CHAPTER 1
INTRODUCTION TO FINANCIAL STATEMENTS
CHAPTER LEARNING OBJECTIVES
1. Describe the forms of business organization and the uses of accounting information.
A sole proprietorship is a business owned by one person. A partnership is a business owned
by two or more people associated as partners. A corporation is a separate legal entity for
which evidence of ownership is provided by shares of stock. Internal users are managers
who need accounting information to plan, organize, and run business operations. The
primary external users are investors and creditors. Investors (stockholders) use accounting
information to decide whether to buy, hold, or sell shares of a company’s stock. Creditors
(suppliers and bankers) use accounting information to assess the risk of granting credit or
loaning money to a business. Other groups who have an indirect interest in a business are
taxing authorities, customers, labor unions, and regulatory agencies.
2. Explain the three principal types of business activity. Financing activities involve
collecting the necessary funds to support the business. Investing activities involve acquiring
the resources necessary to run the business. Operating activities involve putting the
resources of the business into action to generate a profit.
3. Describe the four financial statements and how they are prepared. An income statement
presents the revenues and expenses of a company for a specific period of time. A retained
earnings statement summarizes the changes in retained earnings that have occurred for a
specific period of time. A balance sheet reports the assets, liabilities, and stockholders’
equity of a business at a specific date. A statement of cash flows summarizes information
concerning the cash inflows (receipts) and outflows (payments) for a specific period of time.
Assets are resources owned by a business. Liabilities are the debts and obligations of the
business. Liabilities represent claims of creditors on the assets of the business.
Stockholders’ equity represents the claims of owners on the assets of the business.
Stockholders’ equity is subdivided into two parts: common stock and retained earnings. The
basic accounting equation is Assets = Liabilities + Stockholders’ Equity. Within the annual
report, the management discussion and analysis provides management’s interpretation of
the company’s results and financial position as well as a discussion of plans for the future.
Notes to the financial statements provide additional explanation or detail to make the
financial statements more informative. The auditor’s report expresses an opinion as to
whether the financial statements present fairly the company’s results of operations and
financial position.
FOR INSTRUCTOR USE ONLY
,1-2 Test Bank for Financial Accounting: Tools for Business Decision Making, Ninth Edition
TRUE-FALSE STATEMENTS
1. A business organized as a separate legal entity owned by stockholders is a partnership.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
2. Corporate stockholders have no personal liability for the debts of the corporation.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
3. The liability of corporate stockholders is limited to the amount of their investment.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
4. The majority of U.S. business is transacted by proprietorships.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
5. Proprietorships in the United States generate more revenue than the other two forms of
business enterprise.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
6. Owners of business firms are the only people who need accounting information.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
7. Management of a business enterprise is the major external user of accounting
information.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
8. External users of accounting information are managers who plan, organize, and run a
business.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
9. The accounting information needs and questions of external users vary considerably.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
10. Accounting communicates financial information about a business to both internal and
external users.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
11. Two primary external users of accounting information are investors and creditors.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
12. Financing activities for corporations include borrowing money and selling shares of their
own stock.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
13. Investing activities involve collecting the necessary funds to support the business.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
FOR INSTRUCTOR USE ONLY
, Introduction to Financial Statements 1-3
Reporting
14. The purchase of equipment is an example of a financing activity.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
15. Assets are resources owned by a business and provide future services or benefits to the
business.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
16. Payments by the business to owners are operating activities.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
17. The economic resources owned by a business are called stockholders’ equity.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
18. Operating activities involve putting the resources of the business into action to generate
a profit.
Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
19. A business is usually involved in two types of activities—financing and investing.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
20. Net income for the period is determined by subtracting expenses and dividends from
revenues.
Ans: F, LO: 3, Bloom: K, Difficulty: Medium, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
21. A different set of financial statements is usually prepared for each user.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
22. The heading for the income statement might include the line “As of December 31, 20xx.”
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
23. Net income is another term for revenue.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
24. Cash is another term for stockholders’ equity.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
25. The primary purpose of the statement of cash flows is to provide information about the
cash receipts and cash payments of a company for a specific period of time.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
26. The balance sheet reports assets and claims to those assets at a specific point in time.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
FOR INSTRUCTOR USE ONLY
, 1-4 Test Bank for Financial Accounting: Tools for Business Decision Making, Ninth Edition
27. The basic accounting equation states that Assets = Liabilities.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
28. One way of stating the accounting equation is Assets + Liabilities = Stockholders’ Equity.
Ans: F, LO: 3, Bloom: C, Difficulty: Medium, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
29. The accounting equation can be expressed as Assets - Stockholders’ Equity = Liabilities.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Medium: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
30. The accounting equation can be expressed as Assets - Liabilities = Stockholders’ Equity.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
31. If the assets owned by a business total $150,000 and liabilities total $105,000, then
stockholders’ equity totals $45,000.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
Solution: $150,000 – $105,000 = $45,000
32. If the assets owned by a business total $100,000 and liabilities total $65,000, then
stockholders’ equity totals $25,000.
Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
Solution: $100,000 - $65,000 = $35,000
33. Claims of creditors and owners on the assets of a business are called liabilities.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
34. Creditors’ rights to assets supersede owners’ rights to the assets.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
35. All publicly traded U.S. companies must provide their stockholders with an annual report
each year.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
36. Information in the notes to the financial statements has to be quantifiable (numeric).
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
37. An auditor is an accounting professional who conducts an independent examination of
the accounting data presented by a company.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: Professional
Demeanor, IMA: Reporting
38. The management discussion and analysis (MD&A) section of an annual report covers
various financial aspects of a company.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: Communications,
IMA: Reporting
39. Explanatory notes and supporting schedules are an optional part of an annual report.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: Communications,
FOR INSTRUCTOR USE ONLY
INTRODUCTION TO FINANCIAL STATEMENTS
CHAPTER LEARNING OBJECTIVES
1. Describe the forms of business organization and the uses of accounting information.
A sole proprietorship is a business owned by one person. A partnership is a business owned
by two or more people associated as partners. A corporation is a separate legal entity for
which evidence of ownership is provided by shares of stock. Internal users are managers
who need accounting information to plan, organize, and run business operations. The
primary external users are investors and creditors. Investors (stockholders) use accounting
information to decide whether to buy, hold, or sell shares of a company’s stock. Creditors
(suppliers and bankers) use accounting information to assess the risk of granting credit or
loaning money to a business. Other groups who have an indirect interest in a business are
taxing authorities, customers, labor unions, and regulatory agencies.
2. Explain the three principal types of business activity. Financing activities involve
collecting the necessary funds to support the business. Investing activities involve acquiring
the resources necessary to run the business. Operating activities involve putting the
resources of the business into action to generate a profit.
3. Describe the four financial statements and how they are prepared. An income statement
presents the revenues and expenses of a company for a specific period of time. A retained
earnings statement summarizes the changes in retained earnings that have occurred for a
specific period of time. A balance sheet reports the assets, liabilities, and stockholders’
equity of a business at a specific date. A statement of cash flows summarizes information
concerning the cash inflows (receipts) and outflows (payments) for a specific period of time.
Assets are resources owned by a business. Liabilities are the debts and obligations of the
business. Liabilities represent claims of creditors on the assets of the business.
Stockholders’ equity represents the claims of owners on the assets of the business.
Stockholders’ equity is subdivided into two parts: common stock and retained earnings. The
basic accounting equation is Assets = Liabilities + Stockholders’ Equity. Within the annual
report, the management discussion and analysis provides management’s interpretation of
the company’s results and financial position as well as a discussion of plans for the future.
Notes to the financial statements provide additional explanation or detail to make the
financial statements more informative. The auditor’s report expresses an opinion as to
whether the financial statements present fairly the company’s results of operations and
financial position.
FOR INSTRUCTOR USE ONLY
,1-2 Test Bank for Financial Accounting: Tools for Business Decision Making, Ninth Edition
TRUE-FALSE STATEMENTS
1. A business organized as a separate legal entity owned by stockholders is a partnership.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
2. Corporate stockholders have no personal liability for the debts of the corporation.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
3. The liability of corporate stockholders is limited to the amount of their investment.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
4. The majority of U.S. business is transacted by proprietorships.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
5. Proprietorships in the United States generate more revenue than the other two forms of
business enterprise.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
6. Owners of business firms are the only people who need accounting information.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
7. Management of a business enterprise is the major external user of accounting
information.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
8. External users of accounting information are managers who plan, organize, and run a
business.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
9. The accounting information needs and questions of external users vary considerably.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
10. Accounting communicates financial information about a business to both internal and
external users.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
11. Two primary external users of accounting information are investors and creditors.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
12. Financing activities for corporations include borrowing money and selling shares of their
own stock.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
13. Investing activities involve collecting the necessary funds to support the business.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
FOR INSTRUCTOR USE ONLY
, Introduction to Financial Statements 1-3
Reporting
14. The purchase of equipment is an example of a financing activity.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
15. Assets are resources owned by a business and provide future services or benefits to the
business.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
16. Payments by the business to owners are operating activities.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
17. The economic resources owned by a business are called stockholders’ equity.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
18. Operating activities involve putting the resources of the business into action to generate
a profit.
Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
19. A business is usually involved in two types of activities—financing and investing.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
20. Net income for the period is determined by subtracting expenses and dividends from
revenues.
Ans: F, LO: 3, Bloom: K, Difficulty: Medium, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
21. A different set of financial statements is usually prepared for each user.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
22. The heading for the income statement might include the line “As of December 31, 20xx.”
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
23. Net income is another term for revenue.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
24. Cash is another term for stockholders’ equity.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
25. The primary purpose of the statement of cash flows is to provide information about the
cash receipts and cash payments of a company for a specific period of time.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
26. The balance sheet reports assets and claims to those assets at a specific point in time.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
FOR INSTRUCTOR USE ONLY
, 1-4 Test Bank for Financial Accounting: Tools for Business Decision Making, Ninth Edition
27. The basic accounting equation states that Assets = Liabilities.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
28. One way of stating the accounting equation is Assets + Liabilities = Stockholders’ Equity.
Ans: F, LO: 3, Bloom: C, Difficulty: Medium, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
29. The accounting equation can be expressed as Assets - Stockholders’ Equity = Liabilities.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Medium: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
30. The accounting equation can be expressed as Assets - Liabilities = Stockholders’ Equity.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
31. If the assets owned by a business total $150,000 and liabilities total $105,000, then
stockholders’ equity totals $45,000.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
Solution: $150,000 – $105,000 = $45,000
32. If the assets owned by a business total $100,000 and liabilities total $65,000, then
stockholders’ equity totals $25,000.
Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
Solution: $100,000 - $65,000 = $35,000
33. Claims of creditors and owners on the assets of a business are called liabilities.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
34. Creditors’ rights to assets supersede owners’ rights to the assets.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
35. All publicly traded U.S. companies must provide their stockholders with an annual report
each year.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
36. Information in the notes to the financial statements has to be quantifiable (numeric).
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
37. An auditor is an accounting professional who conducts an independent examination of
the accounting data presented by a company.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: Professional
Demeanor, IMA: Reporting
38. The management discussion and analysis (MD&A) section of an annual report covers
various financial aspects of a company.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: Communications,
IMA: Reporting
39. Explanatory notes and supporting schedules are an optional part of an annual report.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: Communications,
FOR INSTRUCTOR USE ONLY
