Question 1

Which of the following best describes the primary purpose of the income statement?

Accepted Answer

To report a company's revenues, expenses, and net income or net loss for a period

Question 2

A company has beginning retained earnings of $50,000, net income of $20,000, and dividends of $5,000 for the year. What is the ending retained earnings balance?

Accepted Answer

$50,000 + $20,000 - $5,000 = $65,000

Question 3

Which equation correctly represents the relationship shown on the balance sheet?

Accepted Answer

$Assets = Liabilities + Owners' Equity$

Question 4

Which financial statement would you consult to determine how much cash a company generated from its core business activities during the year?

Accepted Answer

Statement of Cash Flows

Question 5

Which of the following is NOT considered a current asset on the balance sheet?

Accepted Answer

Land

Question 6

A corporation issues shares to raise capital. Which category of the statement of cash flows does this transaction belong to?

Accepted Answer

Financing activities

Question 7

Which of the following is a key difference between financial accounting and management accounting?

Accepted Answer

Management accounting includes budgets, forecasts, and projections

Question 8

Under the historical-cost assumption, how are assets recorded?

Accepted Answer

At their purchase price

Question 9

Which of the following is a consequence of double taxation in corporations?

Accepted Answer

Corporate income is taxed at both the corporate and shareholder levels

Question 10

Which of the following is an example of a non-current liability?

Accepted Answer

Bonds payable

Question 11

If a company purchases equipment for cash, how does this affect the financial statements?

Accepted Answer

Decrease in cash (asset) and increase in equipment (asset); no effect on total assets

Question 12

Which accounting assumption states that a business is a separate economic unit from its owners?

Accepted Answer

Separate-entity assumption

Question 13

Which of the following is a responsibility of company management in financial reporting?

Accepted Answer

Preparing the financial statements

Question 14

Which of the following is NOT a user of accounting information?

Accepted Answer

Suppliers of raw materials

Question 15

Which statement best describes the flow of financial information among the financial statements?

Accepted Answer

Net income from the income statement flows to the statement of retained earnings, which then flows to the balance sheet

Question 16

Which of the following is a tool or technology commonly used in accounting?

Accepted Answer

Spreadsheets

Question 17

A company reports the following: Revenues of $100,000, Cost of Goods Sold of $40,000, and Operating Expenses of $30,000. What is the net income?

Accepted Answer

$100,000 - $40,000 - $30,000 = $30,000$

Question 18

Which of the following is a risk associated with improper use of technology in accounting?

Accepted Answer

Data could be input incorrectly

Question 19

Which of the following is NOT a component of owners' equity on the balance sheet of a corporation?

Accepted Answer

Bonds payable

Question 20

Which ethical principle asks, 'Which options create the greatest good for the greatest number of stakeholders?'

Accepted Answer

Utilitarian principle

Chapter 1: The Financial Statements – Foundations of Financial Accounting

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