Deck 1: Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

Question 1

Current assets, typically held and used for several years, include land, buildings,
equipment, patents; and long-term investments in securities.

Answer 1

False

Question 2

Each firm makes financing decisions about the proportion of funds to obtain from owners,
long-term creditors, and short-term creditors.

Answer 2

True

Question 3

Goals are the end results toward which the firm directs its energies, and strategies are the
means for achieving those results.

Answer 3

True

Question 4

Retained earnings represent the net assets (total assets - total liabilities) a firm derives
from its earnings that exceed the dividends.

Question 5

Liabilities are creditors' claims for funds, usually because they have provided funds, or
goods and services, to the firm.

Question 6

The current replacement cost of an asset is the amount a firm would have to pay to obtain another asset with identical service potential; it is an entry value that reflects economic conditions at the measurement date.

Question 7

Patents, licenses, and other contractual rights are tangible, in the sense that the rights have a physical existence.

Question 8

Management operates the productive capacity of the firm to generate earnings.

Question 9

The mix of liabilities plus shareholders' equity reflects a firm's investing decisions, each measured at the balance sheet date.

Question 10

The managers of a business prepare financial statements to present meaningful information
about that business's activities to external users.

Question 11

The independent external auditors of a business prepare financial statements to present meaningful information about that business's activities to external users.

Question 12

A firm makes investments to obtain productive capacity to carry out its business activities.

Question 13

Current liabilities and shareholders' equity are sources of funds where the supplier of
funds does not expect to receive them all back within the next year.

Question 14

The activities of a business include establishing goals and strategies, obtaining financing, making investments and conducting operations.

Question 15

Assets are economic resources with the potential to provide future economic benefits to
a firm.

Question 16

Firms communicate the results of their business activities in the annual report to shareholders.

Question 17

Current liabilities represent obligations a firm expects to pay within one year.

Question 18

A natural business year ends when most activities in an operating cycle have been substantially concluded.

Question 19

The amounts of individual assets that make up total assets, represented by accounts receivable, inventories, equipment, and other assets, reflect a firm's financing decisions, each measured at the balance sheet date.

Question 20

The same asset can have different measurements for tax purposes, for financial reporting purposes, and for internal managerial decision-making purposes.

Question 21

Performance measured using the cash basis is not sensitive to the timing of cash expenditures.

Question 22

A firm makes investments to obtain productive capacity to carry out its business activities. Investing activities involve acquiring all of the following except:

A)land, buildings, and equipment.
B)patents, licenses, and other contractual rights.
C)common shares or bonds of other firms.
D)long-term notes receivable of other firms.
E)common shares or bonds of the firm.

Question 23

Which of the following is true regarding the investing activities of charitable organizations?

A)are not similar to business firms
B)acquire productive capacity (for example, buildings) to carry out their activities
C)issue common stock
D)issue bonds
E)issue preferred stock

Question 24

The cash basis separates the recognition of revenue from the process of earning those
revenues.

Question 25

The accrual basis does not match the cost of the efforts required to generate inflows with the
inflows themselves.

Question 26

Which of the following is/are true regarding setting goals and strategies for a charitable organization?

A)obtain sufficient resources to fund operations
B)not pursue profits or wealth increases as goals.
C)direct efforts toward providing services to constituencies
D)all of the above are true
E)none of the above are true

Question 27

The historical amount reflects the acquisition cost of assets or the amount of funds originally obtained from creditors or owners.

Question 28

Which of the following is not a business activity?

A)Establishing goals and strategies.
B)Obtaining financing.
C)Making investments.
D)Conducting operations.
E)All of these choices are business activities.

Question 29

Examples of factors from the operating environment that would affect a firm's goals and strategies include which of the following?

A)goals and strategies of the firm's competitors
B)barriers to entry of the firm's industry, such as patents or large investments in buildings and equipment
C)nature of the demand for the firm's products and services
D)existence and nature of government regulation
E)all of the above

Question 30

_____ are the end results toward which the firm directs its energies.

A)Goals
B)Strategies
C)Objectives
D)Activities
E)Milestones

Question 31

Firms communicate the results of their business activities in the _____.

A)annual report to shareholders
B)weekly press releases
C)monthly press releases
D)annual press releases
E)annual income tax returns

Question 32

When creditors provide funds to a firm, which of the following is/are true?

A)The firm must repay, usually with interest, in specific amounts at specific dates.
B)Long-term creditors require repayment from the borrower over a period of time that exceeds one year.
C)One common form of long-term financing is bonds.
D)Suppliers of raw materials or merchandise that do not require payment for 30 days provide short-term funds.
E)All of the above are true.

Question 33

_____ are the means for achieving goals.

A)Targets
B)Strategies
C)Objectives
D)Milestones
E)Tasks

Question 34

To assist users of financial reports in making over-time comparisons, both U.S.GAAP and IFRS require firms to include results for multiple reporting periods in each report.

Question 35

Which of the following is/are true regarding the financing of a charitable organization?

A)may obtain some or all of its financing from donations (contributions)
B)does not issue common stock or other forms of shareholders' equity
C)does not have retained earnings
D)all of the above are true
E)none of the above are true

Question 36

Management operates the productive capacity of the firm to generate earnings.Operating activities include the following except for:

A)Purchasing.
B)Research and development.
C)Marketing and administration.
D)Production.
E)Dividend payments.

Question 37

U.S.GAAP and IFRS contain broad guidance on what the financial statements must contain, but neither completely specifies the level of detail or the names of accounts.

Question 38

To carry out their plans, firms require financing, that is, funds from owners and creditors.Owners provide funds to a firm and in return receive ownership interests.For a corporation, the ownership interests are:

A)Common Stock Shares
B)Corporate Bonds
C)Notes Receivable
D)Notes Payable
E)Certificates of Deposit

Question 39

Management, under the oversight of the firm's governing board (or boards), sets the firm's strategies. Such strategies might include:

A)determining the firm's lines of business.
B)determining the firm's geographic locations.
C)degree to which a given business unit will engage in new product development.
D)all of the above.
E)none of the above.

Question 40

To carry out their plans, firms require financing, that is, funds from owners and creditors.When the firm raises funds from owners, which of the following is true?

A)There is no obligation to repay these funds.
B)There is an obligation to repay these funds.
C)Firms must distribute cash dividends to that firm's shareholders at least annually.
D)Firm must distribute stock dividends to that firm's shareholders at least annually.
E)None of the above are true.

Question 41

Net income that is not paid to shareholders as dividends increases _____.

A)cash receipts
B)retained earnings
C)cash disbursements
D)long-term liabilities
E)current liabilities

Question 42

A _____ year ends on a date that is determined by the firm, perhaps based on its business model (for example, many retailers choose the end of January).

A)physical
B)natural
C)fiscal
D)business cycle
E)normal

Question 43

Revenues are:

A)cash payments from customers.
B)outflows of assets to customers.
C)cash receipts from customers.
D)inflows of assets from customers.
E)sensitive to the timing of cash receipts from customers.

Question 44

An income statement connects two successive _____ through its effect on retained earnings.

A)balance sheets
B)cash flow statements
C)cash receipts and disbursement statements
D)funds flow statements
E)financing statements

Question 45

The balance sheet of Allhear, a communications firm, for the year ended December 31, 20x1, showed current assets of $20 million, current liabilities of $16 million, shareholders' equity of $17 million, and noncurrent assets of $29 million. Compute the amount of noncurrent liabilities on Allhear's balance sheet at the end of 20x1.

A)$5 million
B)$10 million
C)$12 million
D)$13 million
E)$16 million

Question 46

A _____ item is expected to result in a cash receipt or a cash payment within approximately one year or less.

A)illiquid
B)long-term
C)current
D)noncurrent
E)liquid

Question 47

Most firms report the amounts in their financial statements using _____.

A)Euro's
B)United States Dollars
C)Japanese Yen
D)currency of the country where they are incorporated and conduct most of their business activities
E)Swiss Francs

Question 48

The _____ report changes in assets and liabilities over a period of time, similar to a motion picture.

A)balance sheet and income statement
B)income statement and statement of cash flows
C)balance sheet and statement of cash flows
D)statement of cash flows and funds flow statement
E)balance sheet and statement of cash receipts and disbursements

Question 49

The _____ shows the relation between net income and cash flows from operations, and changes in assets and liabilities that involve cash flows.

A)balance sheet
B)statement of cash flows
C)income statement
D)funds flow statement
E)cash receipts and cash disbursement statement

Question 50

Which of the following is/are not true regarding the operations of a charitable organization?

A)might prepare financial statements that compare inflows (for example, contributions) with outflows
B)there would be no calculation of net income
C)purpose is to provide services to its constituents
D)purpose is to seek profits.
E)all of the above

Question 51

The number of days between when the employees and suppliers provide goods and services and when the firm pays cash to those employees and suppliers is called the _____ period.

A)financing
B)grace
C)float
D)funds flow
E)cash disbursement

Question 52

_____ are the amounts at which items entered the firm's balance sheet and reflect economic conditions at the time the firm obtained assets or obtained financing.

A)Past amounts
B)Present amounts
C)Valuation amounts
D)Historical amounts
E)Current amounts

Question 53

Expenses are:

A)inflows of assets from customers.
B)cash receipts from customers.
C)outflows of assets from generating revenues.
D)cash payments.
E)sensitive to the timing of expenditures.

Question 54

The _____ shows assets, liabilities and shareholders' equity as of a specific date, similar to a snapshot.

A)balance sheet
B)income statement
C)statement of cash flows
D)statement of sources and uses of funds
E)statement of cash receipts and disbursements

Question 55

Investments in long-lived assets, with useful lives (or service lives) that can extend for several or many years such as land, buildings, and equipment represent _____ capital.

A)sunk
B)hard
C)physical
D)intangible
E)soft

Question 56

_____ reflect values at the balance sheet date, so they reflect that day's economic conditions.

A)Historical amounts
B)Current amounts
C)Present amounts
D)Liquidation amounts
E)Discounted cash flow amounts

Question 57

The balance sheet of Old Gold Mines, a gold mining company, for the year ended June 30, 20x1, showed current assets of $6 million, noncurrent assets of $49 million, noncurrent liabilities of $14 million, and current liabilities of $4 million. Compute the amount of shareholders' equity on Old Gold Mines' balance sheet at the end of 20x1.

A)$14 million
B)$27 million
C)$33 million
D)$37 million
E)$41 million

Question 58

A _____ connects two successive balance sheets because it explains the change in cash from operating, financing, and investing activities.

A)statement of cash receipts and disbursements
B)income statement
C)funds flow statement
D)statement of cash flows
E)statement of retained earnings

Question 59

_____ represent amounts owed by customers for goods and services they have already received. The customer, therefore, has the benefit of the goods and services before it pays cash.

A)Accounts Payable
B)Accounts Receivable
C)Notes Receivable
D)Notes Payable
E)Uncollected Sales

Question 60

A(n) _____ item is expected to generate cash over periods longer than a year or use cash over periods longer than a year.

A)illiquid
B)appropriated
C)liquid
D)current
E)noncurrent

Question 61

The income statement of Ride-on Motors, an automotive manufacturer, for the year ended December 31, 20x1, reported revenues $7,400 million and cost of sales of $6,000 million.In addition, it reported other operating expenses of $900 million, a loss of $2 million on the sale of a business, and net financing income of $200 million.Tax expense for the year was $100 million.Compute the amount of net income or loss that Ride-on Motors reported for 20x1.

A)net income of $198 million
B)net income of $698 million
C)net loss of $698 million
D)net income of $598 million
E)net loss of 598 million

Question 62

_____ measure the outflow of assets (or increases in liabilities) used in generating revenues.

A)Revenues
B)Expenses
C)Cash inflows
D)Cash-outflows
E)Shareholder equity

Question 63

Who under the oversight of the firm's governing board, prepares the financial statements?

A)independent auditor
B)Securities and Exchange Commission
C)Public Companies Accounting Oversight Board
D)general counsel
E)management

Question 64

The statement of cash flows for Goal Corporation, a U.S.retailer, for the year ended February 2, 20x2 (fiscal 20x1), showed a net cash inflow from operations of $4,100 million, a net cash outflow for investing of $6,200 million, and a net cash inflow for financing of $3,700 million.The balance sheet at February 3, 20x1, showed a balance in cash of $800 million.Compute the amount of cash on the balance sheet at February 2, 20x2.

A)$800 million.
B)$1,600 million.
C)$2,400 million.
D)$3,200 million.
E)$4,700 million.

Question 65

The income statement and statement of cash flows provide information about the _____, respectively, of a firm during a period.

A)asset and equity position at a moment in time and profitability
B)asset and equity position at a moment in time and liquidity
C)liquidity and profitability
D)profitability and liquidity
E)none of the above

Question 66

The balance sheet of Old Gold Mines for the year ended June 30, 20x2, showed a balance in retained earnings of $6,000 million at the end of 20x2 and $4,600 million at the end of 20x1.Net income for 20x2 was $2,400, million.Compute the amount of dividends Old Gold Mines declared during 20x2.

A)$500 million
B)$1,000 million
C)$1,500 million
D)$2,000 million
E)$2,500 million

Question 67

What is the best definition of an accounting period?

A)Any 12-month period
B)The calendar year
C)The period between any two balance sheet dates
D)The period in which the major income-producing activity occurs
E)The period between any two income statement dates

Question 68

In the United States, regulatory requirements applicable to publicly traded firms require the inclusion of a(n) _____, in which management discusses operating results, liquidity (sources and uses of cash), capital resources, and reasons for changes in profitability and risk during the past year.

A)Balance sheet or statement of financial position
B)Management's Discussion and Analysis
C)Income statement or statement of profit and loss
D)Statement of cash flows.
E)Statement of shareholders' equity.

Question 69

_____ are economic resources with the potential to provide future economic benefits to a firm.

A)Revenues
B)Expenses
C)Liabilities
D)Assets
E)Shareholder Equity

Question 70

Who evaluates the accounting system, including its ability to record transactions properly and its operational effectiveness, and also determines whether the financial reports prepared conform to the requirements of the applicable authoritative guidance?

A)management
B)general counsel
C)independent auditor
D)financial vice-president
E)controller

Question 71

A natural business year

A)is the calendar year.
B)records activities for a period less than a year.
C)refers to an interim accounting period.
D)ends when most activities in an operating cycle have been substantially concluded.
E)none of the above

Question 72

_____ reports information about cash generated from (or used by) operating, investing, and financing activities during specified time periods.

A)Statement of sources and uses of cash
B)Statement of cash flows
C)Statement of cash receipts and disbursements
D)Funds flow statement
E)Balance sheet

Question 73

To increase the margin between selling price and manufacturing cost, a manufacturing company might:

A)negotiate a lower purchase price with suppliers of raw materials.
B)substitute more efficient manufacturing equipment for work now done by employees.
C)increase selling prices.
D)all of the above
E)none of the above

Question 74

The financial statements present aggregated information, for example, the total amount of land, buildings, and equipment.Financial reports provide more detail for some of the items reported in the financial statements, and they provide additional explanatory material to help the user to understand the information in the financial statements.This information appears in _____ that are an integral part of the financial reports.

A)management's discussion and analysis
B)external auditors report
C)internal auditors report
D)press releases
E)schedules and notes

Question 75

The statement of cash flows for Lights-On, a leading electric utility for the year ended December 31, 20x2, showed a net cash inflow from operations of $427,000 million and a net cash outflow for financing of $21,800 million.The comparative balance sheets showed a balance in cash of $32,700 at December 31, 20x1, and $101,200 at December 31, 20x2.Compute the net amount of cash provided or used by Lights-On's investing activities for 20x2.

A)$68,500 million provided
B)$271,300 million used
C)$372,500 million provided
D)$336,700 million used
E)$236,700 million used

Question 76

The balance sheet of Copper Industries, a producer of copper, showed retained earnings of $26,000 million at March 31, 20x1.At March 31, 20x2, the balance in retained earnings was $70,500 million .Copper declared dividends during the year ended March 31, 20x2, of $3,500 million.Compute Copper's net income for the year ended March 31, 20x2 (fiscal 20x1).

A)$41.000 million
B)$44.500 million
C)$48.000 million
D)$53.500 million
E)$58.000 million

Question 77

The income statement of Peoples Motors Corporation, a U.S.automotive manufacturer, for the year ended December 31, 20x1, reported revenues of $207,000, cost of sales of $165,000, other operating expenses, including income taxes of $50,000, and net financing income, after taxes, of $6,000. Compute the amount of net income or loss that Peoples Motors reported for 20x1.

A)net income of $0
B)net income of $2,000
C)net loss of $2,000
D)net income of $8,000
E)net loss of $8,000

Question 78

The _____ is the government agency that enforces the securities laws of the U.S., including those that apply to financial reporting.

A)Government Accountability Office (GAO)
B)Public Company Accounting Oversight Board (PCAOB)
C)International Accounting Standards Board (IASB)
D)Financial Accounting Standards Board (FASB)
E)U.S.Securities and Exchange Commission (SEC)

Question 79

_____ are creditors' claims for funds, usually because they have provided funds, or goods and services, to the firm.

A)Revenues
B)Expenses
C)Liabilities
D)Assets
E)Shareholder Equity

Question 80

_____ measure the inflows of assets (or reductions in liabilities) from selling goods and providing services to customers.

A)Revenues
B)Expenses
C)Cash inflows
D)Cash-outflows
E)Shareholder equity