Chapter 1 quiz

Accounting is the process of identifying, measuring, recording, and communicating financial information about a company's business activities in order for decision-makers to make better informed decisions about the company. T/F

True

An amount is considered to be material if its omission from or misstatement in a company's financial statements could influence a user's decision about a company. T/F

True

Revenues are the amounts earned from the sale of products or services to customers. T/F

True

The primary overriding objective of financial reporting for U.S. based corporations is decision usefulness. T/F

True

The set of standards and rules that many U.S. corporations follow when preparing their financial statements are called: a. generally accepted accounting principles (GAAP). b. international financial reporting standards. c. income tax laws.

a. GAAP

When preparing financial statements, what is the correct order they should be prepared in? Balance sheet, statement of stockholders' equity (or statement of retained earnings), income statement

1. income statement 2.Statement of Stockholders' Equity (or Statement of Retained Earnings) 3. Balance sheet

The cost constraint suggests that, even when the cost of providing accounting information exceeds its benefit, the financial accounting information should always be provided. T/F

False

A company borrows $40,000 from its local bank. Operating, Investing, or Financing?

Financing activity

A company pays a dividend to its stockholders. Operating, Investing, or Financing?

Financing activity

A company receives $10,000 cash from each of its owners to get started as a business. Operating, Investing, or Financing?

Financing activity

A company pays cash for the purchase of equipment to be used in its business. The equipment will be used for ten years. Operating, Investing, or Financing?

Investing activity

A company pays its employees their weekly wages. Operating, Investing, or Financing?

Operating activity

A company pays the utilities costs to run its facilities. Operating, Investing, or Financing?

Operating activity

A company receives cash for services performed to customers. Operating, investing, or Financing?

Operating activity

Which group has Congress given the power to enforce the proper application of financial reporting rules for companies whose securities are publicly traded in the United States? a. the Internal Revenue Service (IRS) b. the company's outside auditors c. the Securities and Exchange Commission (SEC) d. the International Accounting Standards Board (IASB) e. the Financial Accounting Standards Board (FASB)

c. the Securities and Exchange Commission (SEC)

The accuracy and reliability of the information presented in a company's annual report, including its financial statements and their accompanying notes, is primarily the responsibility of: a. the company's stockholders. b. the company's outside auditors. c. the company's creditors. d. the company's management.

d. the company's management.

Dividends return back to the owners of a corporation a portion of their original contributions. T/F

False. Dividends are a return of the profits earned by the corporation .

Which of the following types of items would find its account balance reported on a company's income statement? (check all that apply) Select one or more: a. Common stock b. Revenues c. Expenses d. Dividends e. Liabilities f. Assets

revenues, expenses

Which of the following is not an objective of financial reporting? (check all which apply) Select one or more: a. To prevent competitors from offering a similar product. b. To provide information which is useful to investors and creditors. c. To provide information about the businesses resources and claims against those resources. d. To minimize the amount of income tax the business must pay to the U.S. government. e. To guarantee that a business will be profitable. f. To provide information which helps users predict the business' future cash flows.

A. D. E. The correct answers are: To guarantee that a business will be profitable., To prevent competitors from offering a similar product., To minimize the amount of income tax the business must pay to the U.S. government.

Which underlying GAAP assumption is being violated if a company includes the personal liabilities of its owners on the company's balance sheet? Select one: a. periodicity assumption b. economic entity assumption c. going concern assumption d. monetary unit assumption

B. economic entity assumption

Information is said to possess the enhancing qualitative characteristic of ______ when independent parties can reach a consensus on the measurement of the activity. Select one: a. timeliness b. consistency c. comparability d. verifiability e. understandability

D. verifiability