Financial Accounting Chapter 1

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? -$1,100 -$1,000 -$2,000 -$1,800

$1,800

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

Operating

The theory or benchmark used by standard setters for creating a consistent set of financial reporting rules is referred to as -principles of accounting theory. -GAAP. -the conceptual theory. -the conceptual framework.

the conceptual framework.

Which of the following represents the net income earned by a corporation and not yet paid to shareholders? -Additional paid-in capital -Retained earnings -Paid-in capital -Other comprehensive income

Retained earnings

Which of the following accounts are stockholders' equity accounts? (Select all that apply.) -Retained earnings -Land -Salaries Payable -Cash -Common stock

Retained earnings Common stock

An income statement includes which of the following items? (Select all that apply.) -Revenues -Net income -Amounts contributed by stockholders -Expenses -Cash

Revenues Net income Expenses

Which of the following items are assets? (Select all that apply.) -Supplies -Notes payable -Dividends -Equipment

Supplies Equipment

Which of the following line items appear on an income statement? (Select all that apply.) -Supplies inventory -Supplies expense -Salaries expense -Cash -Accounts payable -Service revenue

Supplies expense Salaries expense Service revenue

The heading on the Statement of Stockholders' Equity includes which one of the following? -The date the statement is prepared -Net income -Dividends -The period of time covered -The beginning retained earnings balance

The period of time covered

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

True

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

accounting

Management discussion and analysis and note disclosures to the financial statements are included in the _____ ______

annual report

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

balance sheet

The purpose of a statement of cash flows is to provide information about the -assets, liabilities, and stockholders' equity used during the period. -cash receipts and cash disbursements during a period. -income and related expenses during the period. -assets used during the period.

cash receipts and cash disbursements during a period.

Stockholders' equity arises primarily from amounts invested by shareholders and amounts ______. -borrowed from investors -borrowed from banks -received by customers -earned by the corporation

earned by the corporation

An essential assumption in accounting is that all economic events can be identified specifically with an individual economic ___

entity

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

ethics

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

faithful representation

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

financial

Companies communicate information about their business activities primarily through -public relations announcements. -their tax return. -financial statements.

financial statements.

If the SEC does not agree with a standard issued by the private sector, it can -force a change in the standard. -remove FASB board members from their position. -create another accounting standard setting body. -issue a new FASB statement.

force a change in the standard.

The income statement is considered most useful for predicting -future dividends. -future asset base. -future profitability. -future borrowing potential.

future profitability.

Information that best explains companies' stock price performance is reported on the ____ _____

income statement

The financial statement that is most useful in explaining a company's stock price performance is the -income statement. -balance sheet. -statement of stockholders' equity.

income statement.

The statement used to predict future profitability and a company's future cash-generating ability is the -statement of financial position. -income statement. -statement of stockholders' equity. -balance sheet

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 _____

liabitily

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

material

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

materiality

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

measure business activities. communicate information to investors and creditors.

The statement of cash flows classifies items as -current and noncurrent. -operating and nonoperating. -operating, investing, and financing. -recurring and nonrecurring.

operating, investing, and financing.

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

partnership, corporation

An advantage of the corporate form of organization is that a corporation -does not have to pay its creditors. -is not regulated. -provides limited liability to stockholders. -is not taxed.

provides limited liability to stockholders.

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

retained

Undistributed profits that have accumulated in the company over time 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

Retained earnings represents (Select all that apply.) -the total cash the company has accumulated over its life. -the net assets of the company during the current period. -the total operating, investing, and financing activities of the company. -the total net income earned over the life of the company that has not been distributed as dividends.

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

True or false: Financial information that is immaterial in amount or nature need not be reported under GAAP.

true

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

Financial Accounting Standards Board.

In financial accounting which of the following are the three types of business activities of a company? -Building activities -Financing activities -Selling activities -Operating activities -Investing activities

Financing activities Operating activities Investing activities

The four financial statements published to provide information to external users include which of the following? -Statement of Cash Flows -Statement of Stockholders' Equity -Statement of Business Activities -Balance Sheet -Income Statement -Statement of Assets

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

Dividends paid to shareholders is on which financial statement? -Statement of Shareholders' Equity -Balance Sheet -Income Statement

Statement of Shareholders' Equity

Which of the following appear(s) on the balance sheet? (Select all that apply.) -Utilities payable -Common stock -Salaries expense -Net income -Accounts receivable

Utilities payable Common stock Accounts receivable

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

income statement

The _____ unit assumption states that financial statement elements should be measured in terms of the U.S. dollar.

monetary

Pizza Aroma generated $11,000 in revenues and had expenses of $6,000. Pizza Aroma's net income or loss is: -net income of $17,000 -a net loss of $17,000 -net income of $5,000 -a net loss of $5,000

net income of $5,000

An income statement reports: (Select all that apply.) -amounts contributed by stockholders -net income or loss -expenses -revenues -cash

net income or loss expenses revenues

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? -$140,000 -$175,000 -$235,000 -$205,000

$205,000

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? -$19,000 -$31,000 -$11,000 -$39,000

$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

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

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

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

Which of the following appear on the statement of stockholders' equity? (Select all that apply.) -Beginning balance of retained earnings -Net income -Dividends -Cash received during the accounting period -Property, plant, and equipment

Beginning balance of retained earnings Net income Dividends

Which of the following accounts is on the statement of stockholders' equity? -Common stock -Accounts payable -Cash -Equipment

Common stock

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

Consistently increasing income helps forecast the company's ability to generate future cash

The requirement that the economic activities of a business owner should be separated from the activities of the business is an example of which accounting assumption? -Going concern -Revenue recognition -Economic entity -Monetary unit -Matching

Economic entity

Which of the following are among the basic assumptions underlying U.S. GAAP? (Select all that apply) -Economic entity -Full disclosure -Neutrality -Going concern -Periodicity -Monetary unit

Economic entity Going concern Periodicity Monetary unit

Which of these would be found on a company's balance sheet? (Select all that apply.) -Sales revenue -Equipment -Notes payable -Accounts receivable -Depreciation expense

Equipment Notes payable Accounts receivable

Which items are found on an income statement? -Dividends paid -Expenses -Equipment -Revenues

Expenses Revenues

_______ is the common abbreviation for the Board that currently establishes financial accounting and reporting standards in the U.S. (Enter the acronym.)

FASB

The assumption that a business entity will continue to operate indefinitely in the future refers to what assumption? -Going concern -Periodicity -Economic entity -Monetary unit

Going concern

Where is the time period covered by the income statement found? -In the footnotes -In the income section -In the heading -In the revenue section

In the heading

The accounting equation is: Assets = ______ + Stockholders' Equity. -Revenues -Liabilities -Expenses -Dividends

Liabilities

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

Management

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

Private sector organization Full-time board members Independence

Predictive value and confirmatory value are components of which fundamental qualitative characteristic? -Neutrality -Completeness -Relevance -Faithful representation

Relevance

Which assumption allows the life of the company to be divided into artificial time periods to provide timely information? -Going concern -Economic entity -Monetary unit -Periodicity

Periodicity

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

Positive income is consistent with effectiveness of management.