Financing Questions

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True / False Questions
 

1. Accounting is a system that collects and processes financial information about an organization and reports that information to decision makers.  TRUE

 

AACSB Tag: Communications
Difficulty: Easy
L.O.: 1
 

2. Assets on the balance sheet are recorded at market value or replacement cost.  FALSE

 

AACSB Tag: Reflective Thinking
Difficulty: Easy
L.O.: 1
 

3. In accounting and reporting for a business entity, the accounting and reporting for the business must be kept separate from other economic affairs of its owners.  TRUE

 

AACSB Tag: Reflective Thinking
Difficulty: Easy
L.O.: 1
 

4. The accounting period in which service revenue is recognized (i.e., revenue for services rendered) is generally the period in which the cash is collected.  FALSE

 

AACSB Tag: Reflective Thinking
Difficulty: Medium
L.O.: 1
 

5. Total assets are $70,000, total liabilities, $40,000 and contributed capital is $20,000; therefore, retained earnings are $15,000.  FALSE

 

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 1
 

6. The payment of a cash dividend to stockholders increases stockholders' equity.  FALSE

 

AACSB Tag: Reflective Thinking
Difficulty: Medium
L.O.: 1
 

7. The accounting model for the balance sheet is: Assets + Liabilities = Stockholders' Equity.  FALSE

 

AACSB Tag: Reflective Thinking
Difficulty: Easy
L.O.: 1
 

8. A decision maker who wants to understand a company's financial statements must carefully read the notes to the financial statements because the notes provide useful supplemental information.  TRUE

 

AACSB Tag: Communications
Difficulty: Easy
L.O.: 1
 

9. The financial statement that shows an entity's economic resources and its liabilities is the statement of cash flows.  FALSE

 

AACSB Tag: Reflective Thinking
Difficulty: Medium
L.O.: 1
 

10. Companies prepare financial statements at the end of each year and more often as needed.  TRUE

 

AACSB Tag: Reflective Thinking
Difficulty: Easy
L.O.: 1
 

11. A note payable is a borrowing instrument that generally does not involve the payment of interest.  FALSE

 

AACSB Tag: Reflective Thinking
Difficulty: Hard
L.O.: 1
 

12. The amount of cash paid by a business for office utilities would be reported on the statement of cash flows as an operating activity.  TRUE

 

AACSB Tag: Reflective Thinking
Difficulty: Hard
L.O.: 1
 

13. The income statement equation is Expenses  [pic]  Revenues = Net Income.  FALSE

 

AACSB Tag: Reflective Thinking
Difficulty: Easy
L.O.: 1
 

14. Generally accepted accounting principles almost never change once created.  FALSE

 

AACSB Tag: Reflective Thinking
Difficulty: Easy
L.O.: 2
 

15. The Financial Accounting Standards Board (FASB) is an agency of the federal government that establishes generally accepted accounting principles for businesses.  FALSE

 

AACSB Tag: Reflective Thinking
Difficulty: Medium
L.O.: 2
 

16. Since 2002, there has been substantial movement to develop international financial reporting standards.  TRUE

 

AACSB Tag: Diversity
Difficulty: Medium
L.O.: 2
 

17. An audit guarantees that the financial statements are free of all misstatements.  FALSE

 

AACSB Tag: Reflective Thinking
Difficulty: Medium
L.O.: 3
 

18. An auditor who fails to detect a material misstatement of a business's financial statements may be sued by anyone who suffered a loss from relying on the financial statements.  TRUE

 

AACSB Tag: Reflective Thinking
Difficulty: Medium
L.O.: 4
 

19. In terms of economic importance, partnerships are the dominant form of organization in the U.S. because of their ease of formation.  FALSE

 

AACSB Tag: Reflective Thinking
Difficulty: Medium
L.O.: Sup A
 

20. One of the advantages of a corporation when compared to a partnership is the limited liability of the owners.  TRUE

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