Question 1

Which of the following best describes the primary purpose of accounting in a business context?

Accepted Answer

To measure, process, and communicate financial information to decision makers.

Question 2

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

Accepted Answer

Company managers preparing internal budgets

Question 3

A business organized as a corporation is characterized by which of the following?

Accepted Answer

It is able to raise large sums of capital by issuing stock.

Question 4

Which accounting principle requires that assets be recorded at their actual cost on the date of purchase?

Accepted Answer

Historical Cost Principle

Question 5

According to the accounting equation, which of the following is always true?

Accepted Answer

$$Assets = Liabilities + Stockholders'\ Equity$$

Question 6

A company has total assets of $$500,000 and total liabilities of 320$$,000. What is the amount of stockholders’ equity?

Accepted Answer

$$180,000$$

Question 7

Which of the following best describes retained earnings?

Accepted Answer

The amount of earned income kept for use in the business.

Question 8

Which of the following transactions would increase retained earnings?

Accepted Answer

Earning revenue from sales

Question 9

Which financial statement reports a company’s financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 10

If a company reports net income of $$100,000, beginning retained earnings of 50$$,000, and dividends of $20,000, what is the ending retained earnings?

Accepted Answer

$$130,000$$

Question 11

Which of the following is an example of a current asset?

Accepted Answer

Accounts receivable

Question 12

Which of the following is a characteristic of a partnership?

Accepted Answer

Income and losses flow through to partners.

Question 13

Which assumption states that the dollar’s purchasing power is stable over time?

Accepted Answer

Stable-Monetary-Unit Assumption

Question 14

Which of the following is NOT a component of stockholders’ equity on the balance sheet?

Accepted Answer

Accounts payable

Question 15

A company’s income statement shows total revenues of $$500,000 and total expenses of 350$$,000. What is the net income?

Accepted Answer

$$150,000$$

Question 16

Which of the following best describes the relationship between the income statement and the statement of retained earnings?

Accepted Answer

Net income from the income statement increases retained earnings.

Question 17

Which of the following is an ethical consideration in financial accounting?

Accepted Answer

Reporting financial information accurately and honestly.

Question 18

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

Accepted Answer

Managerial accounting focuses on budgets and forecasts for internal users.

Question 19

If a company has beginning retained earnings of $$40,000, net income of 25$$,000, and pays dividends of $5,000, what is the ending retained earnings?

Accepted Answer

$$70,000$$

Question 20

Which of the following is a long-term liability?

Accepted Answer

Long-term bonds payable

Financial Accounting: Chapter 1 – Financial Statements and the Role of Accounting

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