Chapter 1

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

Retained

The accumulated net income earned since the inception of the corporation and not yet paid to shareholders is referred to as

Retained Earnings

Dividends paid to shareholders is on which financial statement? A) Statement of Shareholders' Equity B) Balance Sheet C) Income Statement

Statement of Shareholders' Equity

The accounting equation is: Assets = Liabilities +

Stockholders Equity

Which of the following items are found on a balance sheet? A) Revenue B) Stockholders' Equity C) Liabilities D) Assets E) Dividends

Stockholders' equity, liabilities, and assets

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

Supplies and Inventory

__________ refers to information being available to users early enough to allow them to use it in the decision process.

Timeliness

T/F The fundamental activities of a business are selling activities and marketing activities.

True

Ending retained earnings is calculated as

beginning retained earnings + net income - dividends

The purpose of a statement of cash flows is to provide information about the

cash receipts and cash disbursements during a period

Faithful representation requires information to have which of the following three characteristics?

complete, neutral, and free from error

The qualitative characteristic of using the same accounting method each period over time refers to the concept of ________

consistency

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

earned by corporation

The income statement is considered most useful for predicting

future profitability

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

income statement

The financial statement that summarizes the profit-generating activities of a company during a particular period of time is the

income statement

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

investing, financing, and operating activities

The financial statement that provides information about cash receipts and cash disbursements for the period is the A) income statement B) statement of retained earnings C) balance sheet D) statement of cash flows

statement of cash flows

Retained earnings represents

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

Milton Corp. has beginning retained earnings of $800. During the year Milton had $2,000 of revenues and $900 in expenses. Milton paid a dividend of $100. What is retained earnings at year-end?

$1,800 Beginning balance $800 + $2,000 revenues - $900 expenses - $100 dividend = $1,800 retained earnings at year-end.

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 30+8-5=33,000 Beginning retained earnings+common stock+net income-dividends=ending retained earnings

Confirmatory Value ->> Predictive Value ->> Match

--Positive income is consistent with effectiveness of management. --Consistently increasing income helps forecast the company's ability to generate future cash.

Balance Sheet -> Income Statement-> Statement of cash flows -> operating, investing, and financing activities assets, liabilities, and stockholders' equity revenue and expenses

1) Assets, liabilities, and stockholders' equity 2) Revenues and expenses 3) Operating, investing, and financing activities

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

1) Dividends 2) Net income 3) Beginning balance of retained earnings

An income statement includes which of the following items?

1) Expenses 2) Revenue 3) Net Income

The four financial statements published to provide information to external users include

1) Income statements 2) Statement of stockholders' equity 3) Balance sheet 4) Statement of cash flows

In financial accounting which of the following are the three types of business activities of a company?

1) Operating 2) Financing 3) Investing

Which of the following accounts are stockholders' equity accounts?

1) Retained earnings 2) Common stock

Which of the following are financial statements?

1) Statement of stockholders' equity 2) Income statement 3) Balance sheet

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

1) Wages and salaries payable 2) Notes payable

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

1) Xoff, Inc. 2) The period of time covered by the statement 3) Statement of stockholder's equity

The primary functions of accounting are to

1) measure a company's activities 2) communicate information to decision makers

Which of the following are operating activities?

1) providing products and services to customers 2) paying salaries to employees 3) paying advertising expenses

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

1) supplies expense 2) Revenues

The heading of an income statement should include

1) the name of the business 2) the accounting period covered by the statement 3) the title "income statement"

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?

20+5+10-4= 31,000

The private sector organization that is currently responsible for setting accounting standards in the United States is the A) Financial Accounting Standards Board. B) Securities and Exchange Commission. C) Accounting Principles Board. D) Committee on Accounting Procedure

A) Financial Accounting Standards Board

A code or moral system that provides criteria for evaluating right and wrong is referred to as A) Ethics B) a values model C) a dilemma system D) standards

A) ethics

Faithful representation requires that information is complete, neutral, and A) free from material error B) within cost-benefit constraints C) confirmatory D) relevant

A) free from material error

In addition to the financial statements, which of the following must be included in the annual reports? A) management discussion and analysis. B) press release C) notes disclosures D) corporate income tax returns

A) management discussion and analysis C) notes disclosures

The impact of financial accounting information on investors' and creditors' decisions is closely related to the concept of: A) materiality B) faithful representation C) confirmatory value D) predictive value

A) materiality

A consensus among different individuals appraising the value of land describes which qualitative accounting characteristic? A) verifiability B) comparability C) timeliness D) consistency

A) verifiability

When the cost of an item can be traced to objective evidence of a transaction, such as a sales receipt, canceled check, and bank statement, the information has the quality of A) verifiability B) comparability C) consistency D) timeliness

A) verifiability

Which of the following aspects relate to the information provided in an income statement?

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

Which of the following knowledge and skills should an accounting professional possess?

Ability to work in teams, technical accounting knowledge, leadership skills, and presentation skills

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

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

Accounts receivable,Common stock, and utilities payable

Management discussion and analysis and note disclosures to the financial statements are included in the _________ _____________

Annual Report

is a resource, such as cash, land, or buildings, that is owned by a company.

Assets

If the same accounting principles and methods are used for similar events by two different firms, this enhances what accounting qualitative characteristic? A) understandability B) Comparability C) Timeliness D) Verifiability

B) comparability

Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles? A) audit committee B) corporate management C) CPA firms who audit the company D) SEC staff auditors

B) corporate management

The financial statement that is most useful in explaining a company's stock price performance is the A) Statement of stockholders equity B) income statement C) balance sheet

B) income statement

The statement of cash flows classifies items as A) Current and noncurrent B) operating, investing, and financing C) operating and nonoperating D) recurring and nonrecurring

B) operating, investing, and financing

The accounting characteristic that requires a user to comprehend the information within the context of the decision being made is referred to as A) verifiability B) understandability C) comparability D) consistency

B) understandability

Which of the following financial statements shows a firm's financial position on a particular date? A) Income Statement B) Balance Sheet C) Statement of stockholders' equity D) Statement of cash flows

Balance Sheet

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

Balance sheet

Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles? A) CPA firms who audit the company B) Audit committee C) Corporate management D) SEC staff auditors

C) Corporate management

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

C) Management

The legal authority to set accounting and reporting standards for companies whose securities are publicly traded lies with the A) APB B) AICPA C) SEC D) FASB

C) SEC

An enhancing qualitative characteristic of accounting information that refers to the financial statement users' ability to utilize accounting information to differentiate between companies that are reporting similar events is: A) timeliness B) neutrality C) comparability D) conservatism

C) comparability

Which qualitative characteristic requires that financial information should not influence decision making to achieve a predetermined result? A) periodicity B) conservatism C) neutrality D) materiality

C) neutrality

The qualitative characteristic wherein information is available early enough allowing it to be useful for a decision describes the concept of A) matching B) verifiability C) timeliness D) comparability

C) timeliness

The concept of understandability assumes that the users of financial statements should have A) a license as a certified public accountant. B) a finance or accounting certification. C) a business background and experience D) a reasonable understanding of business and economic activities.

D) reasonable understanding of business and economic activities

The hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics of A) cost and benefit B) materiality and consistency C) neutrality and materiality D) relevance and faithful representation

D) relevance and faithful representation

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

FALSE

To be useful for decision making, information should possess the fundamental qualities of relevance and _________ representation.

Faithful

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

False

True or false: Technical accounting skills represent the only skills required of accounting professionals.

False

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

Financial

Companies communicate information about their business activities primarily through

Financial statements

In financial accounting which of the following are the three types of business activities of a company

Financing, Investing, and Operating activities

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

Liabilities

The three most common forms of business organization are sole proprietorship, __________, and __________

Partnership and corporation

Identify the three most common forms of business organization

Partnership, corporation, and sole proprietorship

According to the conceptual framework, for accounting information to be relevant, what two qualities must it possess?

Predictive value and freedom from material error

The heading on the Statement of Stockholders' Equity includes which one of the following? A) The Period of time covered B) The beginning retained earnings balance C) the date the statement is prepared D) Dividends E) Net Income

The period of time covered

Keepers, Inc.'s balance sheet reported retained earnings as $10,000 at December 31, 2017 and $12,000 at the December 31, 2018. The income statement reported net income of $3,000 for the year ended December 31, 2018. Dividends declared for the year ended December 31, 2018 must equal

$1,000

Accounting professionals: A) Are in high demand B) have limited opportunities outside accounting C) are rarely employed outside the accounting field

A) are in high demand

In our society, the two main functions of accounting are to A) report activities to government regulators. B) communicate information to investors and creditors. C) report net income to tax authorities D) measure business activities

B) communicate information to investors and creditors D) measure business activities

Which of the following accounts is on the statement of stockholders' equity? A) Common Stock B) Accounts Payable C) Cash D) Equipment

Common Stock

A business organization that is legally separate from its owners is called

Corporation

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

Corporation

The characteristic that a new accounting standard should not favor one group of companies over others or achieve a particular social outcome is an example of A) confirmatory value B) relevance C) understandability D) neutrality

D) neutrality

Which items are found on an income statement? A) Expenses B) Revenues C) Dividends paid D) Equipment

Expenses and Revenues

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

Heading

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

Income statement

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

Income statement

Which of the following are attributes of FASB? Financial Accounting Standards Board

Independence, Full time board members, private sector organization

Financial information that may impact investors' and creditors' decisions is referred to as ______ and must be reported under GAAP

Materiality

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

Net income: $5,000

Which of these would be found on a company's balance sheet? A) Notes payable B) Accounts receivable C) Sales Revenue D) Equipment E)Depreciation expense

Notes payable, accounts receivable, equipment

_______ activities involve purchasing goods from suppliers, designing and manufacturing products, and selling products to customers

Operating