ACCT Ch.1

True or false: Creditors hope to gain in two ways—they hope (1) to receive dividends and (2) to sell their shares at a higher price.

False Reason: Investors, not creditors, hope to receive dividends and to sell their shares at a higher price. Borrowers are legally obligated to pay creditors interest, not dividends, and repay the principal.

True or false: The corporation, and not the owners, are viewed as owning the resources and as owing the debts of the business.

True Reason: The owners are considered separate from the business entity. It is the business entity that owns the assets and owes the liabilities.

Paid dividends

a negative cash flow - financing activity

Purchase of equipment

a negative cash flow - investing activity

Purchase inventory

a negative cash flow - operating activity

Borrow from a bank

a positive cash flow - financing activity

Sale of equipment

a positive cash flow - investing activity

Cash collected from customers

a positive cash flow - operating activity

GAAP are ______.

accounting rules (or principles) developed by the FASB for use in the US

The notes to financial statements ______. (Check all that apply.)

along with the financial statements provide a more complete picture of a company's financial health. are an integral part because the financial statements do not contain all the necessary details provide supplemental information about the financial condition of a company

The purpose of a balance sheet is to report the ______ accounts. (Check all that apply.)

asset stockholders' equity liability

A balance sheet shows ______.

assets, liabilities, and stockholders' equity at a single point in time

Careful consideration is taken when making changes in GAAP ______. (Select all that apply.)

because they may affect selling prices of public companies' stock and is actively debated before the changes are required

Profit is ______. (Check all that apply.)

called net income a measure of performance

Net income equals ______. (Select all that apply.)

cash and promises received from delivery of goods and services minus resources used to earn revenues revenues minus expenses

CPA stands for ______.

certified public accountant

The statement of stockholders' equity reports the ______.

changes in earnings and dividends for a specified period of time

The main goal of US GAAP is to ______.

ensure that companies produce useful information for users of financial statements

A net loss is reported when ______.

expenses are greater than revenues

The purpose of a balance sheet is to report the ______.

financial position of a business at a particular point in time

Net income is equal to ______.

revenues minus expenses

Common forms of business organization include ______. (Check all that apply.)

sole proprietorship partnership corporation

Which of the following classifications is not used to categorize cash inflows and cash outflows on the statement of cash flows?

spending

The line item "net income" appears on the ______. (Check all that apply.)

statement of stockholders' equity income statement

A financial statement heading notes that it was prepared: "For the Year Ended December 31, 2019." This could be the ______. (Check all that apply.)

statement of stockholders' equity income statement statement of cash flows

Companies typically prepare ______ financial statements each accounting period.

4

Ace Electronics bought equipment for $4,000. Normally the equipment would have cost $4,500, but the supplier gave Ace a special discount. Ace's balance sheet should report equipment of ______.

$4,000

A balance sheet shows which of the following elements? (Select all that apply.)

Assets Stockholders' equity Liabilities

Which of the following is the correct basic accounting equation?

Assets = Liabilities + Stockholders' Equity

Identify the uses of generally accepted accounting principles (GAAP). (Check all that apply.)

Auditors need to be sure the financial statements are prepared in accordance with GAAP. Companies use GAAP when preparing financial statements.

Seesaws, Inc. has assets of $900 and liabilities of $400. Its stockholders' equity equals ________ .

Blank 1: $500

At December 31, Equate, Inc.'s assets equal $50,000 and liabilities equal $30,000. Stockholders' equity must equal $___________.

Blank 1: 20000 or 20,000

The balance sheet of a corporation reports _________, liabilities, and __________equity. (Enter one word per blank.)

Blank 1: assets Blank 2: stockholders', stockholders, shareholders', or shareholders

The four financial statements include the: _________sheet __________statement statement of ________equity and statement of _________flows (enter only one word per blank)

Blank 1: balance Blank 2: income Blank 3: stockholders', owners', shareholders', owner's, or stockholders Blank 4: cash

While the term profit is used widely, accountants use the technical terms net _________ or net __________. (Enter only one word per blank.)

Blank 1: income Blank 2: earnings

The classifications used to categorize cash inflows and outflows on the statement of cash flows includes cash flows from _________activities, cash flows from _________ activities, and cash flows from ________ activities.

Blank 1: operating or CFO Blank 2: investing or CFI Blank 3: financing or CFF

Net income equals total _______, minus total __________. (Enter only one word per blank.)

Blank 1: revenue, sales, or revenues Blank 2: expenses

Which of these line items appears on a balance sheet? (Check all that apply.)

Cash Retained earnings Common stock Accounts receivable

Identify the steps in the process to follow when faced with an ethical dilemma. (Select all that apply.)

Choose the course of action that is most ethical. Identify alternative courses of action. Identify the benefits of a decision and who will be harmed.

An income statement includes which of the following items. (Check all that apply.)

Expenses Net income Revenues

Rank the following steps applied in ethical decision making in the proper order, beginning with the first step.

Identify the benefits of a decision (often to the manager or employee involved) and who will be harmed (other employees, owners, creditors, the environment). Identify alternative courses of action. Choose the one you would like your family and friends to see reported on your local news. That is usually the ethical choice.

Which financial statement is a company's primary measure of profit?

Income statement

Which of these line items appears on both the income statement and the statement of stockholders' equity?

Net income

What information appears on the statement of stockholders' equity? (Select all that apply.)

Net income Dividends Beginning balance of retained earnings Ending balance of retained earnings

Which of these line items appear on a balance sheet? (Check all that apply.)

Property, plant and equipment Accounts payable Inventories

Which of the following line items appear on an income statement? (Check all that apply.)

Sales revenue Income tax expense Cost of goods sold

Creditors expect to receive ______ from the money they lend.

interest

Net income is ______. (Check all that apply.)

net earnings revenues minus expenses

The _________to the financial statements are an integral part of the financial statements and provide a more complete understanding of the company. (Enter one word per blank.)

notes

Mauricio, the owner of Pizza Aroma, spent $2,500 of his own money to take his family to Disney World. Pizza Aroma's financial statements will report ______.

nothing about this trip

Net income ______.

on the income statement causes retained earnings to increase on the statement of stockholders' equity

The statement of stockholders' equity is ______.

one of the four financial statements usually prepared by profit-making organizations

The balance sheet of a corporation reports ______.

only the results of the business' activities