Test Bank Fundamentals of Financial Accounting, 8th Edition by Fred Phillips
Chapter 01 8e Phillips Answers Included ✅
1) Creditors are owners of a corporation.
⊚ true
⊚ false
2) All corporations acquire financing by issuing stock on public stock exchanges.
⊚ true
⊚ false
3) You paid $10,000 to buy 1% of the stock in a corporation that is now bankrupt. The company
owes $10 million dollars to its creditors. As a result of the bankruptcy, you are responsible
for paying $100,000 (or $10 million × 1%) of the amount owed to the creditors.
⊚ true
⊚ false
4) Cash paid for wages is an example of an operating activity on the statement of cash flows.
⊚ true
⊚ false
5) Borrowing money from a bank is a financing activity on the statement of cash flows.
⊚ true
⊚ false
6) The daily business activities involved in running a business, such as buying supplies and
paying salaries and wages, are classified as operating activities on the statement of cash
flows.
⊚ true
⊚ false
7) Stockholders' equity is the difference between a company's assets and its liabilities.
⊚ true
⊚ false
1
,8) A company owes $200,000 on a bank loan. It will be reported by the company as Accounts
Payable.
⊚ true
⊚ false
9) The amounts reported on financial statements are sometimes rounded to the nearest thousand
or million.
⊚ true
⊚ false
10) Accounts Payable, Notes Payable, and Salaries and Wages Payable are examples of
liabilities.
⊚ true
⊚ false
11) Dividends are subtracted from revenues on the income statement.
⊚ true
⊚ false
12) If a company reports net income on the income statement, then the statement of cash flows
will report the same amount as cash flows from operating activities for the period.
⊚ true
⊚ false
13) Revenue is reported on the income statement only if cash was received at the point of sale.
⊚ true
⊚ false
14) Generally Accepted Accounting Principles (GAAP) require profitable companies to
distribute some of their earnings to their stockholders.
⊚ true
⊚ false
2
,15) Common Stock is reported as an asset on the balance sheet.
⊚ true
⊚ false
16) Investors are mainly interested in the profitability of a company.
⊚ true
⊚ false
17) A stock that does not pay a dividend is an undesirable investment.
⊚ true
⊚ false
18) To ensure that companies produce useful information, it must have two fundamental
characteristics: reliability and understandability.
⊚ true
⊚ false
19) The Securities and Exchange Commission (SEC) is the government agency that has primary
responsibility for setting accounting standards in the U.S.
⊚ true
⊚ false
20) The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report
certifying that the financial statements are free of error.
⊚ true
⊚ false
21) Companies must use a December 31st year-end for all financial statements.
⊚ true
⊚ false
3
, 22) Public corporations are businesses:
A) owned by two or more people, each of whom is personally liable for the debts of the
business.
B) whose stock is bought and sold on a stock exchange.
C) whose stock is bought and sold privately.
D) where stock is not used as evidence of ownership.
23) The owner(s) of a business are not taxed on the profits of the business if the business is a:
A) sole proprietorship.
B) partnership.
C) corporation.
D) public partnership.
24) Which of the following is typically considered a disadvantage of sole proprietorships?
A) Income taxes are paid by both the business and its owner.
B) The business is considered a separate legal entity from its owner.
C) Establishing the business usually requires legal assistance.
D) Owner is personally liable for all debts of the business.
25) Considering the targeted audience for financial accounting reports, which of the following
parties is not an external user?
A) Directors of the company issuing the reports
B) Creditors of the company issuing the reports
C) Managers of the company issuing the reports
D) Stockholders of the company issuing the reports
26) Accounting systems:
A) are summarized in publicly published reports.
B) analyze, record, and summarize the activities affecting its financial condition and
performance.
C) monitor business activities only in financial terms.
D) capture only the information that is needed by the owners of the company.
4
Chapter 01 8e Phillips Answers Included ✅
1) Creditors are owners of a corporation.
⊚ true
⊚ false
2) All corporations acquire financing by issuing stock on public stock exchanges.
⊚ true
⊚ false
3) You paid $10,000 to buy 1% of the stock in a corporation that is now bankrupt. The company
owes $10 million dollars to its creditors. As a result of the bankruptcy, you are responsible
for paying $100,000 (or $10 million × 1%) of the amount owed to the creditors.
⊚ true
⊚ false
4) Cash paid for wages is an example of an operating activity on the statement of cash flows.
⊚ true
⊚ false
5) Borrowing money from a bank is a financing activity on the statement of cash flows.
⊚ true
⊚ false
6) The daily business activities involved in running a business, such as buying supplies and
paying salaries and wages, are classified as operating activities on the statement of cash
flows.
⊚ true
⊚ false
7) Stockholders' equity is the difference between a company's assets and its liabilities.
⊚ true
⊚ false
1
,8) A company owes $200,000 on a bank loan. It will be reported by the company as Accounts
Payable.
⊚ true
⊚ false
9) The amounts reported on financial statements are sometimes rounded to the nearest thousand
or million.
⊚ true
⊚ false
10) Accounts Payable, Notes Payable, and Salaries and Wages Payable are examples of
liabilities.
⊚ true
⊚ false
11) Dividends are subtracted from revenues on the income statement.
⊚ true
⊚ false
12) If a company reports net income on the income statement, then the statement of cash flows
will report the same amount as cash flows from operating activities for the period.
⊚ true
⊚ false
13) Revenue is reported on the income statement only if cash was received at the point of sale.
⊚ true
⊚ false
14) Generally Accepted Accounting Principles (GAAP) require profitable companies to
distribute some of their earnings to their stockholders.
⊚ true
⊚ false
2
,15) Common Stock is reported as an asset on the balance sheet.
⊚ true
⊚ false
16) Investors are mainly interested in the profitability of a company.
⊚ true
⊚ false
17) A stock that does not pay a dividend is an undesirable investment.
⊚ true
⊚ false
18) To ensure that companies produce useful information, it must have two fundamental
characteristics: reliability and understandability.
⊚ true
⊚ false
19) The Securities and Exchange Commission (SEC) is the government agency that has primary
responsibility for setting accounting standards in the U.S.
⊚ true
⊚ false
20) The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report
certifying that the financial statements are free of error.
⊚ true
⊚ false
21) Companies must use a December 31st year-end for all financial statements.
⊚ true
⊚ false
3
, 22) Public corporations are businesses:
A) owned by two or more people, each of whom is personally liable for the debts of the
business.
B) whose stock is bought and sold on a stock exchange.
C) whose stock is bought and sold privately.
D) where stock is not used as evidence of ownership.
23) The owner(s) of a business are not taxed on the profits of the business if the business is a:
A) sole proprietorship.
B) partnership.
C) corporation.
D) public partnership.
24) Which of the following is typically considered a disadvantage of sole proprietorships?
A) Income taxes are paid by both the business and its owner.
B) The business is considered a separate legal entity from its owner.
C) Establishing the business usually requires legal assistance.
D) Owner is personally liable for all debts of the business.
25) Considering the targeted audience for financial accounting reports, which of the following
parties is not an external user?
A) Directors of the company issuing the reports
B) Creditors of the company issuing the reports
C) Managers of the company issuing the reports
D) Stockholders of the company issuing the reports
26) Accounting systems:
A) are summarized in publicly published reports.
B) analyze, record, and summarize the activities affecting its financial condition and
performance.
C) monitor business activities only in financial terms.
D) capture only the information that is needed by the owners of the company.
4
