$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

Question 1

Which of the following is a primary purpose of financial accounting?

Accepted Answer

To report information to external users such as investors and creditors

Question 2

Which organization sets the Generally Accepted Accounting Principles (GAAP) in the United States?

Accepted Answer

Financial Accounting Standards Board

Question 3

A corporation is considered a separate legal entity from its owners. Which of the following is a characteristic of a corporation?

Accepted Answer

Easy transferability of ownership

Question 4

Which qualitative characteristic of useful information enables users to predict future outcomes?

Accepted Answer

Predictive value

Question 5

Which principle requires companies to record assets at their original purchase price?

Accepted Answer

Historical Cost Principle

Question 6

Which of the following is NOT considered an asset?

Accepted Answer

Accounts Payable

Question 7

What is the fundamental accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Equity}$$

Question 8

A company has assets totaling $$50,000 and equity of 20$$,000. What are their liabilities?

Accepted Answer

$$30,000$$

Question 9

Which of the following is a current asset?

Accepted Answer

Cash

Question 10

Which financial statement shows the firm’s revenues and expenses over a period of time?

Accepted Answer

Income Statement

Question 11

Which of the following is NOT a qualitative characteristic that enhances the usefulness of financial information?

Accepted Answer

Materiality

Question 12

If a company has liabilities of $$65,000 and equity of 25$$,000, what are the company’s assets worth?

Accepted Answer

$$90,000$$

Question 13

Which of the following is an example of a liability?

Accepted Answer

Notes Payable

Question 14

Which statement best describes the periodicity assumption?

Accepted Answer

The economic life of a company is divided into time periods for reporting

Question 15

Which of the following is NOT a component of equity?

Accepted Answer

Accounts Payable

Question 16

Which principle requires companies to disclose all events that would impact users’ decision making?

Accepted Answer

Full Disclosure Principle

Question 17

Which of the following is true about dividends?

Accepted Answer

Dividends are payments to shareholders taken from retained earnings

Question 18

A company has liabilities of $$25,000 and assets of 35$$,000. What is the company’s equity?

Accepted Answer

$$10,000$$

Question 19

Which of the following is an example of a hybrid business organization with special rules for owner liability?

Accepted Answer

LLC

Question 20

Which of the following is a constraint on financial reporting standards?

Accepted Answer

Cost

Chapter 1: The Financial Statements – Key Concepts and Foundations

Study Guide - Practice Questions