Chapter 1

Which of the following is true of a partnership? A) A partnership is a legal structure that creates a separation between business and personal actions. B) If a partnership is sued, only the business assets are affected. C) Partnerships are easier to set up than corporations. D) Partnerships do not have the tax advantages that a sole proprietorship enjoys.

C)

The _________ reports revenues and expenses and resulting net income or less for a period in time.

income statement

When a company that is in the business of selling goods shows an increase in assets or a decrease in liabilities, it has raised________ from the sales of its goods.

revenue

________ sold to investors that must be repaid at a particular date some years in the future are called bonds payable. A Debt securities B Common stocks C Preferred stocks D Obligations from a bank

A) Debt securities

What section of a cash flow statement shows the cash spent on new equipment during the past accounting period? A) Investing B) Operating C) Financing D) Cash flow doesn't give this info

A) Investing Section

In terms of the principal types of business activities, paying salaries expense is an example of A) Operating Activities B) Financing activities C) Investing activities D) Advertising activities

A) Operating activities

Which of the following is true of a partnership? A) A partnership cannot be incorporated. B) Partnerships do not have the tax advantages that a sole proprietorship enjoys. C) A partnership must have more than one owner. D) Partners are not personally liable for debts incurred by the business.

C) A partnership must have more than one owner.

Which of the following is not one of the three primary business activities? A) Financing B) Operating C) Advertising D) Investing

C) Advertising

Which of the following are not considered to be primary users of financial statements in countries outside the U.S.? A) Private Investigators B) Tax authorities C) Economic Advisors D) Central gov't planners

C) Economic Advisors

Which financial statement shows a company's revenues and expenses and resulting net income or loss for a period of time? A balance sheet B statement of cash flows C income statement D retained earnings statement

C) income statement

The statement of cash flows is divided into which of the following major categories? A selling, spending, and marketing activities B purchasing, investing, and borrowing activities C operating, investing, and financing activities D selling, marketing, and saving activities

C) operating, investing, and financing activities

Which of the following is not an external user of accounting data? A) Labor unions B) Customers C) Economic planners D) Chief Financial Office

D) Chief Financial Office

Which of the following is required as a result of SOX? APublic companies must present audited financial statements. B) Companies that go bankrupt must repay shareholders for loss investments. C) All shareholders now have an oversight role of the company's financial activities. D) Top management must certify the financial statements for their company.

D) Top management must certify the financial statements for their company.

What is net income made of?

Revenues-Expenses

Which of the following statements are true? Select all that apply. A Publicly traded U.S. companies must provide an annual report to their shareholders each year. B Notes to the financial statements do not need to be included in the annual report because that information is only for internal users. C An independent auditor's report must be included in the annual report. D The management discussion and analysis section must highlight favorable or unfavorable trends that will affect its ability to pay short-term obligations or fund expansion.

A C D

Which of the following are NOT characteristics of a corporation? Select all that apply. A) best for retail and service-type businesses, controlled by founder B) easier to transfer ownership and raise funds, no personal liability C) simple to set up and maintains control with founder D) shared control, tax advantages, increased skills and resources

A C and D

Which of the following accounting information is generally NOT available to external users? Select all that apply. A) marketing strategies for a product that will be introduced in eighteen months B) forecasts of cash needs for the upcoming year C) explanation of the company's profits and losses over the past year D) amount of net income retained in the business

A and B

The income statement does not report cash received from the sale of stock because it is not considered revenue. A True B False

A) True

Which financial statement gives a snapshot of what a company owns and what it owes at a point in time? A balance sheet B statement of cash flows C retained earnings statement D income statement

A) balance sheet

Purchasing resources that a company needs in order to operate is called A investing activity B financing activity C expanding activity D operating activity

A) investing activity

Which of the following groups uses accounting information to determine whether it should extend credit to a company? A) suppliers B) stockholders C) customers D) regulatory agencies

A) supplies

As an external user of accounting information, an investigator of the Internal Revenue Service is an agent of a A) taxing authority B) independent auditing firm C) regulatory authority D) creditor

A) taxing authority

Which of the following statements is true? Select all that apply. A The balance sheet presents the company's financial position as of a specific date. B The balance sheet enables creditors to determine the likelihood that they will be repaid. C The balance sheet presents the revenues and expenses for a specific period of time. D The balance sheet reports the assets, liabilities, and stockholders' equity at a specific date.

A, B, D

Companies can borrow money if they need a source of outside funds. Borrowing money is called A creditors' claims B debt financing C bonds payable D equity financing

B) Debt financing

In which forms of business organization are the owners personally liable for all the debts of the business? A) Sole proprietorship and corporations B) Sole prop. and partnerships C) Partnerships and Corps. D) All of the above

B) Sole prop. and partnerships

An owner who wants to have limited liability should form which type of business enterprise? A a partnership B a sole proprietorship C a corporation D a proprietorship

B) a sole proprietorship

Which of the following components supplement the financial statements in an annual report? A) management discussion and analysis B) all of the choices are correct C) auditor's report D) notes to the financial statements

B) all of the choices are correct

Which financial statement summarizes the financial position of a company? A statement of cash flows B balance sheet C income statement D retained earnings statement

B) balance sheet

Tonelli Trucking buys a $65,000 truck on credit. Which financial statement will be affected by this transaction? A income statement only B balance sheet only C income statement, retained earnings statement, and balance sheet D income statement and retained earnings statement only

B) balance sheet only

A ________ is a user of accounting information with an indirect financial interest in a business. A) management B) financial advisor C) investor D) creditor

B) financial advisor

The main purpose of operating activities is to A) limit liabilities B) generate revenue to increase profits C) raise funds through borrowing or selling stocks and bonds D) raise funds for investments

B) generate revenue to increase profits

What is the main purpose of the management discussion and analysis section in the annual report? A to provide supporting details and schedules for every set of financial statements B to express management's views on the company's short-term debt paying ability, expansion financing, and results of operations C to present the president's state of the company report D to present management's rebuttal to qualified opinions expressed in the auditor's report

B) to express management's views on the company's short-term debt paying ability, expansion financing, and results of operations

In which of the following sequences are the financial statements usually prepared? A) Income statement, balance sheet, retained earnings statement, and statement of cash flows B) Balance sheet, retained earnings statement, statement of cash flows, and income statement C) Balance sheet, statement of cash flows, income statement and retained earnings statement D) Income statement, retained earnings statement, balance sheet, and statement of cash flows

D) Correct! This is the correct order. The financial statements must be prepared in the following order: income statement, retained earnings statement, balance sheet and statement of cash flows. This is because net income (from the income statement) is a required input for the retained earnings statement, ending retained earnings (from the retained earnings statement) is a required input for the balance sheet and the ending cash balance (from the balance sheet) is a required input for the statement of cash flows.

When a company borrows money from a bank to purchase equipment, this action is called A an operating activity B a liability activity C an investing activity D a financing activity

D) a financing activity

Which financial statement provides information for a specific point in time? A retained earnings statement B statement of cash flows C income statement D balance sheet

D) balance sheet

Information about cash receipts and cash payments for a specific period of time will be found on A balance sheet B income statement C statement of retained earnings D the statement of cash flows

D) the statement of cash flows

What is the primary purpose of the statement of cash flows? A to present information about a company's assets and liabilities B to report a company's financing transactions C to report how much revenue was retained in the business for future growth D to provide information about cash receipts and cash payments

D) to provide information about cash receipts and cash payments

Corporations generally receive more favorable tax treatment than sole proprietorships and partnerships. True or False

False

Investors could use the ________ ________ to analyze the proportion of debt and common stock financing.

balance sheet

An independent audit of an annual report must be completed by a ____________ _______ ______

certified public accountant