chap001 - Chapter 001 Financial Statements and Business...

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Chapter 001: Financial Statements and Business Decisions 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 1-1
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Chapter 001: Financial Statements and Business Decisions 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 1-2
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Chapter 001: Financial Statements and Business Decisions 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 Revenues = Net Income. FALSE AACSB Tag: Reflective Thinking Difficulty: Easy L.O.: 1 1-3
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Chapter 001: Financial Statements and Business Decisions 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.
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