1 Chapter 01 8e Phillips 1) Creditors are owners of a corporation.⊚ true ⊚ false
2) All corporations acquire financing by issuing stock on public stock exchanges.⊚ true ⊚ false
3) You paid $10,000 to buy 1% of the stock in a corporation that is now bankrupt. The company owes $10 million dollars to its creditors. As a result of the bankruptcy, you are responsible for paying $100,000 (or $10 million × 1%) of the amount owed to the creditors.⊚ true ⊚ false
4) Cash paid for wages is an example of an operating activity on the statement of cash flows.⊚ true ⊚ false
5) Borrowing money from a bank is a financing activity on the statement of cash flows.⊚ true ⊚ false
6) The daily business activities involved in running a business, such as buying supplies and paying salaries and wages, are classified as operating activities on the statement of cash flows.⊚ true ⊚ false
7) Stockholders' equity is the difference between a company's assets and its liabilities.⊚ true ⊚ false
Test Bank Fundamentals of Financial Accounting, 8th Edition by Fred PhillipsAnswers Included ✅ 1 / 4
2 8) A company owes $200,000 on a bank loan. It will be reported by the company as Accounts Payable.⊚ true ⊚ false
9) The amounts reported on financial statements are sometimes rounded to the nearest thousand or million.⊚ true ⊚ false
10) Accounts Payable, Notes Payable, and Salaries and Wages Payable are examples of liabilities.⊚ true ⊚ false
11) Dividends are subtracted from revenues on the income statement.⊚ true ⊚ false
12) If a company reports net income on the income statement, then the statement of cash flows will report the same amount as cash flows from operating activities for the period.⊚ true ⊚ false
13) Revenue is reported on the income statement only if cash was received at the point of sale.⊚ true ⊚ false
14) Generally Accepted Accounting Principles (GAAP) require profitable companies to distribute some of their earnings to their stockholders.⊚ true ⊚ false
- / 4
3 15) Common Stock is reported as an asset on the balance sheet.⊚ true ⊚ false
16) Investors are mainly interested in the profitability of a company.⊚ true ⊚ false
17) A stock that does not pay a dividend is an undesirable investment.⊚ true ⊚ false
18) To ensure that companies produce useful information, it must have two fundamental
characteristics: reliability and understandability.
⊚ true ⊚ false
19) The Securities and Exchange Commission (SEC) is the government agency that has primary responsibility for setting accounting standards in the U.S.⊚ true ⊚ false
20) The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report certifying that the financial statements are free of error.⊚ true ⊚ false
21) Companies must use a December 31 st year-end for all financial statements.⊚ true ⊚ false
- / 4
4
22) Public corporations are businesses:
- owned by two or more people, each of whom is personally liable for the debts of the
- whose stock is bought and sold on a stock exchange.
- whose stock is bought and sold privately.
- where stock is not used as evidence of ownership.
business.
23) The owner(s) of a business are not taxed on the profits of the business if the business is a:
- sole proprietorship.
- partnership.
- corporation.
- public partnership.
24) Which of the following is typically considered a disadvantage of sole proprietorships?
- Income taxes are paid by both the business and its owner.
- The business is considered a separate legal entity from its owner.
- Establishing the business usually requires legal assistance.
- Owner is personally liable for all debts of the business.
25) Considering the targeted audience for financial accounting reports, which of the following parties is not an external user?
- Directors of the company issuing the reports
- Creditors of the company issuing the reports
- Managers of the company issuing the reports
- Stockholders of the company issuing the reports
26) Accounting systems:
- are summarized in publicly published reports.
- analyze, record, and summarize the activities affecting its financial condition and
- monitor business activities only in financial terms.
- capture only the information that is needed by the owners of the company.
performance.
- / 4