Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Test Bank for Fundamentals of Financial Accounting 5th Edition by Phillips Complete downloadable file at: https://testbanku.eu/Test-Bank-for-Fundamentals-of-Financial-Accounting-5th-Editionby-Phillips TRUE/FALSE [QUESTION] Stockholders are creditors of a corporation Answer: False Difficulty: Easy LO: 01-01 Topic: Accounting for Business Decisions Blooms: Understand AACSB: Analytic AICPA BB: Legal AICPA FN: Reporting Feedback: Stockholders are the owners of a corporation [QUESTION] All corporations acquire financing by issuing stock for sale on public stock exchanges Answer: False Difficulty: Medium LO: 01-01 Topic: Organizational Forms Blooms: Understand AACSB: Analytic AICPA BB: Legal AICPA FN: Reporting Feedback: Most corporations start out as private companies and will apply to become public companies (“go public”) if they need a lot of financing Financing can also be acquired by borrowing from banks [QUESTION] 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 Answer: False 1Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Difficulty: Medium LO: 01-01 Topic: Organizational Forms Blooms: Apply AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement Feedback: Unlike sole proprietorships and partnerships, a corporation is a separate entity from both legaland accounting perspectives This means that a corporation, not its owners, is legally responsiblefor its own taxes and debts [QUESTION] Building a new warehouse is an operating activity on the statement of cash flows Answer: False Difficulty: Easy LO: 01-02 Topic: Financial Statements Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting Feedback: Building a new warehouse is an investing activity on the statement of cash flows [QUESTION] 5.The payment of dividends is a financing activity on the statement of cash flows Answer: True Difficulty: Easy LO: 01-02 Topic: Financial Statements Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting Feedback:On the statement of cash flows, payment of dividends to the company’s stockholders is a financing activity [QUESTION] The daily activities involved in running a business, such as buying supplies and paying 2Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting salaries and wages, are classified as operating activities on the statement of cash flows Answer: True Difficulty: Easy LO: 01-02 Topic: Financial Statements Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting Feedback: Buying supplies andpaying salaries and wages are normal operating costs on the statement of cash flows [QUESTION] Stockholders' equity is the difference between a company’s assets and its liabilities Answer: True Difficulty: Medium LO: 01-02 Topic: The Basic Accounting Equation Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting Feedback: Assets = Liabilities + Stockholders’ Equity; therefore, Assets – Liabilities = Stockholders’ Equity [QUESTION] A company owes $200,000 on a bank loan It will be reported by the company as Notes Payable Answer: True Difficulty: Easy LO: 01-02 Topic: Financial Statements Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting Feedback: Formal debt, evidenced by a written contract or note, is reported as Notes Payable 3Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting [QUESTION] Amounts reported on financial statements are sometimes rounded to the nearest million Answer: True Difficulty: Easy LO: 01-02 Topic: Financial Statements Blooms: Remember AACSB: Analytic AICPA BB: Legal AICPA FN: Reporting Feedback: Large businesses often round the numbers on their financial statements to the nearest thousand or million [QUESTION] 10 Accounts Payable, Notes Payable, and Salaries and Wages Payable are examples of liabilities Answer: True Difficulty: Easy LO: 01-02 Topic: Financial Statements Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting Feedback: An account with the word “payable” in its title is a liability [QUESTION] 11.Dividends are subtracted from revenues on the income statement Answer: False Difficulty: Medium LO: 01-02 Topic: Financial Statements Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting 4Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Feedback: The income statement reports revenues and expenses Dividends are not expenses Rather, dividends are anoptional distribution of earnings to stockholders, approved by the company’s board of directors [QUESTION] 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 Answer:False Difficulty: Medium LO: 01-02 Topic: Financial Statements Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Measurement Feedback: Net income is not the same as cash flows from operating activities.Net income is not necessarily equal to cash because revenuesare reported when earned and expenses when incurred regardless of when cash is received orpaid [QUESTION] 13 Revenue is reported on the income statement only if cash was received at the point of sale Answer: False Difficulty: Medium LO: 01-02 Topic: Financial Statements Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting Feedback: Revenues are reported on the income statement when goods or services are provided to customers It’s quite common for abusiness to provide goods or services to customers, but not collect cash fromthem until a later month [QUESTION] 14 Generally Accepted Accounting Principles(GAAP) require profitable companies to distribute some of their earnings to their stockholders Answer: False 5Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Difficulty: Medium LO: 01-02 The Basic Accounting Equation Blooms: Understand AACSB: Analytic AICPA BB: Legal AICPA FN: Decision-making Feedback: There is no GAAP requirement that companies pay dividends.Dividends are an optional distribution of earnings to stockholders, approved by the company’s board of directors [QUESTION] 15 Common Stock is reported as an asset on the balance sheet Answer: False Difficulty: Easy LO: 01-02 Topic: Financial Statements Blooms: Remember AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting Feedback: Common Stock is a component of stockholders’ equity [QUESTION] 16 Creditors are mainly interested in the profitability of a company Answer: False Difficulty: Medium LO: 01-03 Topic: Using Financial Statements Blooms: Understand AACSB: Reflective thinking AICPA BB: Resource Management AICPA FN: Reporting Feedback: Creditors are mainly interested in a company’s ability to repay a debt [QUESTION] 17 A stock that does not pay a dividend is an undesirable investment 6Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Answer: False Difficulty: Hard LO: 01-03 Topic: Using Financial Statements Blooms: Evaluate AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision-making Feedback: There are two sources of potential return on an investment in stock: the dividendandan increase in the stock price [QUESTION] 18 In the United States, generally accepted accounting principles (GAAP) are established by the PCAOB (Public Company Accounting Oversight Board) Answer: False Difficulty: Easy LO: 01-04 Topic: Useful Financial Information Blooms: Remember AACSB: Analytic AICPA BB:Legal AICPA FN:Reporting Feedback: GAAP in the United States are established by the FinancialAccounting Standards Board (FASB) [QUESTION] 19 The Securities and Exchange Commission (SEC) is the government agency that has primary responsibility for setting accounting standards in the U.S Answer: False Difficulty: Easy LO: 01-04 Topic: Useful Financial Information Blooms: Remember AACSB: Analytic AICPA BB: Legal AICPA FN: Reporting 7Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Feedback: Currently,the Financial Accounting Standards Board (FASB) has the primary responsibility forsetting the underlying rules of accounting in the United States.The Securities and Exchange Commission (SEC) is responsible for the functioning of stockmarkets [QUESTION] 20 The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a reportcertifying that the financial statements are free of error Answer: False Difficulty: Hard LO: 01-04 Topic: Useful Financial Information Blooms: Remember AACSB:Analytic AICPA BB:Legal AICPA FN:Reporting Feedback: SOX requires top managers of public companies to sign a report certifying theirresponsibilities for the financial statements, maintain an audited system of internal controls to ensure accuracy in the accounting reports, and maintain an independent committee to overseetop management and ensure that they cooperate with auditors SOX does not required a certification that states the financial statements are free from error MULTIPLE CHOICE [QUESTION] 21 Public corporations are businesses: A) owned by two or more people, each of whom is personally liable for the debts of the business B) whose stock is bought and sold on a stock exchange C) whose stock is bought and sold privately D) where stock is not used as evidence ofownership Answer: B Difficulty: Easy LO: 01-01 Topic:Organizational Forms Blooms: Understand AACSB: Analytic AICPA BB: Legal AICPA FN: Reporting 8Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Feedback: The owners of a company’sstock (stockholders) can buy and sell stock privately or publicly on a stock exchange if thecompany has legally registered to so Most corporations start out as private companies and will apply to become public companies (“go public”) [QUESTION] 22 The owner(s) of a business are taxed on the profitsof the business if the business is a: A) sole proprietorship B) partnership C) corporation D) public partnership Answer: C Difficulty: Medium LO: 01-01 Topic: Organizational Forms Blooms: Understand AACSB: Analytic AICPA BB: Legal AICPA FN: Reporting Feedback: A corporation, not its owners, is legally responsiblefor its own taxes and debts.In sole proprietorships and partnerships, the owners are taxed on the profits of the business.A sole proprietorship is considered a part of theowner’s life, with all profitsbecoming part of the taxable income of the owner.A partnership is similar to a sole proprietorship in this regard, except that the taxesare the responsibility of two or moreowners instead of just one [QUESTION] 23 Which of the following is typically not a benefit of corporations over other organizational forms? A) Easier to transfer ownership B) Easier to limit an owner’s liability for the organization’s debt C) Easier to raise large amounts of money D) Easier to create with few legal fees Answer: D Difficulty: 02 Medium LO: 01-01 Topic:Organizational Forms Blooms: Understand AACSB: Communication AICPA BB: Legal 9Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting AICPA FN: Decision Making Feedback: Corporations can raise large amounts of money by dividing ownership into easily transferable shares Owners have limited liability for the company’s debt but legal fees tend to be high when the corporations are formed [QUESTION] 24 With respect to the audience targeted for financial accounting reports, which of the parties below is not an external user? A) Customers of the company issuing the reports B) Creditors ofthe company issuing the reports C) Managers of the company issuing the reports D) Stockholdersofthe company issuing the reports Answer: C Difficulty: 01 Easy LO: 01-01 Topic: Accounting for Business Decisions Blooms: Remember AACSB: Analytical Thinking AICPA BB: Industry AICPA BB: Global AICPA BB: Legal AICPA FN: Decision Making Feedback: External users of financial accounting reports include creditors, investors, directors, and government Managers are considered internal users [QUESTION] 25 Accounting systems: A) are summarized in publicly published reports B) analyze, record, summarize, and theactivities affecting its financial condition and performance C) monitor business activities only in financial terms D) capture only the information that is needed by the owners of the company Answer: B Difficulty: Medium LO: 01-01 Topic: Accounting for Business Decisions Blooms: Understand AACSB: Analytic 10Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 10 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting D)Securities and Exchange Commission Act Answer: A Difficulty: Easy LO: 01-04 Topic: Useful Financial Information Blooms: Remember AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Reporting Source: LearnSmart Feedback:In response to frauds, the government introduced new laws through the SarbanesOxleyAct [QUESTION] 199.The Sarbanes-Oxley Act (SOX): A)outlines the code of professional ethics for accountants B)is a set of laws established to strengthen corporate reporting C)requires all publicly-traded corporations to pay annual dividends Answer: B Difficulty: Easy LO: 01-04 Topic: Useful Financial Information Blooms: Remember AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Reporting Source: LearnSmart Feedback:Sarbanes-Oxley Act (SOX) is a set of laws established to strengthen corporate reportingin the United States PROBLEMS [QUESTION] 200 The table shows financial data for Purrfect Pets, Inc as of June 30, Year Accounts Receivable Retained Earnings Inventories $419,200 117,900 58,400 107Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 107 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Other Assets Accounts Payable Equipment Cash Common Stock Notes Payable 69,400 349,200 118,500 732,600 662,100 268,900 Required: Prepare a balance sheet using these data Answer: Purrfect Pets, Inc Balance Sheet June 30, Year Assets Cash Accounts Receivable Inventories Equipment Other Assets Total Assets Liabilities Accounts Payable Notes Payable Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders’ Equity $ 732,600 419,200 58,400 118,500 69,400 $1,398,100 $ 349,200 268,900 618,100 662,100 117,900 780,000 $1,398,100 Difficulty: Medium LO: 01-02 Topic: Financial Statements Blooms: Analyze AACSB: Analytic AICPA BB: Resource Management 108Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 108 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting AICPA FN: Reporting [QUESTION] 201 The following partially completed balance sheet is missing numerical data Purrfect Pets, Inc Balance Sheet September 30, Year Assets Cash Accounts Receivable Inventories Equipment Other Assets Total Assets Liabilities Accounts Payable Notes Payable Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity $743,800 Unknown 54,900 119,300 71,400 Unknown $342,500 Unknown 607,600 662,100 Unknown 789,400 Unknown Required: Fill in the missing amounts in the balance sheet Purrfect Pets, Inc Balance Sheet September 30, Year Assets Cash Accounts Receivable Inventories Equipment $743,800 54,900 119,300 109Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 109 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Other Assets Total Assets 71,400 Liabilities Accounts Payable Notes Payable Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity $342,500 607,600 662,100 789,400 Answer: Purrfect Pets, Inc Balance Sheet September 30, Year Assets Cash Accounts Receivable Inventories Property, Plant and Equipment Other Assets Total Assets Liabilities Accounts Payable Notes Payable Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity $ 743,800 407,600 54,900 119,300 71,400 $1,397,000 $ 342,500 265,100 607,600 662,100 127,300 789,400 $1,397,000 Difficulty: Medium LO: 01-02 Topic: Financial Statements Blooms: Analyze 110Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 110 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting [QUESTION] 202 A list of Year revenues and expenses for Green Thumb, Inc is provided below Advertising and Promotion Expenses Income Tax Expense Interest Expense Other Expenses Other Selling & Administrative Expenses Sales Revenue Salaries and Wages Expense $ 262,500 56,500 43,900 122,400 350,800 1,865,300 724,800 Required: Part a Calculate the net income for the Green Thumb, Inc for Year Part b Prepare a statement of retained earnings for Green Thumb, Inc for Year Assume the company had retained earnings of $162,000 as of January 1, Year 3, and paid out $46,000 in dividends during Year Answer: Part a Net income = Revenues – Expenses = $1,865,300 – $262,500 – $56,500 – $43,900 – $122,400 – $350,800 – $724,800 = $304,400 Part b GREEN THUMB, INC Statement of Retained Earnings For the Year Ended December 31, Year Retained Earnings, January 1, Year Add: Net Income Subtract: Dividends Retained Earnings, December 31, Year $162,000 304,400 (46,000) $420,400 Difficulty: Medium LO: 01-02 Topic: The Basic Accounting Equation Topic: Financial Statements 111Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 111 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Blooms: Create AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting [QUESTION] 203 Each of the following independent companies is missing numerical data Required: Use your knowledge of the financial statement equations and their interrelationships to fill in the missing amounts Company Alpha Co Bravo, Inc Charlie Co Total Total Revenues Expenses $60,000 $ 100,000 30,000 10,000 Net Income Total (Loss) Assets $20,000 $ (30,000) 130,000 60,000 Total Stockholders’ Liabilities Equity $33,000 $66,000 38,000 40,000 Total Revenues $60,000 70,000 30,000 Net Income (Loss) $20,000 (30,000) 20,000 Total Stockholders’ Liabilities Equity $33,000 $66,000 92,000 38,000 40,000 20,000 Answer: Company Alpha Co Bravo, Inc Charlie Co Total Expenses $40,000 100,000 10,000 Total Assets $99,000 130,000 60,000 Difficulty: Medium LO: 01-02 Topic: The Basic Accounting Equation Topic: Financial Statements Blooms: Analyze AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting [QUESTION] 204 Use the following Year data to prepare the annual income statement for Kvass, Inc Other Selling &Administrative Expenses $1,050,300 112Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 112 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Other Expenses Sales Revenue Advertising and Promotion Expenses Salaries and Wages Expense Income Tax Expense Interest Expense 247,600 4,885,300 552,500 2,524,400 166,500 113,900 Answer: KVASS, INC Income Statement For the Year Ended December 31, Year Revenues Sales Revenue Expenses Salaries and Wages Expense Advertising and Promotion Expenses Other Selling &Administrative Expenses Interest Expense Income Tax Expense Other Expenses Total Expenses Net Income $4,885,300 2,524,400 552,500 1,050,300 113,900 166,500 247,600 4,655,200 $ 230,100 Difficulty: Medium LO: 01-02 Topic: Financial Statements Blooms: Create AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting [QUESTION] 205 Following is a list of financial statement items and amounts for Tim Burr’s Tree Service as of 12/31/X3, the end of its first year in operation Required: Use this information to prepare the Income Statement, Statement of Retained Earnings, and Balance Sheet 113Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 113 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Accounts Receivable Accounts Payable Cash Common Stock Notes Payable Equipment SalesRevenue Fuel Expense Rent Expense Advertising Expense Salaries and Wages Expense Retained Earnings Dividends $40,000 30,000 10,000 20,000 10,000 50,000 100,000 10,000 15,000 5,000 20,000 Unknown 10,000 Answer: Tim Burr’s Tree Service Income Statement For the Year Ended December 31, Year Revenues Sales Revenue Expenses FuelExpense Rent Expense Advertising Expense Wage Expense Total Expenses Net Income $100,000 10,000 15,000 5,000 20,000 50,000 $50,000 Tim Bur’s Tree Service Statement of Retained Earnings For the Year Ended December 31, Year Retained Earnings, January 1, Year Add: Net Income Subtract: Dividends Retained Earnings, December 31, Year $0 50,000 (10,000) $40,000 114Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 114 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting Tim Burr’s Tree Service BALANCE SHEET December 31, Year Assets Cash Accounts Receivable Equipment Total Assets Liabilities Accounts Payable Notes Payable Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Equity Total Liabilities and Stockholders’ Equity $ 10,000 40,000 50,000 $100,000 $ 30,000 10,000 40,000 20,000 40,000 60,000 $100,000 Feedback: Total Liabilities and Stockholders’ Equity = Assets $100,000 – Liabilities $40,000 = $60,000 Stockholders’ Equity $60,000 = Common stock $20,000 + Retained Earnings Retained Earnings = $40,000 (which also matches the statement of retained earnings) Difficulty: Hard LO: 01-02 Topic: Financial Statements Blooms: Create AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting MATCHING [QUESTION] 206 Choose the appropriate letter to match the characteristics with thetype of company.A given characteristic may match more than one type of company 115Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 115 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting CHARACTERISTIC Issues shares of stock that are traded on a stock exchange such as the NYSE The owners of the business are personally liable for the debts of the company Shares of stock must be purchased directly from current owners Can raise more financial capital by selling stock to the greatest number ofinvestors The easiest form of business to start The business ceases to exist upon the departure of one of the owners The owners pay taxes on the profits of the business TYPE OF COMPANY A Partnership B Publicly traded corporation C Privately traded corporation D Sole Proprietorship Answer: B Aand D C B D A A and D Difficulty: Medium LO: 01-01 Topic: Organizational Forms Blooms: Understand AACSB: Analytic AICPA BB: Legal AICPA FN: Reporting [QUESTION] 207 Choose the appropriate letter to match the description of the business activity with the category BUSINESS ACTIVITY The purchase of a new line of assembly equipment Company payment of a dividend The purchase of office supplies 116Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 116 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting The purchase of advertising time by the company The building of a new factory Company repayment of a bank loan CATEGORY A Operating activity B Investing activity C Financing activity Answer: B C A A B C Difficulty: Medium LO: 01-02 Topic: Financial Statements Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting [QUESTION] 208 Choose the appropriate letter to match the terms to the blanks below to complete the relevant equation for each financial statement FINANCIAL STATEMENT EQUATION Balance Sheet = + Income Statement = – Statement of Retained Earnings = + – Statement of Cash Flows = + + + TERM A Cash at beginning of year 117Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 117 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting B C D E F G H I J K L M N Net cash flow from operating activities Balance of retained earnings from previous year Net cash flow from investing activities Liabilities Net cash flow from financing activities Balance of retained earnings at end of year Net income Revenue Assets Stockholders' equity Expenses Cash at end of year Dividends paid Answer: Balance Sheet: J = E + K Income Statement: H = I – L Statement of Retained Earnings: G = C + H – N Statement of Cash Flows: M = B + D + F + A Difficulty: Medium LO: 01-02 Topic: Financial Statements Blooms: Apply AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting [QUESTION] 209 Each item in the statement of retained earnings can appear on another financial statement Choose the appropriate letter to match the item in the statement of retained earnings with the related financial statement ITEM ON STATEMENT OF RETAINED EARNINGS Retained earnings, January 1, Year Net income for Year 3 Dividends for Year Retained earnings, December 31, Year A FINANCIAL STATEMENT Balance sheet at end of Year 118Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 118 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting B C D E Statement of cash flows for Year Income statement for Year Balance sheet at end of Year Income statement for Year Answer: D E B A Difficulty: Medium LO: 01-02 Topic: Financial Statements Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting [QUESTION] 210 Choose the appropriate letter to match the term and the definition (There are more definitions than terms.) TERM 1. _ Investors 2. _ Audit 3. _ Balance Sheet 4. _ Operating Activities 5. _ Unit of Measure Assumption 6. _ Retained Earnings 7. _ Investing Activities 8. _ Income Statement A B C D E F DEFINITION An example of an internal user of financial statements A financial statement showing a company's assets, liabilities and stockholders' equity When a company acquires money from investors A financial statement that summarizes a company's past and current cash situation An example of external users of financial statements The idea that the financial statements of a company include the results of only that 119Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 119 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting G H I J K L M company's business activities Activities directly related to running the business toearn profit A financial statement that shows a company's revenues and expenses Borrowing money from lenders The total amount of profits that are kept by the company The idea that a company should report its financial data in the relevant currency A procedure by which independent evaluators assess the accounting procedures and financial reports of a company Transactions with lenders (borrowing and repaying cash) and stockholders (selling company stock and paying dividends) Answer: 1.E 2.L 3.B 4.G 5.K 6.J 7.M 8.H Difficulty: Medium LO: 01-01 LO: 01-02 LO: 01-04 Topic: Accounting for Business Decisions Topic: Financial Statements Topic: Useful Financial Information Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting [QUESTION] 211 Match the acronym with the description that best reflects it (There are more descriptions than acronyms.) ACRONYM 1. _SEC 2. _GAAP 3. _PCAOB 120Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 120 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Chapter 1:Business Decisions and Financial Accounting Full file at https://testbanku.eu/Chapter 1:Business Decisions and Financial Accounting 4. _FASB 5. _IASB 6. _SOX 7. _AICPA A B C D E F G H I J DESCRIPTION The Board that establishes international accounting standards This organization regulates activities associated with the stock market such as the reporting of financial data by publicly owned companies The U.S agency that must approve mergers between very large publicly owned corporations The national professional organization of accountants A set of laws established tostrengthen corporate reportingin the United States The U.S Board that approves the rules for auditing publicly owned companies Rules of financial accounting created by the FASB for use in the United States The organization that establishes business laws in the U.S The U.S agency that certifies foreign accounting firms to practice in the U.S The Board that establishes the accounting rules that govern American publicly owned corporations Answer: B G F J A E D Difficulty: Medium LO: 01-04 Topic: Useful Financial Information Blooms: Understand AACSB:Analytic AICPA BB: Legal AICPA FN: Reporting 121Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank—Fundamentals of Financial Accounting, 5e 121 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education ... sold $2,000 of services to Beta on credit.Beta promised to pay for it next month.Alpha will report a $2,000: 23Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank Fundamentals of Financial. .. Companies, Inc Test Bank Fundamentals of Financial Accounting, 5e Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill... Topic: Financial Statements Blooms: Understand AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting 4Copyright © 2013, The McGraw-Hill Companies, Inc Test Bank Fundamentals of Financial