,TESTBANK FOR Financial Accounting 6th Edition by
Jay S. Rich
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
1. Internal users of accounting information include present creditors and management.
a. True
b. False
ANSWER: False
2. Creditors use accounting information to evaluate whether to loan money to a company.
a. True
b. False
ANSWER: True
3. The purpose of financial reporting is to provide economic information to investors, creditors, and other
financial statement users.
a. True
b. False
ANSWER: True
4. Investing is the business activity that measures a company's ability to generate cash from its revenue
and expense activities.
a. True
b. False
ANSWER: False
5. The three main business activities are financing, operating, and investing.
a. True
b. False
ANSWER: True
6. The owners of a sole proprietorship, a partnership, and corporations have limited liability.
a. True
b. False
ANSWER: False
7. There are more corporations than sole proprietorships and partnerships in the United States.
a. True
b. False
ANSWER: False
8. The four basic financial statements are the income statement, retained earnings statement, balance
sheet, and statement of cash flows.
a. True
b. False
ANSWER: True
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,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
9. Stockholders' equity is composed of two main sources: liabilities and contributed capital.
a. True
b. False
ANSWER: False
10. The first step in preparing the classified balance sheet is to list the assets in order of liquidity.
a. True
b. False
ANSWER: False
11. Stockholders' equity is composed of contributed capital and retained earnings.
a. True
b. False
ANSWER: True
12. The classifications in the balance sheet are to help users determine how a company obtained its
resources.
a. True
b. False
ANSWER: True
13. Contributed capital is the residual interest that remains after deducting liabilities from stockholders'
equity.
a. True
b. False
ANSWER: False
14. Current assets include cash, inventory, equipment, supplies, and accounts receivable.
a. True
b. False
ANSWER: False
15. In the stockholders' equity section of a classified balance sheet, a distinction is made between the
amounts invested by owners and the amounts financed by creditors.
a. True
b. False
ANSWER: False
16. One primary purpose of the classified balance sheet is to help users evaluate the working capital of a
company.
a. True
b. False
ANSWER: True
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,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
17. Three common categories of long-term assets are property, plant, and equipment; long-term
investments; and intangible and other noncurrent assets.
a. True
b. False
ANSWER: True
18. The ending cash balance is shown on the balance sheet and the retained earnings statement.
a. True
b. False
ANSWER: False
19. The current ratio is useful in determining a company's ability to pay obligations when they become
due.
a. True
b. False
ANSWER: True
20. Current liabilities are typically listed in the order in which they will be paid.
a. True
b. False
ANSWER: True
21. The only financial statement that reports the retained earnings balance at the end of the period is the
retained earnings statement.
a. True
b. False
ANSWER: False
22. The income statement provides information at one specific point in time, while the other basic
financial statements provide information on activities that occur over a period of time.
a. True
b. False
ANSWER: False
23. The income statement summarizes the assets, liabilities, and stockholders' equity for a period of time.
a. True
b. False
ANSWER: False
24. When an entity's stock issuances exceed its expenses for a period of time, the entity will report net
income.
a. True
b. False
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,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
ANSWER: False
25. Income from operations is computed after taking into account interest revenue and interest expense
because these items are considered to be operating in nature.
a. True
b. False
ANSWER: False
26. The amount of earnings distributed to stockholders can be found on the income statement as an
expense.
a. True
b. False
ANSWER: False
27. The four steps in preparing the income statement are: (1) prepare a heading, (2) list the revenues of
the company, (3) list the expenses of the company, and (4) list the dividends of the company.
a. True
b. False
ANSWER: False
28. Net loss reduces a company's retained earnings balance.
a. True
b. False
ANSWER: True
29. Dividend payments appear on the retained earnings statement.
a. True
b. False
ANSWER: True
30. The statement of cash flows, like the income statement, reports only the operating activities of a
company.
a. True
b. False
ANSWER: False
31. The statement of cash flows shows cash inflows and cash outflows for a period of time.
a. True
b. False
ANSWER: True
32. A company with healthy cash flows from operating activities is in a good position to repay its debts.
a. True
b. False
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,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
ANSWER: True
33. Because the four financial statements are interrelated (i.e., there is a natural progression from one
financial statement to another), the balance sheet should be prepared first.
a. True
b. False
ANSWER: False
34. Violations of ethical standards often lead to long-lasting negative consequences for companies.
a. True
b. False
ANSWER: True
35. Which of the following types of information is used by external users and outside decision-makers?
a. financial accounting
b. managerial accounting
c. cost accounting
d. internal accounting
ANSWER: a
36. Which of the following types of data analytics recommends a possible course of action?
a. descriptive
b. diagnostic
c. prescriptive
d. predictive
ANSWER: c
37. Which of the following is not one of the three forms of business organizations?
a. sole proprietorship
b. individual company
c. partnership
d. corporation
ANSWER: b
38. Owners of a corporation who have claims to the corporation’s economic resources are called
a. managers.
b. members of the board of directors.
c. creditors.
d. shareholders.
ANSWER: d
39. Which type of business activity relates to obtaining funds from either issuing stock or borrowing
money?
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,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
a. lending
b. investing
c. financing
d. operating
ANSWER: c
40. Which of the following is not one of the four basic financial statements?
a. balance sheet
b. bank reconciliation statement
c. income statement
d. statement of cash flows
ANSWER: b
41. The fundamental accounting equation is
a. Assets + Stockholders’ Equity = Liabilities.
b. Assets + Liabilities = Stockholders’ Equity.
c. Assets = Liabilities – Stockholders’ Equity.
d. Assets = Liabilities + Stockholders’ Equity.
ANSWER: d
42. An obligation that requires payment beyond 1 year would be categorized on the classified balance
sheet as a
a. long-term liability.
b. long-term asset.
c. current liability.
d. current asset.
ANSWER: a
43. What is the purpose of the balance sheet?
a. to report the operating activities of the company
b. to report the cash activities of the company
c. to report the financial position of the company
d. to report the dividends paid to shareholders
ANSWER: c
44. Cash and other assets that are reasonably expected to be converted into cash within 1 year or one
operating cycle, whichever is longer, are known as
a. contributed capital.
b. intangible assets.
c. long-term assets.
d. current assets.
ANSWER: d
45. Property, plant, and equipment is classified on the balance sheet as
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,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
a. long-term liabilities.
b. current assets.
c. noncurrent assets.
d. current liabilities.
ANSWER: c
46. The liquidity measure that is calculated by subtracting current liabilities from current assets is
known as
a. working capital.
b. net income.
c. retained earnings.
d. net loss.
ANSWER: a
47. The ability of a company to pay its debt as it becomes due is referred to as
a. timeliness.
b. liquidity.
c. solvency.
d. creditworthiness.
ANSWER: b
48. The current ratio is found by
a. multiplying the current assets by the current liabilities.
b. subtracting the current liabilities from the current assets.
c. dividing the current assets by the current liabilities.
d. dividing the current liabilities by the current assets.
ANSWER: c
49. Which financial statement lists revenues, starting with the sales revenue?
a. balance sheet
b. statement of cash flows
c. retained earnings statement
d. income statement
ANSWER: d
50. Which income statement format adds total expenses together and then deducts them from total
revenues?
a. classified income statement
b. single-step income statement
c. multiple-step income statement
d. gross margin income statement
ANSWER: b
51. Which two financial statements show net income as a line item?
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, Name: Class: Date:
Ch 01 Accounting and the Financial Statements
a. income statement and retained earnings statement
b. income statement and balance sheet
c. balance sheet and retained earnings statement
d. balance sheet and statement of cash flows
ANSWER: a
52. Which financial statement shows both net income and dividends as line items?
a. balance sheet
b. income statement
c. retained earnings statement
d. statement of cash flows
ANSWER: c
53. What are the three categories of cash flow activities shown on the statement of cash flows?
a. operating, investing, selling
b. investing, financing, borrowing
c. operating, investing, financing
d. operating, purchasing, financing
ANSWER: c
54. Cash flows related to the acquisition or sale of long-term assets are reported as part of cash flows
from
a. investing activities.
b. financing activities.
c. borrowing activities.
d. operating activities.
ANSWER: a
55. The relationships created between financial statements are known as
a. cohesion.
b. relevance.
c. connectivity.
d. articulation.
ANSWER: d
56. Which one of the following is an internal user of financial information?
a. company management
b. governmental agencies
c. creditors
d. investors
ANSWER: a
57. Which of the following users of accounting information would be interested in knowing a company's
prospects of making future dividend payments?
Copyright Cengage Learning. Powered by Cognero. Page 8
Jay S. Rich
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
1. Internal users of accounting information include present creditors and management.
a. True
b. False
ANSWER: False
2. Creditors use accounting information to evaluate whether to loan money to a company.
a. True
b. False
ANSWER: True
3. The purpose of financial reporting is to provide economic information to investors, creditors, and other
financial statement users.
a. True
b. False
ANSWER: True
4. Investing is the business activity that measures a company's ability to generate cash from its revenue
and expense activities.
a. True
b. False
ANSWER: False
5. The three main business activities are financing, operating, and investing.
a. True
b. False
ANSWER: True
6. The owners of a sole proprietorship, a partnership, and corporations have limited liability.
a. True
b. False
ANSWER: False
7. There are more corporations than sole proprietorships and partnerships in the United States.
a. True
b. False
ANSWER: False
8. The four basic financial statements are the income statement, retained earnings statement, balance
sheet, and statement of cash flows.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
9. Stockholders' equity is composed of two main sources: liabilities and contributed capital.
a. True
b. False
ANSWER: False
10. The first step in preparing the classified balance sheet is to list the assets in order of liquidity.
a. True
b. False
ANSWER: False
11. Stockholders' equity is composed of contributed capital and retained earnings.
a. True
b. False
ANSWER: True
12. The classifications in the balance sheet are to help users determine how a company obtained its
resources.
a. True
b. False
ANSWER: True
13. Contributed capital is the residual interest that remains after deducting liabilities from stockholders'
equity.
a. True
b. False
ANSWER: False
14. Current assets include cash, inventory, equipment, supplies, and accounts receivable.
a. True
b. False
ANSWER: False
15. In the stockholders' equity section of a classified balance sheet, a distinction is made between the
amounts invested by owners and the amounts financed by creditors.
a. True
b. False
ANSWER: False
16. One primary purpose of the classified balance sheet is to help users evaluate the working capital of a
company.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
17. Three common categories of long-term assets are property, plant, and equipment; long-term
investments; and intangible and other noncurrent assets.
a. True
b. False
ANSWER: True
18. The ending cash balance is shown on the balance sheet and the retained earnings statement.
a. True
b. False
ANSWER: False
19. The current ratio is useful in determining a company's ability to pay obligations when they become
due.
a. True
b. False
ANSWER: True
20. Current liabilities are typically listed in the order in which they will be paid.
a. True
b. False
ANSWER: True
21. The only financial statement that reports the retained earnings balance at the end of the period is the
retained earnings statement.
a. True
b. False
ANSWER: False
22. The income statement provides information at one specific point in time, while the other basic
financial statements provide information on activities that occur over a period of time.
a. True
b. False
ANSWER: False
23. The income statement summarizes the assets, liabilities, and stockholders' equity for a period of time.
a. True
b. False
ANSWER: False
24. When an entity's stock issuances exceed its expenses for a period of time, the entity will report net
income.
a. True
b. False
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
ANSWER: False
25. Income from operations is computed after taking into account interest revenue and interest expense
because these items are considered to be operating in nature.
a. True
b. False
ANSWER: False
26. The amount of earnings distributed to stockholders can be found on the income statement as an
expense.
a. True
b. False
ANSWER: False
27. The four steps in preparing the income statement are: (1) prepare a heading, (2) list the revenues of
the company, (3) list the expenses of the company, and (4) list the dividends of the company.
a. True
b. False
ANSWER: False
28. Net loss reduces a company's retained earnings balance.
a. True
b. False
ANSWER: True
29. Dividend payments appear on the retained earnings statement.
a. True
b. False
ANSWER: True
30. The statement of cash flows, like the income statement, reports only the operating activities of a
company.
a. True
b. False
ANSWER: False
31. The statement of cash flows shows cash inflows and cash outflows for a period of time.
a. True
b. False
ANSWER: True
32. A company with healthy cash flows from operating activities is in a good position to repay its debts.
a. True
b. False
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
ANSWER: True
33. Because the four financial statements are interrelated (i.e., there is a natural progression from one
financial statement to another), the balance sheet should be prepared first.
a. True
b. False
ANSWER: False
34. Violations of ethical standards often lead to long-lasting negative consequences for companies.
a. True
b. False
ANSWER: True
35. Which of the following types of information is used by external users and outside decision-makers?
a. financial accounting
b. managerial accounting
c. cost accounting
d. internal accounting
ANSWER: a
36. Which of the following types of data analytics recommends a possible course of action?
a. descriptive
b. diagnostic
c. prescriptive
d. predictive
ANSWER: c
37. Which of the following is not one of the three forms of business organizations?
a. sole proprietorship
b. individual company
c. partnership
d. corporation
ANSWER: b
38. Owners of a corporation who have claims to the corporation’s economic resources are called
a. managers.
b. members of the board of directors.
c. creditors.
d. shareholders.
ANSWER: d
39. Which type of business activity relates to obtaining funds from either issuing stock or borrowing
money?
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
a. lending
b. investing
c. financing
d. operating
ANSWER: c
40. Which of the following is not one of the four basic financial statements?
a. balance sheet
b. bank reconciliation statement
c. income statement
d. statement of cash flows
ANSWER: b
41. The fundamental accounting equation is
a. Assets + Stockholders’ Equity = Liabilities.
b. Assets + Liabilities = Stockholders’ Equity.
c. Assets = Liabilities – Stockholders’ Equity.
d. Assets = Liabilities + Stockholders’ Equity.
ANSWER: d
42. An obligation that requires payment beyond 1 year would be categorized on the classified balance
sheet as a
a. long-term liability.
b. long-term asset.
c. current liability.
d. current asset.
ANSWER: a
43. What is the purpose of the balance sheet?
a. to report the operating activities of the company
b. to report the cash activities of the company
c. to report the financial position of the company
d. to report the dividends paid to shareholders
ANSWER: c
44. Cash and other assets that are reasonably expected to be converted into cash within 1 year or one
operating cycle, whichever is longer, are known as
a. contributed capital.
b. intangible assets.
c. long-term assets.
d. current assets.
ANSWER: d
45. Property, plant, and equipment is classified on the balance sheet as
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
Ch 01 Accounting and the Financial Statements
a. long-term liabilities.
b. current assets.
c. noncurrent assets.
d. current liabilities.
ANSWER: c
46. The liquidity measure that is calculated by subtracting current liabilities from current assets is
known as
a. working capital.
b. net income.
c. retained earnings.
d. net loss.
ANSWER: a
47. The ability of a company to pay its debt as it becomes due is referred to as
a. timeliness.
b. liquidity.
c. solvency.
d. creditworthiness.
ANSWER: b
48. The current ratio is found by
a. multiplying the current assets by the current liabilities.
b. subtracting the current liabilities from the current assets.
c. dividing the current assets by the current liabilities.
d. dividing the current liabilities by the current assets.
ANSWER: c
49. Which financial statement lists revenues, starting with the sales revenue?
a. balance sheet
b. statement of cash flows
c. retained earnings statement
d. income statement
ANSWER: d
50. Which income statement format adds total expenses together and then deducts them from total
revenues?
a. classified income statement
b. single-step income statement
c. multiple-step income statement
d. gross margin income statement
ANSWER: b
51. Which two financial statements show net income as a line item?
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, Name: Class: Date:
Ch 01 Accounting and the Financial Statements
a. income statement and retained earnings statement
b. income statement and balance sheet
c. balance sheet and retained earnings statement
d. balance sheet and statement of cash flows
ANSWER: a
52. Which financial statement shows both net income and dividends as line items?
a. balance sheet
b. income statement
c. retained earnings statement
d. statement of cash flows
ANSWER: c
53. What are the three categories of cash flow activities shown on the statement of cash flows?
a. operating, investing, selling
b. investing, financing, borrowing
c. operating, investing, financing
d. operating, purchasing, financing
ANSWER: c
54. Cash flows related to the acquisition or sale of long-term assets are reported as part of cash flows
from
a. investing activities.
b. financing activities.
c. borrowing activities.
d. operating activities.
ANSWER: a
55. The relationships created between financial statements are known as
a. cohesion.
b. relevance.
c. connectivity.
d. articulation.
ANSWER: d
56. Which one of the following is an internal user of financial information?
a. company management
b. governmental agencies
c. creditors
d. investors
ANSWER: a
57. Which of the following users of accounting information would be interested in knowing a company's
prospects of making future dividend payments?
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