Question 1

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

Accepted Answer

To report the revenues and expenses and determine net income or net loss for a period

Question 2

A company had beginning retained earnings of $$10,000, net income of 5$$,000, and paid dividends of $2,000 during the year. What is the ending retained earnings balance?

Accepted Answer

$13,000

Question 3

Which of the following equations correctly represents the relationship shown on the balance sheet?

Accepted Answer

$$Assets = Liabilities + Owners'\ equity$$

Question 4

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

Accepted Answer

Land

Question 5

Which financial statement would you consult to determine how much cash a company generated from issuing shares?

Accepted Answer

Statement of Cash Flows

Question 6

A company purchased equipment for $50,000 cash. On which section of the statement of cash flows would this transaction appear?

Accepted Answer

Investing activities

Question 7

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

Accepted Answer

Financial accounting provides information for both internal and external users

Question 8

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

Accepted Answer

Long-term notes payable

Question 9

According to the historical-cost assumption, how should assets be recorded on the balance sheet?

Accepted Answer

At their original purchase price

Question 10

Which of the following best describes the going-concern assumption?

Accepted Answer

A business will continue operating for the foreseeable future

Question 11

If a company reports net income of $$20,000, dividends of 5$$,000, and beginning retained earnings of $10,000, what is the ending retained earnings?

Accepted Answer

$$25,000$$\ (= 10,000 + 20,000 - 5,000)$

Question 12

Which of the following is NOT a responsibility of the auditor?

Accepted Answer

Preparing the financial statements

Question 13

Which of the following is a key feature of a corporation compared to a proprietorship or partnership?

Accepted Answer

Corporations can raise large sums of capital by issuing shares

Question 14

Which of the following is an example of an operating activity on the statement of cash flows?

Accepted Answer

Receiving cash from customers for sales

Question 15

Which of the following best describes the separate-entity assumption?

Accepted Answer

A business is a separate economic unit from its owners

Question 16

Which of the following is a primary user group of financial accounting information?

Accepted Answer

Investors and creditors

Question 17

A company has total assets of $$120,000 and total liabilities of 80$$,000. What is the amount of owners' equity?

Accepted Answer

$$40,000$$

Question 18

Which of the following is NOT a component of owners' equity in a corporation?

Accepted Answer

Bonds payable

Question 19

Which of the following is a key ethical consideration for accountants when preparing financial statements?

Accepted Answer

Ensuring information is honest, open, and truthful

Question 20

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

Accepted Answer

Key data could be input incorrectly

Chapter 1: The Financial Statements – Foundations of Financial Accounting

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