rent expense of $5,000, which had been paid on January 1; and other expenses of $12,000, which had been paid by check. On January 31, 2011, Cosmos purchased a van by paying cash of $30,000. There were no other transactions that affected cash. 107. Parker Pool Supply, Inc. reported the following items for the year ended December 31, 2010: 108. National Shops, Inc. reported the following amounts on its balance sheet as of December 31, 2010: 109. During 2010, Winterset Company performed services for which customers paid or promised to pay $587,000.

Of this amount, $552,000 had been collected by year-end. Winterset paid $340,000 in cash for employee wages and owed the employees $15,000 at the end of the year for work that had been done but had not paid for. Winterset paid interest expense of $3,000 and $195,000 for other service expenses. The income tax rate was 35%, and income taxes had not yet been paid at the end of the year. Winterset declared and paid dividends of $20,000. There were no other transactions that affected cash. 110. Alfred Company manufactures men’s clothing. During 2010, the company reported the following items that affected cash.

Indicate whether each of these items is a cash flow from operating activities (O), investing activities (I), or financing activities (F). 111. Fulton Company was established at the beginning of 2010 when several investors paid a total of $200,000 to purchase Fulton stock. No additional investments in stock were made during the year. By December 31, 2010, Fulton had cash on hand of $45,000, office equipment (net) of $40,000, inventories of $156,000, and accounts payable of $10,000. Sales for the year were $812,000. Of this amount, customers still owed $20,000. Fulton paid dividends of $25,000 to its stockholders during 2010. 12. For Glad Rags Shops, the following information is available for the year ended December 31, 2010: 113. Baseline Corporation was formed two years ago to manufacture fitness equipment. It has been profitable and is growing rapidly. It currently has 150 stockholders and 90 employees; most of the employees own at least a few shares of Baseline’s stock. The company has received financing from two banks. It will sell additional shares of stock within the next three months and will also seek additional loans and hire new employees to support its continued growth. 114.

Larson Company ends its recent year of operations with $3,500,000 in retained earnings. During the year Larson’s net income exceeded its dividend declarations by $200,000. Larson’s dividend declarations were $25,000 greater than the dividend payments. How much was Larson Company’s beginning retained earnings? 115. As of January 1, 2010, a corporation had assets of $340,000 and liabilities of $120,000. During 2010, assets increased $45,000 and liabilities increased $15,000. What was stockholders’ equity on December 31, 2010? 116. Laker Company has provided the following information for its most recent year of operation: 117.

Laker Company has provided the following information for its most recent year of operation: Cash collected from customers totaled $99,300. Cash borrowed from banks totaled $42,700. Cash paid to employees totaled $23,300. Cash paid for interest totaled $3,100. Cash received from selling an investment in Husky stock totaled $73,000. Cash payments to banks for repayment of money borrowed totaled $9,700. Cash paid for operating expenses totaled $11,200. Land costing $75,000 was sold for $75,000 cash. Cash paid for dividend payments to stockholders totaled $7,700. How much was Laker’s net cash flow from investing activities? 18. Laker Company has provided the following information for its most recent year of operation: 119. During 2010, Rock Company’s cash balance increased from $57,000 to $94,300. Rock’s net cash flow from operating activities was $26,900 and its net cash flow from financing activities was $13,700. How much was Rock’s net cash flow from investing activities? 120. Moss Company has provided the following data: 121. Describe the roles of the Securities & Exchange Commission and The Financial Accounting Standards Board with respect to the development of Generally Accepted Accounting Principles. 22. Describe the elements of the balance sheet equation. 123. Describe the role of a company’s management and the external auditors in the accounting communication process. 124. What is the objective of the cash flow statement? Describe the three cash flow classifications that are reported within the cash flow statement. 125. How is net income in the income statement different than cash flow from operations in the cash flow statement? ch1 Key 1. A business entity’s accounting system creates financial accounting reports which are provided to external decision makers.

TRUE The accounting system collects financial data and produces reports used by both internal decision makers and external decision makers. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #1 Topic Area: Understanding the Business 2. Business managers utilize managerial accounting reports to plan and manage the daily operations.

TRUE Managerial accounting reports are for internal use to assist managers with day-to-day operations. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #2 Topic Area: Understanding Business 3. The balance sheet includes assets, liabilities and stockholders’ equity as of a point in time.

TRUE The balance sheet reports the amount of assets, liabilities, and stockholders’ equity of an entity at a point in time. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #3 Topic Area: The Four Basic Financial Statements: An Overview 4. Revenue is recognized within the income statement during the period in which cash is collected.

FALSE Revenue is recognized within the income statement during the period in which revenue is earned. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #4 Topic Area: The Four Basic Financial Statements: An Overview 5. Total assets are $37,500, total liabilities are $20,000 and contributed capital is $10,000; therefore, retained earnings are $7,500.

TRUE $37,500 = $20,000 + $10,000 + X, X = $7,500 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #5 Topic Area: The Four Basic Financial Statements: An Overview 6. The income statement is a measure of an entity’s economic performance for a period of time. TRUE The income statement reports the performance of a business during the accounting period.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #6 Topic Area: The Four Basic Financial Statements: An Overview 7. The accounting equation states that Assets = Liabilities + Stockholders’ Equity. TRUE The accounting equation, also known as the balance sheet equation, states that Assets = Liabilities + Stockholders’ Equity.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #7 Topic Area: The Four Basic Financial Statements: An Overview 8. A decision maker who wants to understand a company’s financial statements must carefully read the notes to the financial statements because the notes provide useful supplemental information.

TRUE The notes provide supplemental information necessary to fully understand the financial statements. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #8 Topic Area: The Four Basic Financial Statements: An Overview 9. The financial statement that shows an entity’s economic resources and claims against those resources is the balance sheet.

TRUE Balance sheet contains assets (economic resources), liabilities (claims against those resources), and stockholders’ equity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #9 Topic Area: The Four Basic Financial Statements: An Overview 10. Assets are initially recorded on the balance sheet at the total cost paid to acquire the asset.

TRUE Assets on the balance sheet are reported at the cost incurred to acquire them. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #10 Topic Area: The Four Basic Financial Statements: An Overview 11. Stockholders’ equity on the balance sheet consists of contributed capital and retained earnings.

TRUE The stockholders’ equity section of the balance sheet represents financing provided by owners of the business (contributed capital) and earnings (retained earnings). AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #11 Topic Area: The Four Basic Financial Statements: An Overview 12. The amount of cash paid by a business for dividends would be reported on the tatement of cash flows as an operating activity. FALSE Dividends are reported on the statement of retained earnings. On the statement of cash flows, dividends show up as a financing activity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #12 Topic Area: The Four Basic Financial Statements: An Overview 13.

A company’s retained earnings balance increased $50,000 last year; therefore, net income last year must have been $50,000. FALSE Retained earnings is increased by net income and decreased by dividends, we would need to know the dividend amount was zero in this situation to make the above statement true. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #13 Topic Area: The Four Basic Financial Statements: An Overview 14. The statement of retained earnings explains the change in the retained earnings balance caused by stockholder investments and dividend declarations. FALSE Beginning retained earnings + net income – dividends = ending retained earnings AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #14 Topic Area: The Four Basic Financial Statements: An Overview 15. The Financial Accounting Standards Board (FASB) has been given the authority by the Securities and Exchange Commission (SEC) to develop generally accepted accounting principles. TRUE Previously the Securities and Exchange Commission worked with organizations of professional accountants to develop generally accepted accounting principles; today this is handled by the Financial Accounting Standards Board.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Identify the role of generally accepted accounting principles (GAAP) in determining the content of financial statements. Libby – Chapter 01 #15 Topic Area: Responsibilities for the Accounting Communication Process 16. In the United States, the Securities and Exchange Commission (SEC) is considering the adoption of International Financial Reporting Standards (IFRS). TRUE Since 2002 there has been a significant movement in the United States to adopt the International Financial Reporting Standards.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Identify the role of generally accepted accounting principles (GAAP) in determining the content of financial statements. Libby – Chapter 01 #16 Topic Area: Responsibilities for the Accounting Communication Process 17. The primary responsibility for the content of the financial statements lies with the external auditor. FALSE Primary responsibility for the information in the financial statements lies with management.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Distinguish the roles of managers and auditors in the accounting communication process. Libby – Chapter 01 #17 Topic Area: Management Responsibility and the Demand for Auditing 18. An audit examines the financial statements provided by management to ensure that they represent what they claim and to make sure that they are in compliance with Generally Accepted Accounting Principles. TRUE This is the definition of an audit.

AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Distinguish the roles of managers and auditors in the accounting communication process. Libby – Chapter 01 #18 Topic Area: Management Responsibility and the Demand for Auditing 19. The auditor can be held liable for malpractice in situations where the investors suffered losses while relying on the financial statements. TRUE If it is determined that the independent CPA committed malpractice, they may be held liable for losses suffered by investors who relied on the financial statements.

AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Risk Analysis Blooms: Remember Difficulty: Easy Learning Objective: 01-04 Appreciate the importance of ethics; reputation; and legal liability in accounting. Libby – Chapter 01 #19 Topic Area: Ethics, Reputation and Legal Liability 20. One of the advantages of a corporation when compared to a partnership is the limited liability of the owners. TRUE In a partnership each partner has unlimited liability, in a corporation the stockholders have limited liability. AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Decision

Modeling Blooms: Remember Difficulty: Easy Learning Objective: Supplement A Libby – Chapter 01 #20 Topic Area: Types of Business Entities 21. Which of the following describes the primary objective of the balance sheet? A. B. C. D. To measure the net income of a business up to a particular point in time. To report the difference between cash inflows and cash outflows for the period. To report the financial position of the reporting entity at a particular point in time. To report the market value of assets, liabilities and stockholders’ equity at a particular point in time.

The balance sheet reports the amount of assets, liabilities, and stockholders’ equity (financial position) of an accounting entity at a particular point in time. These positions are reported at historical cost, not market value. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #21 Topic Area: The Four Basic Financial Statements: An Overview 2. During the fiscal year ended 2010, a company had revenues of $400,000, expenses of $280,000, and an income tax rate of 30 percent. What was the company’s 2010 net income? A. B. C. D. $120,000 $36,000 $84,000 $400,000 ($400,000 – $280,000) (1 – . 30) = $84,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #22 Topic Area: The Four Basic Financial Statements: An Overview 23. Atlantic Corporation reported the following amounts at the end of the first year of operations: contributed capital $200,000; sales revenue $800,000; total assets $600,000; dividends declared $40,000; and total liabilities $320,000. What are Atlantics’ retained earnings at the end of the year and how much expenses were incurred during the year? A. B. C. D. Retained earnings are $80,000 and expenses incurred totaled $680,000.

Retained earnings are $80,000 and expenses incurred totaled $720,000. Retained earnings are $280,000 and expenses incurred totaled $480,000. Retained earnings are $280,000 and expenses incurred totaled $520,000. Stockholders’ equity ($600,000 -$320,000) = Contributed capital ($200,000) +Retained earnings ($80,000). Retained earnings ($80,000) = Net income ($120,000 – Dividends ($40,000. ) Net income ($120,000) = Sales Revenue ($800,000) – Expenses ($680,000).

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #23 Topic Area: The Four Basic Financial Statements: An Overview 24. Which of the following best describes the balance sheet? A. B. C. D. It includes a listing of assets at their market values. It includes a listing of assets, liabilities, and stockholders’ equity at their market values.

It provides information pertaining to a company’s assets and the providers of the assets. It provides information pertaining to a company’s liabilities for a period of time. The balance sheet reports the assets, liabilities, and stockholders’ equity at their historical costs. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #24 Topic Area: The Four Basic Financial Statements: An Overview 25. Which of the following statements is correct? A. B. C. D. Assets on the balance sheet include retained earnings. Retained earnings include contributed capital. The balance sheet equation states that assets equal contributed capital. A corporation’s net income does not necessarily equal its cash flow from operations. Revenue is recorded as it is earned, not necessarily when the cash from the sales is collected. Expenses are recorded when incurred in generating revenue regardless of when cash is expended.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #25 Topic Area: The Four Basic Financial Statements: An Overview 26. Which of the following correctly describes the various financial statements? A. B. C. D. An income statement covers a period of time.

The cash flow statement is a point in time financial statement. The balance sheet is a period of time financial statement. The statement of retained earnings is a point in time financial statement. The income statement reports the performance of a business during the accounting period. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #26 Topic Area: The Four Basic Financial Statements: An Overview 27. Which of the following accounts would not be reported on the balance sheet? A. B. C. D. Retained earnings Inventory Accounts payable Dividends Dividends are reported on the statement of retained earnings. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #27 Topic Area: The Four Basic Financial Statements: An Overview 28. Which of the following would not be found on the statement of cash flows? A. B. C. D. Cost flow from manufacturing activities Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities The statement of cash flows includes cash flows from operating, investing, and financing activities.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #28 Topic Area: The Four Basic Financial Statements: An Overview 29. Which of the following accounts is not a liability on the balance sheet? A. B. C. D. Retained earnings Notes payable Taxes payable Interest payable Retained earnings is reported on the balance sheet as a component of stockholders’ equity.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #29 Topic Area: The Four Basic Financial Statements: An Overview 30. What financial statement would you look at to determine the dividends declared by a business? A. B. C. D. Income statement Statement of retained earnings Statement of cash flows Balance sheet

Beginning retained earnings + net income – dividends = ending retained earnings AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #30 Topic Area: The Four Basic Financial Statements: An Overview 31. Which financial statement would you utilize to determine whether a company will be able to pay liabilities which are due in 30 days?

A. B. C. D. Income statement Balance sheet Statement of retained earnings Statement of cash flows The balance sheet includes the current assets and current liabilities account balances. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #31 Topic Area: The Four Basic Financial Statements: An Overview 2. Which of the following is considered to be an expense on the income statement? A. B. C. D. Accounts payable Notes payable Wages payable Cost of goods sold Income statements begin with sales less cost of goods sold. Payables are liabilities not expenses. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #32 Topic Area: The Four Basic Financial Statements: An Overview 33. Which of the following best describes assets? A. B. C. D. They are equal to liabilities minus stockholders’ equity. They are considered to be the economic resources of the business. They are all reported on the balance sheet at their current market value. They equal contributed capital. Assets include but are not limited to cash, inventory, and land. These are considered to be economic resources of a business.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #33 Topic Area: The Four Basic Financial Statements: An Overview 34. Which of the following accounts would be reported as assets on the balance sheet? A. B. C. D. Cash, accounts payable, and notes payable. Cash, retained earnings, and accounts receivable.

Cash, accounts receivable, and inventory. Inventories, property and equipment, and contributed capital. Assets are considered the economic resources of a business. Cash, accounts receivable, and inventory are all considered economic resources. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #34 Topic Area: The Four Basic Financial Statements: An Overview 35. Which of the following statements describes the balance sheet? A. B. C. D. It reports a company’s revenues and expenses. Assets are generally reported on the balance sheet at their historical cost. Stockholders’ equity includes only retained earnings. It reports a company’s cash flow from operations. The balance sheet reports assets, liabilities, and stockholders’ equity all at historical costs.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #35 Topic Area: The Four Basic Financial Statements: An Overview 36. Which of the following best describes liabilities and stockholders’ equity? A. B. C. D. They are the sources of financing an entity’s assets.

They are the economic resources used by a business entity. They are reported on the income statement. They both increase when assets increase. Liabilities are a source of financing from creditors. Stockholders’ equity is a source of financing from stockholders. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #36 Topic Area: The Four Basic Financial Statements: An Overview 37. Which of the following equations is the balance sheet equation? A. B. C. D. Assets + Liabilities = Stockholders’ Equity Assets + Stockholder’s Equity = Liabilities Assets = Liabilities + Stockholders’ Equity Assets = Liabilities + Contributed Capital A balance sheet has two sides, the left side is assets and the right side has both liabilities and stockholders’ equity. The total balance from each side must equal each other. Thus Assets = Liabilities + Stockholders’ Equity.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #37 Topic Area: The Four Basic Financial Statements: An Overview 38. Willie Company’s retained earnings increased $20,000 during 2010. What was Willie’s 2010 net income or loss given that Willie declared $25,000 of dividends during 2010? A. B. C. D.

Net income was $5,000. Net income was $45,000. Net loss was $45,000. Net loss was $5,000. The increase in retained earnings ($20,000) equals net income ($45,000) less dividends ($25,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #38 Topic Area: The Four Basic Financial Statements: An Overview 9. Which of the following are the components of stockholders’ equity on the balance sheet? A. B. C. D. Contributed capital and long-term liabilities. Contributed capital and property, plant, and equipment. Retained earnings and notes payable. Contributed capital and retained earnings. Stockholders’ equity indicates the amount of financing provided by owners of the business and earnings. Investments from owners are called contributed capital; the amount of earnings reinvested in the business is called retained earnings.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #39 Topic Area: The Four Basic Financial Statements: An Overview 40. Which financial statement would you use to determine a company’s earnings performance during an accounting period? A. B. C. D. Balance sheet Statement of retained earnings Income statement Statement of cash flows

The income statement reports the company’s financial performance over an accounting period. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #40 Topic Area: The Four Basic Financial Statements: An Overview 41. Which of the following equations best describes the income statement? A. B. C. D.

Assets – Liabilities = Stockholders’ Equity Net income = Revenues + Expenses Net income = Revenues – Expenses. Retained earnings = Net Income + Dividends The income statement equation is revenues – expenses = net income AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #41 Topic Area: The Four Basic Financial Statements: An Overview 2. Lena Company has provided the following data (ignore income taxes): 2010 revenues were $99,000. 2010 expenses were $47,800. Dividends declared and paid during 2010 totaled $9,500. Total assets on December 31, 2010 were $177,000. Total liabilities on December 31, 2010 were $89,000. Contributed capital on December 31, 2010 was $28,000. Which of the following is correct? A. B. C. D. 2010 net income was $41,700. Total stockholders’ equity on December 31, 2010 was $236,000. Retained earnings on December 31, 2010 were $60,000. Retained earnings on December 31, 2010 were $41,700.

Stockholders’ equity ($177,000 – $89,000) = Contributed capital ($28,000) + Retained earnings ($60,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #42 Topic Area: The Four Basic Financial Statements: An Overview 43. Lena Company has provided the following data (ignore income taxes): 2010 revenues were $99,000. 010 expenses were $47,800. Dividends declared and paid during 2010 totaled $9,500. Total assets on December 31, 2010 were $177,000. Total liabilities on December 31, 2010 were $89,000. Contributed capital on December 31, 2010 was $28,000. Which of the following is not correct? A. B. C. D. 2010 net income was $51,200. Total stockholders’ equity on December 31, 2010 was $88,000. Retained earnings increased $41,700 during 2010. Retained earnings on December 31, 2010 were $41,700. Stockholders’ equity ($177,000 – $89,000) = Contributed capital ($28,000) + Retained earnings ($60,000).

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #43 Topic Area: The Four Basic Financial Statements: An Overview 44. Madrid Company has provided the following data (ignore income taxes): 2010 revenues were $77,500. 2010 net income was $33,900. Dividends declared and paid during 2010 totaled $5,700.

Total assets on December 31, 2010 were $217,000. Total stockholders’ equity on December 31, 2010 was $123,000. Retained earnings on December 31, 2010 were $83,000. Which of the following is not correct? A. B. C. D. 2010 expenses were $43,600. Total liabilities on December 31, 2010 were $94,000. Retained earnings increased $33,900 during 2010. Contributed capital on December 31, 2010 was $40,000. Retained earnings increased $28,200 because net income ($33,900) was greater than dividends ($5,700). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning

Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #44 Topic Area: The Four Basic Financial Statements: An Overview 45. Madrid Company has provided the following data (ignore income taxes): 2010 revenues were $77,500. 2010 net income was $33,900. Dividends declared and paid during 2010 totaled $5,700. Total assets on December 31, 2010 were $217,000. Total stockholders’ equity on December 31, 2010 was $123,000. Retained earnings on December 31, 2010 were $83,000.

Which of the following is correct? A. B. C. D. 2010 expenses were $37,900. Total liabilities on December 31, 2010 were $11,000. Retained earnings increased $28,200 during 2010. Contributed capital on December 31, 2010 was $206,000. Retained earnings increased $28,200 because net income ($33,900) was greater than dividends ($5,700). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #45 Topic Area: The Four Basic Financial Statements: An Overview 46. Which of the following is the amount of revenue reported on the income statement of a retail company? A. B. C. D. The cash collected from customers during the current period. Both cash and credit sales for the period. Cash sales for the period. Cash sales and stockholders’ investments. Revenue for a retail company includes all sales earned during the accounting period, both cash and credit.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #46 Topic Area: The Four Basic Financial Statements: An Overview 47. On January 1, 2010 Miller Corporation had retained earnings of $8,000,000. During 2010, Miller reported net income of $1,500,000, declared dividends of $500,000, and issued stock for $1,000,000.

What were Miller’s retained earnings on December 31, 2010? A. B. C. D. $7,000,000 $9,500,000 $9,000,000 $7,500,000 Ending retained earnings ($9,000,000) = Beginning retained earnings ($8,000,000) + Net income ($1,500,000) – Dividends ($500,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #47 Topic Area: The Four Basic Financial Statements: An Overview 48. What are the categories of cash flows that appear on a statement of cash flows? A. B. C. D. Cash flows from investing, financing, and service activities. Cash flows from operating, production, and internal activities. Cash flows from financing, production, and growth activities. Cash flows from operating, investing, and financing activities. The statement of cash flows has three sections: cash flows from 1) Operations 2) Investing and 3) Financing.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #48 Topic Area: The Four Basic Financial Statements: An Overview 49. When would a company report a net loss on the income statement? A. B. C. D. When revenues are less than the sum of expenses plus dividends during an accounting period.

If assets decreased during an accounting period. If liabilities increased during an accounting period. When expenses exceeded revenues for an accounting period. Net income or loss is equal to revenues less expenses. If expenses exceed revenues, a business would report a net loss. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #49 Topic Area: The Four Basic Financial Statements: An Overview 50. Which of the following describes the amount of insurance expense reported on the income statement? A. The amount of cash paid for insurance in the current period. B. The amount of cash paid for insurance in the current period less any unpaid insurance at the end of the period. C. The amount of insurance used up (incurred) in the current period to help generate revenue. D. The amount of cash paid for insurance that is reported within the statement of cash flows.

The income statement reports expenses as they are incurred for the accounting period. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #50 Topic Area: The Four Basic Financial Statements: An Overview 51. Which of the following would immediately cause a change in a corporation’s retained earnings? A. B. C. D.

Net income or net loss and declaration of dividends. Declaration of dividends and issuance of stock to new stockholders. Net income and issuance of stock to new stockholders. Declaration of dividends and purchase of new machinery. Beginning retained earnings + net income – dividends = ending retained earnings AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #51 Topic Area: The Four Basic Financial Statements: An Overview 52. Which of the following describes the operations section of a cash flow statement? A. It provides information about how operations have been financed. B. It provides information pertaining to dividend payments to stockholders. C. It provides information with respect to a company’s ability to generate cash flow to pay for goods and services. D. It provides the net increase or decrease in cash during the period. Cash flows from operating activities are cash flows directly related to earning income.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #52 Topic Area: The Four Basic Financial Statements: An Overview 53. Within which of the following would you find the inventory method(s) being used by a business entity? A. B. C. D.

Balance sheet Income statement Notes to the financial statements Headings of the financial statements The notes provide information behind the numbers that allow the user to completely understand the financial statements. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #53 Topic Area: The Four Basic Financial Statements: An Overview 54. At the beginning of 2010, a corporation had assets of $270,000 and liabilities of $160,000. During 2010, assets increased $25,000 and liabilities increased $5,000. What was stockholders’ equity on December 31, 2010? A. B. C. D. $140,000 $130,000 $190,000 $80,000 Stockholders’ equity ($130,000) on December 31, 2010 = Beginning stockholders’ equity ($270,000 $160,000) + increase in stockholders’ equity ($25,000 – $5,000) during 2010.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #54 Topic Area: The Four Basic Financial Statements: An Overview 55. During 2011, Canton Company’s assets increased $95,500 and their liabilities decreased $17,300. Canton Company’s stockholders’ equity on December 31, 2011 was $211,500.

How much was stockholders’ equity on January 1, 2011? A. B. C. D. $98,700 $324,300 $133,300 $289,700 Stockholders’ equity ($98,700) on January 1, 2010 = Stockholders equity ($211,500) on December 31, 2010 – the increase in stockholders’ equity ($95,500 + 17,300) during 2010. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #55 Topic Area: The Four Basic Financial Statements: An Overview 56. How are creditor and investor claims reported on a balance sheet? A. The claims of creditors are liabilities and those of investors are assets. B. The claims of both creditors and investors are liabilities, but only the claims of investors are considered to be long-term. C. The claims of creditors are reported as liabilities while the claims of investors are recorded as stockholders’ equity. D. The claims of creditors and investors are considered to be essentially equivalent.

Liabilities and Stockholders’ Equity are the sources of financing for the firm’s economic resources. Creditors’ claims are reported as liabilities while investors’ claims are reported as stockholders’ equity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #56 Topic Area: The Four Basic Financial Statements: An Overview 57. In what order would the items on the balance sheet appear? A. B. C. D. Assets, retained earnings, liabilities, and contributed capital. Contributed capital, retained earnings, liabilities, and assets. Assets, liabilities, contributed capital, and retained earnings. Contributed capital, assets, liabilities, and retained earnings. The balance sheet order is assets, liabilities, and stockholders’ equity. Stockholders’ equity includes contributed capital and retained earnings.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #57 Topic Area: The Four Basic Financial Statements: An Overview 58. Which of the following would increase retained earnings? A. B. C. D. An increase in expenses. An increase in revenues. Declaring a cash dividend. Issuing additional common stock.

Net income increases retained earnings. Increased revenue, given a fixed expense amount, would increase net income. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #58 Topic Area: The Four Basic Financial Statements: An Overview 59. A company’s retained earnings increased $375,000 last year and its assets increased $973,000.

The company declared a $79,000 cash dividend during the year. What was last year’s net income? A. B. C. D. $296,000 $375,000 $454,000 $519,000 The $375,000 increase in retained earnings = Net income ($454,000) – Dividends ($79,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #59 Topic Area: The Four Basic Financial Statements: An Overview 0. Which of the following items is reported as an expense on the income statement? A. B. C. D. Dividends declared Cost of goods sold Dividends paid Accounts payable Income statements begin with sales less cost of goods sold. Cost of goods sold is an expense. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #60 Topic Area: The Four Basic Financial Statements: An Overview 61. Which of the following has primary responsibility to develop Generally Accepted Accounting Principles? A. B. C. D. Financial Accounting Standards Board American Accounting Association Securities & Exchange Commission Public Company Accounting Oversight Board The Securities and Exchange Commission have charged the Financial Accounting Standards Board with developing Generally Accepted Accounting Principles.

AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Identify the role of generally accepted accounting principles (GAAP) in determining the content of financial statements. Libby – Chapter 01 #61 Topic Area: Responsibilities for the Accounting Communication Process 62. Which of the following has the legal authority to determine financial reporting in the United States? A. B. C. D. Financial Accounting Standards Board American Accounting Association Securities & Exchange Commission Public Company Accounting Oversight Board

The Securities and Exchange Commission is the government agency that determines the financial statements that public companies must provide to stockholders. AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Identify the role of generally accepted accounting principles (GAAP) in determining the content of financial statements. Libby – Chapter 01 #62 Topic Area: Responsibilities for the Accounting Communication Process 63.

Which of the following is not reported as a liability on a balance sheet? A. B. C. D. Income taxes payable Contributed capital Accounts payable Dividends declared Contributed capital is a component of stockholders’ equity on the balance sheet. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #63 Topic Area: The Four Basic Financial Statements: An Overview 64. Which of the following transactions increases both cash and net income? A. B. C. D. Cash receipts from a bank loan. Cash receipts from sale of stock. Cash receipts from customers for services provided. Cash receipts from a bond issue. Net income is the result of revenues less expenses. Cash receipts from customers increases revenue, which flows through to an increase in net income. The cash receipt aspect also increases the cash account.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #64 Topic Area: The Four Basic Financial Statements: An Overview 65. Which of the following properly describes the impact on the financial statements when a company reports wage expense of $7,500, of which $2,500 remains unpaid? A. B. C. D. Net income decreased $9,000.

Cash decreased $2,500. Net income decreased $7,500. Cash decreased $7,500. The expense portion is reported on the income statement as it is incurred. This increases expenses, thus decreasing net income. The unpaid portion is classified a liability on the balance sheet. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #65 Topic Area: The Four Basic Financial Statements: An Overview 66. Which of the following properly describes the impact on the financial statements when a company purchases and pays $8,000 for supplies inventory, of which $2,000 remains unused at the end of the period? A. B. C. D. Net income decreased $6,000. Cash decreased $6,000. Net income decreased $8,000. Cash decreased $2,000. The amount used during the period ($8,000 – $2,000 = $6,000) is reported on the income statement as an expense.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #66 Topic Area: The Four Basic Financial Statements: An Overview 67. Which of the following properly describes the impact on the financial statements when a company incurs operating expenses of $9,000, of which $3,000 remains unpaid? A. B. C. D. Net income decreased $9,000.

Cash increased $6,000. Net income decreased $3,000. Cash decreased $9,000. Expenses are reported on the income statement as they are incurred regardless of whether they have been paid or not. The entire $9,000 is reported on the income statement and thus decreases net income. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #67 Topic Area: The Four Basic Financial Statements: An Overview 68. Which of the following properly describes the impact on the financial statements when a company borrows $20,000 from a local bank? A. B. C. D. Net income decreased $20,000. Assets decreased $20,000. Stockholders’ equity increased $20,000. Liabilities increased $20,000. The amount borrowed needs to be repaid, and the local bank is a creditor, therefore liabilities are increased by the amount of the loan. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting,

Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #68 Topic Area: The Four Basic Financial Statements: An Overview 69. Which of the following would not be reported in the operating activities section of a cash flow statement? A. B. C. D. Cash paid for dividends to stockholders. Cash paid for interest expense. Cash paid for employee wages.

Cash received from customers. Cash paid for dividends to stockholders is not a cash flow directly related to earning income, therefore it is not reported in the operating activities section of the cash flow statement. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #69 Topic Area: The Four Basic Financial Statements: An Overview 70. Which of the following would be reported in the financing section of a cash flow statement? A. B. C. D. Cash paid for dividends to stockholders. Cash paid for interest expense. Cash paid to acquire equipment. Cash received from sale of investments. The financing section of the statement of cash flows reflects cash received and paid out as a result of financing the business. Cash paid for dividends to stockholders is part of this section because stockholders are a component of the financing of a business.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers). Libby – Chapter 01 #70 Topic Area: The Four Basic Financial Statements: An Overview 71. Which of the following would be reported in the investing section of a cash flow statement? A. B. C. D. Cash received from customers. Cash received from the issue of stock.

Cash paid to repay a bank loan. Cash paid to acquire stock of another company. Cash flows from investing include cash flows related to the purchase and sale of a company’s assets. Stock of another company is considered an asset. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and managers).

Libby – Chapter 01 #71 Topic Area: The Four Basic Financial Statements: An Overview 72. Which of the following statements is correct? A. The payment of a cash dividend reduces net income. B. Cash received from an issuance of stock to stockholders is reported as a financing cash flow within the statement of cash flows. C. Providing services to a customer on account doesn’t impact net income. D. Interest payments are reported within the statement of cash flows as a financing activity.

Issuance of stock is a financing activity and the cash received as a result of this is reported in the financing section of the statement of cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors; creditors; and