Question 1

Which of the following is true of balance sheets?
A) The balance sheets of different firms vary in specifics.
B) They identify the sources and uses of cash for firms in a given accounting period.
C) All balance sheets are organized to reflect the profitability index of firms.
D) They do not include the value of the intangible assets of firms.

Accepted Answer

Balance sheets of different firms vary in specifics because they reflect the unique financial position and accounting practices of each firm.

Question 2

The three kinds of basic financial statements that are prepared in financial accounting are:
A) statement of debts, letter of credit, and articles of incorporation.
B) comfort letter, master budget, and credit statement.
C) balance sheet, income statement, and statement of cash flows.
D) pro forma report, request for proposal, and articles of incorporation.

Accepted Answer

The three basic financial statements in financial accounting are the balance sheet, income statement, and statement of cash flows. These statements provide a comprehensive overview of a company's financial position, performance, and cash flow activities.

Question 3

Machvile Corporation, a robotics company, decides to acquire Chancera Inc., a start-up company that operates within the same industry. To better assess its decision, the management of Machvile Corporation needs to find out the value of Chancera Inc.'s total assets. The management has information regarding Chancera Inc.'s liabilities and stockholders' equity. In this scenario, the management should most likely use the _____ to get the required information.
A) accounting equation
B) profitability index
C) quartic equation
D) liquidity index

Accepted Answer

The accounting equation states that assets = liabilities + stockholders' equity. Therefore, the management of Machvile Corporation can use the accounting equation to find the value of Chancera Inc.'s total assets by subtracting the liabilities from the stockholders' equity.

Question 4

Through the establishment of a set of generally accepted accounting principles (GAAP), the Financial Accounting Standards Board (FASB) aims to ensure that financial statements are:
A) flexible.
B) inexplicit.
C) comparable.
D) incongruent.

Accepted Answer

The FASB establishes GAAP to ensure that financial statements are comparable, allowing users to consistently evaluate financial information across different organizations.

Question 5

In the context of financial accounting, the external stakeholders of a firm:
A) are seldom interested in analyzing detailed accounting information about the individual departments within the firm.
B) are least interested in looking at the firm at a macro level.
C) are not affected by the financial performance of the firm.
D) seldom want to know how the firm's financial condition has changed over a period of several years by looking at its account statements.

Accepted Answer

External stakeholders, such as investors, creditors, and regulators, are generally interested in the overall financial health and performance of the firm rather than detailed departmental information. They focus on the firm's financial statements to assess its financial condition and performance over time.

Question 6

Rolette Clemens is a financial institution that provides loans to businesses. It rejects a textile company's request for a loan after it reviews the value of the company's assets, liabilities, and owners' equity and finds them to be unsatisfactory. In this scenario, Rolette Clemens most likely analyzed the company's _____ to assess its financial condition.
A) statement of cash flows
B) balance sheet
C) income statement
D) operating budget

Accepted Answer

The balance sheet provides a snapshot of a company's financial condition at a specific point in time, detailing its assets, liabilities, and owners' equity, which are key factors in assessing financial health for loan approval.

Question 7

The assets of Prosian Italia, a marble and granite company, amount to $400 million, and its liabilities add up to $180 million. Based on the accounting equation, Prosian Italia's owners' equity is equal to _____.
A) $580 million
B) $72,000 million
C) $2 million
D) $220 million

Accepted Answer

The accounting equation is Assets = Liabilities + Owners' Equity. Therefore, Owners' Equity = Assets - Liabilities = $400 million - $180 million = $220 million.

Question 8

To give the company's stockholders, creditors, and other external stakeholders an accurate idea of the company's overall performance, Rowensport Corporation, a multinational company, releases statements that contain details of the company's profits and losses over the past five years. In this scenario, the company is most likely involved in _____.
A) financial accounting
B) cost accounting
C) follow-up auditing
D) social auditing

Accepted Answer

Financial accounting involves preparing financial statements that provide information about a company's financial performance to external stakeholders.

Question 9

To preserve independence and impartiality, the Financial Accounting Standards Board (FASB) members are required to:
A) serve the board until their retirement.
B) sever all ties with any firms or institutions they served prior to joining the board.
C) sign a non-disclosure agreement and hand over all information of their previous companies to the board.
D) pass a rigorous two-day, four-part examination on major accounting concepts.

Accepted Answer

FASB members must sever all ties with any firms or institutions they served prior to joining the board to maintain independence and impartiality.

Question 10

In the accounting equation, assets are equal to:
A) liabilities plus owners' equity.
B) liabilities divided by gross profit.
C) stockholders' equity subtracted from liabilities.
D) owners' equity multiplied by net income.

Accepted Answer

The accounting equation states that assets are equal to liabilities plus owners' equity, reflecting the balance sheet's structure.

Question 11

In the context of financial accounting, if a firm wants to introduce any significant changes in how it prepares its financial statements, _____.
A) it must first pay a fee to the CPA firm conducting its audit
B) it must get the changes preapproved from a district magistrate
C) it must get approval for these changes from at least ten other firms working in the same sector
D) it must first clearly identify and describe these changes as per the generally accepted accounting principles (GAAP)

Accepted Answer

Firms must adhere to GAAP, which requires them to clearly identify and describe any significant changes in their financial statement preparation to ensure transparency and consistency.

Question 12

Leemo, a soft drink manufacturing company, sells approximately 400 batches of its soft drinks worth $80,000 every week. In this context, the 400 batches of soft drinks that Leemo produces weekly represent the company's _____.
A) intangible assets
B) current assets
C) defensive assets
D) fixed assets

Accepted Answer

The 400 batches of soft drinks are considered current assets because they are part of the inventory that the company expects to sell within a short period, typically within a year.

Question 13

In the context of balance sheets, accounts receivable is an example of _____.
A) current liabilities
B) immovable assets
C) current assets
D) depreciated liabilities

Accepted Answer

Accounts receivable is considered a current asset because it represents money owed to a company by its customers for goods or services delivered, which is expected to be received within a short period, typically within a year.

Question 14

In the context of balance sheets, resources owned by a firm are known as _____.
A) holdings
B) assets
C) capitals
D) liabilities

Accepted Answer

Assets are resources owned by a firm that have economic value and can be converted into cash.

Question 15

Sidney is a member of the Financial Accounting Standards Board (FASB) and is entrusted with the responsibility of establishing accounting principles in the United States. As a member of the board, Sidney:
A) is to serve a seven-year term and cannot be reappointed to serve another term.
B) must sever all ties with any firms or institutions that she served prior to joining the board.
C) is responsible for directing the Securities and Exchange Commission to enforce the accounting standards.
D) must pass a rigorous two-day, four-part examination to be promoted as a certified fraud examiner.

Accepted Answer

Sidney must sever all ties with any firms or institutions that she served prior to joining the board.

Question 16

Identify a true statement about current assets.
A) They include the long-term assets of a firm.
B) They are resources that a firm expects to convert into cash within a year.
C) They are resources that a firm decides to set aside to pay its long-term liabilities.
D) They include a firm's tangible assets, such as machinery and equipment.

Accepted Answer

Current assets are resources that a firm expects to convert into cash within a year.

Question 17

Marcus is a venture capitalist who invests in start-ups and small businesses. He is interested in investing in an online start-up company that has been in business for a year. Before making a decision, Marcus does some research on the value of the company's assets and liabilities. In this scenario, Marcus is most likely analyzing the company's:
A) income statement.
B) balance sheet.
C) articles of incorporation.
D) operating budget.

Accepted Answer

Marcus is analyzing the company's balance sheet, which provides information on the company's assets and liabilities.

Question 18

In the context of financial statements, which of the following statements is true of large corporations?
A) Large corporations with publicly traded stock must provide an annual report containing financial statements to all stockholders.
B) They must file reports with the Securities and Exchange Commission every five years.
C) Large corporations with privately traded stock must provide an annual report containing details of incoming and outgoing cash.
D) They must file quarterly and annual reports with the Financial Accounting Standards Board.

Accepted Answer

Large corporations with publicly traded stock are required to provide an annual report containing financial statements to all stockholders.

Question 19

The owners' equity of Senesta Corp., an event management company, adds up to $23 million, and its liabilities add up to $17 million. Based on the accounting equation, the assets of Senesta Corp. are worth _____.
A) $1.35 million
B) $391 million
C) $7 million
D) $40 million

Accepted Answer

The accounting equation states that Assets = Liabilities + Owners' Equity. Therefore, the assets of Senesta Corp. are worth $23 million (owners' equity) + $17 million (liabilities) = $40 million.

Question 20

Which of the following is true of current assets?
A) They include the long-term assets of a firm.
B) They are resources that a firm expects to use up within a year.
C) They include a firm's tangible assets, such as machinery and equipment.
D) They are resources that a firm decides to set aside to pay its long-term liabilities.

Accepted Answer

Current assets are resources that a firm expects to use up or convert into cash within one year.

Quiz 8: Accounting: Decision Making by the Numbers

Which of the following is true of balance sheets?

The three kinds of basic financial statements that are prepared in financial accounting are:

Through the establishment of a set of generally accepted accounting principles (GAAP) , the Financial Accounting Standards Board (FASB) aims to ensure that financial statements are:

In the context of financial accounting, the external stakeholders of a firm:

The assets of Prosian Italia, a marble and granite company, amount to $400 million, and its liabilities add up to $180 million. Based on the accounting equation, Prosian Italia's owners' equity is equal to _____.

To preserve independence and impartiality, the Financial Accounting Standards Board (FASB) members are required to:

In the accounting equation, assets are equal to:

In the context of financial accounting, if a firm wants to introduce any significant changes in how it prepares its financial statements, _____.

Leemo, a soft drink manufacturing company, sells approximately 400 batches of its soft drinks worth $80,000 every week. In this context, the 400 batches of soft drinks that Leemo produces weekly represent the company's _____.

In the context of balance sheets, accounts receivable is an example of _____.

In the context of balance sheets, resources owned by a firm are known as _____.

Sidney is a member of the Financial Accounting Standards Board (FASB) and is entrusted with the responsibility of establishing accounting principles in the United States. As a member of the board, Sidney:

Identify a true statement about current assets.

In the context of financial statements, which of the following statements is true of large corporations?

The owners' equity of Senesta Corp., an event management company, adds up to $23 million, and its liabilities add up to $17 million. Based on the accounting equation, the assets of Senesta Corp. are worth _____.

Which of the following is true of current assets?