ACG2021 Ch 1: Framework For Financial Accounting

Which of the following items are found on a balance sheet? Assets Dividends Liabilities Stockholders' equity Revenue

Assets Liabilities Stockholders' equity

The two primary functions of financial accounting are to:

-communicate measurements to external parties. -measure business activities.

The primary functions of accounting are to:

-measure a company's activities. -communicate information to decision makers.

Accountants' primary information-related roles are to:

-measure companies' activities -communicate measurements of companies' activities to others

Rank the following steps applied in ethical decision making in the proper order beginning with the first step. -evaluate the courses of action in terms of their impact on stakeholders -specify the alternative courses of action -identify the ethical decision at hand -make a decision

1. identify the ethical decision at hand 2. specify the alternative courses of action 3. evaluate the courses of action in terms of their impact on stakeholders 4. make a decision (ethical decision making - identify, specify, evaluate, decide)

Which of the following aspects relate to the information provided in an income statement? Assurance that the company will pay its obligations when they become due -Ability to earn a profit from its operations during the current period -Assurance that the company will pay dividends to stockholders

Ability to earn a profit from its operations during the current period

If investors or lenders were interested in the amount of debt a company currently has, which financial statement would they need?

Balance sheet

Robert Lending Company is considering granting a large loan to Flora Inc. Robert's policy is to lend money only to companies with a relatively small amount of currently outstanding debt. Prior to making a decision, Robert Lending Company should examine which of Flora's financial statement?

Balance sheet

Which of the following appear(s) on the balance sheet?

Common stock Accounts receivable Utilities payable

Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles?

Corporate management

Which of the following lends money to a company and expects the company to repay the debt?

Creditor

_____ lends money to the company

Creditor

_____ is the common abbreviation for the Board that currently establishes financial accounting and reporting standards in the U.S.

FASB

is the common abbreviation for the Board that currently establishes financial accounting and reporting standards in the U.S.

FASB

True or false: Dividends paid to shareholders are recorded on the income statement as an expense.

False Reason: Dividends to shareholders are a distribution to shareholders and are found on the statement of stockholders' equity

True or false: The SEC has delegated the primary responsibility for setting accounting standards to the AICPA.

False Reason: The SEC delegated accounting standard setting to FASB.

Which financial statement reports revenues and expenses?

Income Statement

Who has the responsibility to apply accounting standards when communicating with investors and creditors? Auditors The FASB The SEC Management

Management Reason: The SEC has the legal right to set accounting standards, but it has largely delegated this duty to FASB; the SEC regulates financial market Reason: The FASB sets financial accounting standards Reason: Auditors express an opinion on the financial statements, which are the responsibility of a company's management

____ accounting deals with the concepts and methods used to provide information to an organization's internal users.

Managerial

Which of these appears on both the statement of stockholders' equity and the balance sheet? Cash Retained earnings Net income Dividends

Retained Earnings

Which of the following accounts are stockholders' equity accounts?

Retained earnings Common stock

Which financial statement shows the changes in common stock and retained earnings?

Statement of stockholders' equity

The accounting equation is: Assets = Liabilities +

Stockholders' Equity

______ determine the ability to pay for goods

Suppliers

Which of the following item(s) is (are) assets?

Supplies Inventory

Which of the following items are reported on the balance sheet as liabilities?

Wages and salaries payable Notes payable

Ending retained earnings appears on the:

balance sheet statement of stockholders' equity

Ending retained earnings appears on the: (Select all that apply.) balance sheet income statement statement of stockholders' equity statement of cash flows

balance sheet statement of stockholders' equity

_____ decide whether to lend money

creditors

______ decide whether to lend money

creditors

The balance sheet shows that a company's resources equal _____ claims to those resources.

creditors claims plus owners'

______ decide whether to purchase products

customers

The abbreviation GAAP stands for

generally accepted accounting principles.

Information that best explains companies' stock price performance is reported in the

income statement

The financial statement that is most useful in explaining a company's stock price performance is the

income statement

A balance sheet lists the assets,_________, and stockholders' equity as of a specific date.

liabilities

Any amount owed to a creditor is classified in the balance sheet as a/an

liability

______ decide production and expansion

managers

Auditors examine financial statements to express a professional _____ on the financial statements.

opinion

Auditors express a professional ______ on the compliance of financial statements with GAAP.

opinions

Profits earned by a company that have not been paid to stockholders are called

retained earnings

Net income equals:

revenues minus expenses

Quartz Instruments had retained earnings of $145,000 at December 31, 2017. Net income for 2018 was $90,000, and dividends for 2018 were $30,000. What amount of retained earnings should be reported at December 31, 2018?

$205,000 Reason: $145,000 + $90,000 - $30,000 = $205,000

For a corporation, the owners' claims to the resources of a company are called

stockholders' equity.

Expenses are:

the costs of doing business that are necessary to produce revenue

Which of the following financial statements shows a firm's financial position on a particular date?

Balance Sheet

The title of a balance sheet prepared for the calendar year 2018 includes:

December 31, 2018

FASB stands for

Financial Accounting Standards Board

The private sector organization that is currently responsible for setting accounting standards in the United States is the

Financial Accounting Standards Board.

Generally accepted accounting principles are abbreviated as

GAAP

______ is the common abbreviation for the Board that currently establishes global accounting and reporting standards.

IASB (International Accounting Standards Board)

Where is the time period covered by the income statement found?

In the heading

Which of the following are attributes of FASB? (Select all that apply.) Independence Public sector organization Full-time board members Private sector organization Part-time board members

Independence Full-time board members Private sector organization

The organization that develops global accounting standards is the

International Accounting Standards Board.

The purpose of the International Accounting Standards Board is to develop a single set of global accounting standards, which are referred to as

International Financial Reporting Standards.

Which of the following are attributes of FASB? Private sector organization Public sector organization Independence Full-time board members Part-time board members

Private sector organization Independence Full-time board members

Which of these appears on both the statement of stockholders' equity and the balance sheet? Cash Retained earnings Dividends Net income

Retained earnings Reason: Cash is reported on the balance sheet, but not on the statement of stockholders' equity. Reason: Net income can be shown on the statement of stockholders' equity, but is not reported directly on the balance sheet. Reason: Dividends can be shown on the statement of stockholders' equity, but are not reported directly on the balance sheet.

is the amount recorded as a result of the sale of products or services to customers.

Revenue

The legal authority to set accounting and reporting standards for companies whose securities are publicly traded lies with the

SEC (Securities and Exchange Commission) Reason: The legal authority rests with the SEC; the SEC has largely delegated the standard setting to FASB.

Identify which of the following are included in the heading of the statement of stockholders' equity for Xoff, Inc

Statement of Stockholders' Equity Xoff, Inc. The period of time covered by the statement

The heading of an income statement should include which of the following?

The name of the business The accounting period covered by the statement The title of the financial statement

The heading of a balance sheet for the 2018 fiscal period will include which of the following? The title "Balance Sheet" For the Year Ended December 31, 2018 The name of the business December 31, 2018

The title "Balance Sheet" The name of the business December 31, 2018

Which of the following appear(s) on the balance sheet?

Utilities payable Accounts receivable Common stock

The system that maintains records of a company's operations and then communicates that information to decision makers is referred to as ______.

accounting

The two main functions of ________ are to (1) measure business activities and (2) to communicate those measurements to investors and creditors.

accounting

Resources owned by a company are called

assets

The financial statement that displays a firm's financial position on a particular date is the

balance sheet

The financial statement that reflects the accounting equation is referred to as the

balance sheet

Which financial statement presents the financial position of a company on a particular date?

balance sheet

_______ decide market share and profitability

competitors

The purpose of the International Accounting Standards Board is to: (Select all that apply.) enforce U.S. GAAP globally replace the SEC converge national standards with IFRS develop an internationally based securities council develop global accounting standards

converge national standards with IFRS develop global accounting standards

The purpose of the International Accounting Standards Board is to: enforce U.S. GAAP globally replace the SEC develop an internationally based securities council develop global accounting standards converge national standards with IFRS

develop global accounting standards converge national standards with IFRS

_____ is a term that refers to a code or moral system that provides criteria for evaluating right or wrong.

ethics

Salaries already paid to employees for the month is a(n) ______ account that appears on the ______.

expense; income statement

If the SEC does not agree with a standard issued by the private sector, it can

force a change in the standard.

Financial accounting should provide information that: helps to predict cash flows is useful to investors and creditors in making decisions accurately predicts future income tells about economic resources, claims to resources, and changes in resources and claims predicts a company's future tax obligation

helps to predict cash flows is useful to investors and creditors in making decisions tells about economic resources, claims to resources, and changes in resources and claims

Financial accounting should provide information that: helps to predict cash flows tells about economic resources, claims to resources, and changes in resources and claims is useful to investors and creditors in making decisions accurately predicts future income predicts a company's future tax obligation

helps to predict cash flows tells about economic resources, claims to resources, and changes in resources and claims is useful to investors and creditors in making decisions

When accountants face an ethical dilemma, the first step in resolving the dilemma is to

identify the ethical decision

Revenues will ______ retained earnings, and expenses will ______ retained earnings

increase; decrease

_______ owns stock in the company

investor

________ decide whether to purchase stock

investors

Accountants' primary information-related roles are to

measure companies' activities communicate measurements of companies' activities to others

The objective of financial accounting is to:

provide useful information for external decision makers

An advantage of the corporate form of organization is that a corporation

provides limited liability to stockholders.

The two main career paths in accounting are referred to as:

public private

______ decide on social welfare issues

regulators

Rahls issues stock to investors for $20,000, and has $5,000 of net income in its first year of operations. During Year 2, Rahls earns $10,000 in net income and pays a dividend to stockholders of $4,000. What is the balance in stockholders' equity at the end of year 2?

$31,000 Reason: $20,000 + $5,000 + $10,000 - $4,000 = $31,000.

Gem Corporation is a new company and obtains financing by issuing common stock to investors for $30,000. During the year, Gem earns $8,000 in net income and pays stockholders a dividend of $5,000. What is the total stockholders' equity at the end of the year?

$33,000 Reason: Beginning retained earnings + Common stock + Net income - Dividends = Ending retained earnings. 0 + $30,000 + $8,000 - $5,000 = $33,000.

Margot starts a new business and contributes $20,000 in cash; she also borrows $25,000 from her local bank. She utilizes the cash to purchase supplies for $5,000 and a computer system for $10,000. After these transactions, the total claims to the company's total resources are:

$45,000 (Investor: 20,000 Creditor: 25,000)

Margot starts a new business and contributes $20,000 in cash; she also borrows $25,000 from her local bank. She utilizes the cash to purchase supplies for $5,000 and a computer system for $10,000. After these transactions, the company's total resources are:

$45,000 Reason: The cash is exchanged for other resources so the total resource amount is $45,000. cash ($20,000 + $25,000 - $5,000 - $10,000) + equipment $10,000 + supplies $5,000 = $45,000

Which of these would be found on a company's balance sheet? Depreciation expense Equipment Accounts receivable Sales revenue Notes payable

Equipment Accounts receivable Notes payable

_______ Statements represent a company's primary means of communicating information to external users.

Financial

The accounting equation is: Assets = ______ + Stockholders' Equity.

Liabilities

Which of the following items are found on a balance sheet?

Liabilities Assets Stockholders' equity

True or false: The statement of stockholders' equity indicates the changes in the various equity accounts.

True

In our society, the two main functions of accounting are to (select multiple) -communicate information to investors and creditors. -report net income to tax authorities. -report activities to government regulators. -measure business activities.

communicate information to investors and creditors. measure business activities.

Accountants' key roles are to measure the activities of the company and to

communicate that information to others.

A distribution of net income to owners is called a(n)

dividend

A(n) ____ is a distribution of net income to the stockholders of a corporation.

dividend

Stockholders' equity arises primarily from amounts invested by shareholders and amounts _____

earned by the corporation

A(n) ______ is a cost of doing business that is necessary to produce ___.

expense; revenue

Pizza Aroma generated $11,000 in revenues and had expenses of $6,000. Pizza Aroma's net income or loss is:

net income of $5,000 Reason: $11,000-6,000=$5,000, revenues exceed expenses

When expenses are greater than revenues, it is referred to as

net loss.

The statement of cash flows classifies items as

operating, investing, and financing.

The two sources of stockholders' equity are amounts ____

paid in from shareholders earned by the corporation

Many liabilities are referred to as _______ to indicate that amounts must be paid.

payables

Undistributed profits that have accumulated in the company over time are called _______

retained earnings

In accounting, the term net is used to describe

the difference between two amounts.

Stockholders' equity is

the owners' claims to resources of the corporation.

Retained earnings represents

the total net income earned over the life of the company that has not been distributed as dividends

Which items are found on an income statement?

expenses revenues

Revenues are:

sales of goods or services to customers

Which of these would be found on a company's balance sheet? Sales revenue Accounts receivable Depreciation expense Notes payable Equipment

Accounts receivable Notes payable Equipment

Which of the following appear(s) on the balance sheet? Accounts receivable Net income Salaries expense Utilities payable Common stock

Accounts receivable Utilities payable Common stock

Which of the following is the accounting equation?

Assets = Liabilities + Stockholders' equity

The four financial statements published to provide information to external users include which of the following?

Income Statement Statement of Stockholders' Equity Statement of Cash Flows Balance Sheet

Which of these appears on both the income statement and the statement of stockholders' equity? Cash Net income Expenses Revenues

Net Income

Which of the following appear on the statement of stockholders' equity?

Net income Dividends Beginning balance of retained earnings

Which of the following line items appear on an income statement?

Salaries expense Supplies expense Service revenue

A company owns an economic resource that will provide it with future benefits. This economic resource is

an asset

The form of business organization where an entity is legally separate from its owners and issues shares of stock is a

corporation.

Measuring business activities and reporting those measurements to external parties is the function of ______ accounting.

financial

The three classifications on the statement of cash flows are cash flows from

financing activities. investing activities. operating activities.

The income statement is considered most useful for predicting

future profitability

The financial statement that summarizes revenues and expenses for a period of time is the

income statement

The statement used to predict future profitability and a company's future cash-generating ability is the

income statement

undistributed profits that have accumulated in the company over time are called

retained earnings

An income statement includes which of the following items?

Revenues Net income Expenses