Deck 1: Introduction to Financial Statements

Question 1

Which of the following is a separate legal entity?

A) Proprietorship.
B) Sole proprietorship.
C) Corporation.
D) Partnership.

Answer 1

C

Question 2

Which of the following is FALSE?

A) Intangible assets are noncurrent assets that do not have physical substance.
B) Obligations expected to be paid after one year are classified as long-term liabilities.
C) Current assets are listed in the order of magnitude (size).
D) Property, plant, and equipment are assets with relatively long useful lives that are used in operating the business.

Answer 2

C

Question 3

GAAP refers to:

A) general accounting and auditing principles.
B) guidelines for American accounting procedures.
C) General Association of Accounting Practitioners.
D) generally accepted accounting principles.

Answer 3

D

Question 4

Which is an indicator of profitability?

A) Current ratio.
B) Earnings per share.
C) Free cash flow.
D) Working capital.

Question 5

Current assets are listed:

A) alphabetically.
B) by importance.
C) by longevity.
D) by liquidity.

Question 6

The Retained Earnings account had a beginning balance of $60,000 and an ending balance of $70,000. If $20,000 of dividends were declared and paid during the period, net income must have been:

A) $20,000.
B) $30,000.
C) $10,000.
D) $50,000.

Question 7

A financial statement that reports accounting data at a specific date is the:

A) balance sheet.
B) retained earnings statement.
C) income statement.
D) statement of cash flows.

Question 8

Which of the following is NOT considered an external user of accounting information?

A) Bankers.
B) Taxing authority.
C) Manager.
D) Labor Unions.

Question 9

Financial statements combining the operations of Macy's and Dillard's would violate the:

A) monetary unit assumption.
B) economic entity assumption.
C) cost principle.
D) full disclosure principle.

Question 10

Indicate which of the following items would not be reported in the operating section of the statement of cash flows.

A) Cash received from customers
B) Cash paid for dividends.
C) Cash paid for salaries.
D) Cash received for dividends.

Question 11

If total liabilities decreased by $30,000 during a period of time and stockholders' equity increased by $35,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is a:

A) $65,000 increase.
B) $5,000 increase.
C) $5,000 decrease.
D) $65,000 decrease.

Question 12

To be relevant, accounting information must:

A) be capable of making a difference in a decision.
B) be presented on the balance sheet.
C) be recorded at historical cost.
D) improve the company's internal control.

Question 13

Limited liability (no liability beyond investment) is not enjoyed by the owner(s) of a:

A) partnership and proprietorship.
B) partnership and corporation.
C) proprietorship and corporation.
D) corporation.

Question 14

In accounting, which of the following is NOT a description of faithful representation as it relates to accounting information?

A) Complete.
B) Be the least likely to overstate assets or income.
C) Free from error.
D) Neutral.