ACCT ch1-6 True and false
To be faithfully representative, accounting information should predict future events, confirm prior expectations, and be reported on a timely basis.
False
A liability is classified as a current liability if it is to be paid within the coming year.
True
A material item is one that is likely to influence an investor's decision.
True
Accounting communicates financial information about a business to both internal and external users.
True
All publicly traded U.S. companies must provide their stockholders with an annual report each year.
True
An auditor is an accounting professional who conducts an independent examination of the accounting data presented by a company.
True
Assets are resources owned by a business and provide future services or benefits to the business.
True
Both investors and creditors have an interest in a company's ability to generate favorable cash flows.
True
Cash and supplies are both classified as current assets.
True
Consistency in accounting means that a company uses the same generally accepted accounting principles from one accounting period to the next accounting period.
True
Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company.
True
Corporate stockholders generally pay higher taxes but have no personal liability.
True
Creditors' rights to assets supersede owners' rights to the assets.
True
Earnings per share is calculated by dividing net income minus preferred stock dividends for the period by the average number of common shares outstanding during the period.
True
Earnings per share measures the net income earned on each share of common stock.
True
Economic events that are required to be recorded in the financial statements are called accounting transactions.
True
Examples of notes are descriptions of the significant accounting policies and methods used in preparing the statements, explanations of contingencies, and various statistics.
True
Financing activities for corporations include borrowing money and selling shares of their own stock.
True
For accounting purposes, business transactions should be kept separate from the personal transactions of the stockholders of the business.
True
For information to be useful, it must be both relevant and faithfully representative.
True
Full disclosure of all important facts aids in overcoming the limitations of accounting information.
True
Generally accepted accounting principles are rules and practices that are recognized as a general guide for financial reporting purposes.
True
If the assets owned by a business total $150,000 and liabilities total $105,000, stockholders' equity totals $45,000.
True
In the statement of cash flows, net cash provided by operating activities indicates the cash-generating capability of the company.
True
Liquidity ratios measure the short-term ability of a company to pay its maturing obligations and meet unexpected needs for cash.
True
Long-term creditors consider a high free cash flow amount an indication of solvency.
True
Materiality relates to whether an item is significant enough to likely influence the decision of an investor or creditor.
True
Operating activities involve putting the resources of the business into action to generate a profit.
True
Profitability ratios measure the operating success of a company for a given period of time.
True
Revenues are a subdivision of stockholders' equity.
True
Solvency is a company's ability to pay interest as it comes due and to repay the balance of a debt due at its maturity.
True
Stockholders' equity is divided into two parts: common stock and retained earnings.
True
The accounting equation can be expressed as Assets - Liabilities = Stockholders' Equity.
True
The accounting equation can be expressed as Assets - Stockholders' Equity = Liabilities.
True
The balance sheet reports assets and claims to those assets at a specific point in time.
True
The cost constraint weighs the cost that companies incur to provide a type of information against the information's benefit to financial statement users.
True
The debt to assets ratio measures the percentage of assets financed by creditors.
True
The economic entity assumption states that economic events can be identified with a particular unit of accountability.
True
The excess of current assets over current liabilities is called working capital.
True
The going concern assumption is that the business will continue in operation long enough to carry out its existing objectives and commitments.
True
The information needs and questions of external users vary considerably.
True
The liability of corporate stockholders is limited to the amount of their investment.
True
The management discussion and analysis (MD & A) section of an annual report covers various financial aspects of a company.
True
The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.
True
The payment of a liability decreases both cash and accounts payable.
True
The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.
True
Two primary external users of accounting information are investors and creditors.
True
When preparing financial statements, the accountant assumes that the business will stay in business for the foreseeable future.
True
The economic resources that are owned by a business are called stockholders' equity.
False
The heading for the income statement might include the line "As of December 31, 20xx."
False
The investment category on the balance sheet normally includes investments that are intended to be held for a short period of time (less than one year).
False
The main difference between intangible assets and property, plant and equipment is the length of the asset's life.
False
The majority of U.S. business is transacted by proprietorships.
False
A business is usually involved in two types of activity—financing and investing.
False
A business organized as a separate legal entity owned by stockholders is a partnership.
False
A different set of financial statements usually is prepared for each user.
False
A new account is opened for each transaction entered into by a business firm.
False
Cash is another term for stockholders' equity.
False
Claims of creditors and owners on the assets of a business are called liabilities.
False
Collection on an account receivable will increase both cash and accounts receivable.
False
Explanatory notes and supporting schedules are an optional part of an annual report.
False
External users of accounting information are managers who plan, organize, and run a business.
False
Free cash flow is net cash provided by operating activities less capital expenditures.
False
Free cash flow is net cash provided by operating activities less dividends.
False
GAAP stands for generally accepted accounting procedures.
False
If the assets owned by a business total $100,000 and liabilities total $65,000, stockholders' equity totals $25,000.
False
If total assets are increased, there must be a corresponding increase in liabilities or a decrease in stockholders' equity.
False
In general, the FASB indicates that most assets must follow the fair value measurement principle.
False
In order for information to be relevant, it must be reported on a monthly basis.
False
Information in the notes to the financial statements has to be quantifiable (numeric).
False
Investing activities involve collecting the necessary funds to support the business.
False
It is possible for an asset to be a current asset even though the expected conversion of that asset into cash is to be longer than one year or the normal operating cycle.
False
Long-term investments appear in the property, plant, and equipment section of the balance sheet.
False
Management of a business enterprise is the major external user of information.
False
Materiality is a company-specific aspect of faithful representation.
False
Net cash provided by operating activities takes into account that a company must invest in capital expenditures just to maintain its current level of operations.
False
Net income for the period is determined by subtracting total expenses and dividends from revenues.
False
Net income is another term for revenue.
False
One way of stating the accounting equation is: Assets + Liabilities = Stockholders' Equity.
False
Owners of business firms are the only people who need accounting information.
False
Payments to owners are operating activities.
False
Profitability means having enough funds on hand to pay debts when they fall due.
False
Proprietorships in the United States generate more revenue than the other two forms of business enterprise.
False
Relevance and cost are two constraints in accounting.
False
Revenue increases stockholders' equity and should be recorded whenever cash is received from customers.
False
Solvency ratios measure the ability of a company to survive over a short period of time.
False
Solvency ratios measure the short-term ability of the company to pay its maturing obligations.
False
The basic accounting equation states that Assets = Liabilities
False
The convention of consistency pertains to the use of the same accounting principles by firms in the same industry.
False
The current ratio is computed as current liabilities divided by current assets
False
The current ratio takes into account the composition of current assets.
False
The monetary unit assumption has led to an increase in the notes to financial statements.
False
The most generally accepted measurement value used in accounting is market value.
False
The periodicity assumption states that every economic entity can be separately identified and accounted for.
False
The periodicity assumption states that the business will remain in operation for the foreseeable future.
False
The primary accounting standard-setting body in the United States is the Securities and Exchange Commission.
False
The purchase of equipment is an example of a financing activity.
False
The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.
False
The economic entity assumption is that a company will remain in operations for the foreseeable future.
False
The economic entity assumption states that assets should be recorded at their cost.
False
