ACG2021 Ch 1: Framework For Financial Accounting
Which of the following items are found on a balance sheet? Assets Dividends Liabilities Stockholders' equity Revenue
Assets Liabilities Stockholders' equity
The two primary functions of financial accounting are to:
-communicate measurements to external parties. -measure business activities.
The primary functions of accounting are to:
-measure a company's activities. -communicate information to decision makers.
Accountants' primary information-related roles are to:
-measure companies' activities -communicate measurements of companies' activities to others
Rank the following steps applied in ethical decision making in the proper order beginning with the first step. -evaluate the courses of action in terms of their impact on stakeholders -specify the alternative courses of action -identify the ethical decision at hand -make a decision
1. identify the ethical decision at hand 2. specify the alternative courses of action 3. evaluate the courses of action in terms of their impact on stakeholders 4. make a decision (ethical decision making - identify, specify, evaluate, decide)
Which of the following aspects relate to the information provided in an income statement? Assurance that the company will pay its obligations when they become due -Ability to earn a profit from its operations during the current period -Assurance that the company will pay dividends to stockholders
Ability to earn a profit from its operations during the current period
If investors or lenders were interested in the amount of debt a company currently has, which financial statement would they need?
Balance sheet
Robert Lending Company is considering granting a large loan to Flora Inc. Robert's policy is to lend money only to companies with a relatively small amount of currently outstanding debt. Prior to making a decision, Robert Lending Company should examine which of Flora's financial statement?
Balance sheet
Which of the following appear(s) on the balance sheet?
Common stock Accounts receivable Utilities payable
Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles?
Corporate management
Which of the following lends money to a company and expects the company to repay the debt?
Creditor
_____ lends money to the company
Creditor
_____ is the common abbreviation for the Board that currently establishes financial accounting and reporting standards in the U.S.
FASB
is the common abbreviation for the Board that currently establishes financial accounting and reporting standards in the U.S.
FASB
True or false: Dividends paid to shareholders are recorded on the income statement as an expense.
False Reason: Dividends to shareholders are a distribution to shareholders and are found on the statement of stockholders' equity
True or false: The SEC has delegated the primary responsibility for setting accounting standards to the AICPA.
False Reason: The SEC delegated accounting standard setting to FASB.
Which financial statement reports revenues and expenses?
Income Statement
Who has the responsibility to apply accounting standards when communicating with investors and creditors? Auditors The FASB The SEC Management
Management Reason: The SEC has the legal right to set accounting standards, but it has largely delegated this duty to FASB; the SEC regulates financial market Reason: The FASB sets financial accounting standards Reason: Auditors express an opinion on the financial statements, which are the responsibility of a company's management
____ accounting deals with the concepts and methods used to provide information to an organization's internal users.
Managerial
Which of these appears on both the statement of stockholders' equity and the balance sheet? Cash Retained earnings Net income Dividends
Retained Earnings
Which of the following accounts are stockholders' equity accounts?
Retained earnings Common stock
Which financial statement shows the changes in common stock and retained earnings?
Statement of stockholders' equity
The accounting equation is: Assets = Liabilities +
Stockholders' Equity
______ determine the ability to pay for goods
Suppliers
Which of the following item(s) is (are) assets?
Supplies Inventory
Which of the following items are reported on the balance sheet as liabilities?
Wages and salaries payable Notes payable
Ending retained earnings appears on the:
balance sheet statement of stockholders' equity
Ending retained earnings appears on the: (Select all that apply.) balance sheet income statement statement of stockholders' equity statement of cash flows
balance sheet statement of stockholders' equity
_____ decide whether to lend money
creditors
______ decide whether to lend money
creditors
The balance sheet shows that a company's resources equal _____ claims to those resources.
creditors claims plus owners'
______ decide whether to purchase products
customers
The abbreviation GAAP stands for
generally accepted accounting principles.
Information that best explains companies' stock price performance is reported in the
income statement
The financial statement that is most useful in explaining a company's stock price performance is the
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
liability
______ decide production and expansion
managers
Auditors examine financial statements to express a professional _____ on the financial statements.
opinion
Auditors express a professional ______ on the compliance of financial statements with GAAP.
opinions
Profits earned by a company that have not been paid to stockholders are called
retained earnings
Net income equals:
revenues minus expenses
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?
$205,000 Reason: $145,000 + $90,000 - $30,000 = $205,000
For a corporation, the owners' claims to the resources of a company are called
stockholders' equity.
Expenses are:
the costs of doing business that are necessary to produce revenue
Which of the following financial statements shows a firm's financial position on a particular date?
Balance Sheet
The title of a balance sheet prepared for the calendar year 2018 includes:
December 31, 2018
FASB stands for
Financial Accounting Standards Board
The private sector organization that is currently responsible for setting accounting standards in the United States is the
Financial Accounting Standards Board.
Generally accepted accounting principles are abbreviated as
GAAP
______ is the common abbreviation for the Board that currently establishes global accounting and reporting standards.
IASB (International Accounting Standards Board)
Where is the time period covered by the income statement found?
In the heading
Which of the following are attributes of FASB? (Select all that apply.) Independence Public sector organization Full-time board members Private sector organization Part-time board members
Independence Full-time board members Private sector organization
The organization that develops global accounting standards is the
International Accounting Standards Board.
The purpose of the International Accounting Standards Board is to develop a single set of global accounting standards, which are referred to as
International Financial Reporting Standards.
Which of the following are attributes of FASB? Private sector organization Public sector organization Independence Full-time board members Part-time board members
Private sector organization Independence Full-time board members
Which of these appears on both the statement of stockholders' equity and the balance sheet? Cash Retained earnings Dividends Net income
Retained earnings Reason: Cash is reported on the balance sheet, but not on the statement of stockholders' equity. Reason: Net income can be shown on the statement of stockholders' equity, but is not reported directly on the balance sheet. Reason: Dividends can be shown on the statement of stockholders' equity, but are not reported directly on the balance sheet.
is the amount recorded as a result of the sale of products or services to customers.
Revenue
The legal authority to set accounting and reporting standards for companies whose securities are publicly traded lies with the
SEC (Securities and Exchange Commission) Reason: The legal authority rests with the SEC; the SEC has largely delegated the standard setting to FASB.
Identify which of the following are included in the heading of the statement of stockholders' equity for Xoff, Inc
Statement of Stockholders' Equity Xoff, Inc. The period of time covered by the statement
The heading of an income statement should include which of the following?
The name of the business The accounting period covered by the statement The title of the financial statement
The heading of a balance sheet for the 2018 fiscal period will include which of the following? The title "Balance Sheet" For the Year Ended December 31, 2018 The name of the business December 31, 2018
The title "Balance Sheet" The name of the business December 31, 2018
Which of the following appear(s) on the balance sheet?
Utilities payable Accounts receivable Common stock
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
Resources owned by a company are called
assets
The financial statement that displays a firm's financial position on a particular date is the
balance sheet
The financial statement that reflects the accounting equation is referred to as the
balance sheet
Which financial statement presents the financial position of a company on a particular date?
balance sheet
_______ decide market share and profitability
competitors
The purpose of the International Accounting Standards Board is to: (Select all that apply.) enforce U.S. GAAP globally replace the SEC converge national standards with IFRS develop an internationally based securities council develop global accounting standards
converge national standards with IFRS develop global accounting standards
The purpose of the International Accounting Standards Board is to: enforce U.S. GAAP globally replace the SEC develop an internationally based securities council develop global accounting standards converge national standards with IFRS
develop global accounting standards converge national standards with IFRS
_____ is a term that refers to a code or moral system that provides criteria for evaluating right or wrong.
ethics
Salaries already paid to employees for the month is a(n) ______ account that appears on the ______.
expense; income statement
If the SEC does not agree with a standard issued by the private sector, it can
force a change in the standard.
Financial accounting should provide information that: helps to predict cash flows is useful to investors and creditors in making decisions accurately predicts future income tells about economic resources, claims to resources, and changes in resources and claims predicts a company's future tax obligation
helps to predict cash flows is useful to investors and creditors in making decisions tells about economic resources, claims to resources, and changes in resources and claims
Financial accounting should provide information that: helps to predict cash flows tells about economic resources, claims to resources, and changes in resources and claims is useful to investors and creditors in making decisions accurately predicts future income predicts a company's future tax obligation
helps to predict cash flows tells about economic resources, claims to resources, and changes in resources and claims is useful to investors and creditors in making decisions
When accountants face an ethical dilemma, the first step in resolving the dilemma is to
identify the ethical decision
Revenues will ______ retained earnings, and expenses will ______ retained earnings
increase; decrease
_______ owns stock in the company
investor
________ decide whether to purchase stock
investors
Accountants' primary information-related roles are to
measure companies' activities communicate measurements of companies' activities to others
The objective of financial accounting is to:
provide useful information for external decision makers
An advantage of the corporate form of organization is that a corporation
provides limited liability to stockholders.
The two main career paths in accounting are referred to as:
public private
______ decide on social welfare issues
regulators
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?
$31,000 Reason: $20,000 + $5,000 + $10,000 - $4,000 = $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 Reason: Beginning retained earnings + Common stock + Net income - Dividends = Ending retained earnings. 0 + $30,000 + $8,000 - $5,000 = $33,000.
Margot starts a new business and contributes $20,000 in cash; she also borrows $25,000 from her local bank. She utilizes the cash to purchase supplies for $5,000 and a computer system for $10,000. After these transactions, the total claims to the company's total resources are:
$45,000 (Investor: 20,000 Creditor: 25,000)
Margot starts a new business and contributes $20,000 in cash; she also borrows $25,000 from her local bank. She utilizes the cash to purchase supplies for $5,000 and a computer system for $10,000. After these transactions, the company's total resources are:
$45,000 Reason: The cash is exchanged for other resources so the total resource amount is $45,000. cash ($20,000 + $25,000 - $5,000 - $10,000) + equipment $10,000 + supplies $5,000 = $45,000
Which of these would be found on a company's balance sheet? Depreciation expense Equipment Accounts receivable Sales revenue Notes payable
Equipment Accounts receivable Notes payable
_______ Statements represent a company's primary means of communicating information to external users.
Financial
The accounting equation is: Assets = ______ + Stockholders' Equity.
Liabilities
Which of the following items are found on a balance sheet?
Liabilities Assets Stockholders' equity
True or false: The statement of stockholders' equity indicates the changes in the various equity accounts.
True
In our society, the two main functions of accounting are to (select multiple) -communicate information to investors and creditors. -report net income to tax authorities. -report activities to government regulators. -measure business activities.
communicate information to investors and creditors. measure business activities.
Accountants' key roles are to measure the activities of the company and to
communicate that information to others.
A distribution of net income to owners is called a(n)
dividend
A(n) ____ is a distribution of net income to the stockholders of a corporation.
dividend
Stockholders' equity arises primarily from amounts invested by shareholders and amounts _____
earned by the corporation
A(n) ______ is a cost of doing business that is necessary to produce ___.
expense; revenue
Pizza Aroma generated $11,000 in revenues and had expenses of $6,000. Pizza Aroma's net income or loss is:
net income of $5,000 Reason: $11,000-6,000=$5,000, revenues exceed expenses
When expenses are greater than revenues, it is referred to as
net loss.
The statement of cash flows classifies items as
operating, investing, and financing.
The two sources of stockholders' equity are amounts ____
paid in from shareholders earned by the corporation
Many liabilities are referred to as _______ to indicate that amounts must be paid.
payables
Undistributed profits that have accumulated in the company over time are called _______
retained earnings
In accounting, the term net is used to describe
the difference between two amounts.
Stockholders' equity is
the owners' claims to resources of the corporation.
Retained earnings represents
the total net income earned over the life of the company that has not been distributed as dividends
Which items are found on an income statement?
expenses revenues
Revenues are:
sales of goods or services to customers
Which of these would be found on a company's balance sheet? Sales revenue Accounts receivable Depreciation expense Notes payable Equipment
Accounts receivable Notes payable Equipment
Which of the following appear(s) on the balance sheet? Accounts receivable Net income Salaries expense Utilities payable Common stock
Accounts receivable Utilities payable Common stock
Which of the following is the accounting equation?
Assets = Liabilities + Stockholders' equity
The four financial statements published to provide information to external users include which of the following?
Income Statement Statement of Stockholders' Equity Statement of Cash Flows Balance Sheet
Which of these appears on both the income statement and the statement of stockholders' equity? Cash Net income Expenses Revenues
Net Income
Which of the following appear on the statement of stockholders' equity?
Net income Dividends Beginning balance of retained earnings
Which of the following line items appear on an income statement?
Salaries expense Supplies expense Service revenue
A company owns an economic resource that will provide it with future benefits. This economic resource is
an asset
The form of business organization where an entity is legally separate from its owners and issues shares of stock is a
corporation.
Measuring business activities and reporting those measurements to external parties is the function of ______ accounting.
financial
The three classifications on the statement of cash flows are cash flows from
financing activities. investing activities. operating activities.
The income statement is considered most useful for predicting
future profitability
The financial statement that summarizes revenues and expenses for a period of time is the
income statement
The statement used to predict future profitability and a company's future cash-generating ability is the
income statement
undistributed profits that have accumulated in the company over time are called
retained earnings
An income statement includes which of the following items?
Revenues Net income Expenses