FINANCIAL AND
MANAGERIAL
ACCOUNTING THE
BASIS FOR BUSINESS
DECISIONS 18TH
EDITION WILLIAMS
TEST BANK
, Chapter 02 Basic Financial Statements
1) The sale of additional shares of capital stock will cause retained earnings to increase.
A) True
B) False
Answer: B
Explanation:
Diff: 2
Topic: Introduction to Financial Statements; The Accounting Equation
Learning Objecti: 02-01 Explain the nature and general purposes of financial statements.; 02-03 Demonstrate
how certain business transactions affect the elements of the accounting equation: Assets = Liabilities plus
Owners' Equity.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) A business entity is regarded as separate from the personal activities of its owners whether it is a sole
proprietorship, a partnership, or a corporation.
A) True
B) False
Answer: A
Explanation:
Diff: 1
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) Assets need not always have physical characteristics as do buildings, machinery, or inventory.
A) True
B) False
Answer: A
Explanation:
Diff: 1
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) The going concern principle assumes that the business will continue indefinitely.
A) True
B) False
Answer: A
Explanation:
,Diff: 1
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) Notes payable and accounts payable both require a company to pay an amount owed by a certain date.
Notes payable generally have interest, while accounts payable generally do not.
A) True
B) False
Answer: A
Explanation:
Diff: 1
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) Any business event that might affect the future profitability of a business should be reported in its balance
sheet.
A) True
B) False
Answer: B
Explanation:
Diff: 2
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) The practice of showing assets on the balance sheet at their cost, rather than at their current market value
is explained, in part, by the fact that cost is supported by objective evidence that can be verified by
independent experts.
A) True
B) False
Answer: A
Explanation:
Diff: 2
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
, Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) Liabilities are usually listed in order of magnitude, from smallest dollar amount to largest dollar amount.
A) True
B) False
Answer: B
Explanation:
Diff: 2
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9) The entity principle states that the affairs of the owners are not part of the financial operations of a
business entity and should be separated.
A) True
B) False
Answer: A
Explanation:
Diff: 2
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) The accounting equation may be stated as "assets minus liabilities equals owners' equity."
A) True
B) False
Answer: A
Explanation:
Diff: 1
Topic: The Accounting Equation
Learning Objecti: 02-03 Demonstrate how certain business transactions affect the elements of the accounting
equation: Assets = Liabilities plus Owners' Equity.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) Total assets plus total liabilities must equal total owners' equity.
A) True
B) False
Answer: B
Explanation:
MANAGERIAL
ACCOUNTING THE
BASIS FOR BUSINESS
DECISIONS 18TH
EDITION WILLIAMS
TEST BANK
, Chapter 02 Basic Financial Statements
1) The sale of additional shares of capital stock will cause retained earnings to increase.
A) True
B) False
Answer: B
Explanation:
Diff: 2
Topic: Introduction to Financial Statements; The Accounting Equation
Learning Objecti: 02-01 Explain the nature and general purposes of financial statements.; 02-03 Demonstrate
how certain business transactions affect the elements of the accounting equation: Assets = Liabilities plus
Owners' Equity.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) A business entity is regarded as separate from the personal activities of its owners whether it is a sole
proprietorship, a partnership, or a corporation.
A) True
B) False
Answer: A
Explanation:
Diff: 1
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) Assets need not always have physical characteristics as do buildings, machinery, or inventory.
A) True
B) False
Answer: A
Explanation:
Diff: 1
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) The going concern principle assumes that the business will continue indefinitely.
A) True
B) False
Answer: A
Explanation:
,Diff: 1
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) Notes payable and accounts payable both require a company to pay an amount owed by a certain date.
Notes payable generally have interest, while accounts payable generally do not.
A) True
B) False
Answer: A
Explanation:
Diff: 1
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) Any business event that might affect the future profitability of a business should be reported in its balance
sheet.
A) True
B) False
Answer: B
Explanation:
Diff: 2
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) The practice of showing assets on the balance sheet at their cost, rather than at their current market value
is explained, in part, by the fact that cost is supported by objective evidence that can be verified by
independent experts.
A) True
B) False
Answer: A
Explanation:
Diff: 2
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
, Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) Liabilities are usually listed in order of magnitude, from smallest dollar amount to largest dollar amount.
A) True
B) False
Answer: B
Explanation:
Diff: 2
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9) The entity principle states that the affairs of the owners are not part of the financial operations of a
business entity and should be separated.
A) True
B) False
Answer: A
Explanation:
Diff: 2
Topic: A Starting Point: Statement of Financial Position
Learning Objecti: 02-02 Explain certain accounting principles that are important for an understanding of
financial statements and how professional judgment by accountants may affect the application of those
principles.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) The accounting equation may be stated as "assets minus liabilities equals owners' equity."
A) True
B) False
Answer: A
Explanation:
Diff: 1
Topic: The Accounting Equation
Learning Objecti: 02-03 Demonstrate how certain business transactions affect the elements of the accounting
equation: Assets = Liabilities plus Owners' Equity.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) Total assets plus total liabilities must equal total owners' equity.
A) True
B) False
Answer: B
Explanation:
