ACC 556 WEEK 1 Chapter 1 Exercise
Chapter 1 Exercise: Introduction to Financial Statements
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Accounting communicates financial information about a business to both internal and external users.
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Ashley’s Accessory Shop started the year with total assets of $140,000 and total liabilities of $80,000. During the year the business recorded $220,000 in revenues, $110,000 in expenses, and dividends of $40,000. The net income reported by Ashley’s Accessory Shop for the year was
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Answers:
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$80,000.
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$100,000.
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$130,000.
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$110,000.
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Which of the following is not a common way that managers use the balance sheet?
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Answers:
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To analyze the balances of assets, liabilities, and stockholders’ equity throughout the accounting period
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To determine if the cash balance is sufficient for future needs
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To analyze the balance between debt and common stock financing
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To analyze the balance of accounts receivable on the last day of the accounting period
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Stockholders’ equity is comprised of
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common stock and dividends.
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common stock and retained earnings.
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dividends and retained earnings.
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net income and retained earnings.
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When expenses exceed revenues, which of the following is true?
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Answers:
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a net loss results
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a net income results
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assets equal liabilities
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assets are increased
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Which of the following would not be considered an external user of accounting data for the Julian Company?
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Internal Revenue Service agent
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Management
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Creditors
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Customers
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Which of the following activities involves collecting the necessary funds to support the business?
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Operating
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Investing
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Financing
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Delivering
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Match the items below by entering the appropriate code letter in the space provided.
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o
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Question
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Selected Match
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Distributions of cash from a corporation to its stock holders.
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Dividends
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Consumed assets or services.
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Investing activities
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Ownership is limited to one person.
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Sole proprietorship
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Officers and others who manage the business.
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Internal users
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Creditor claims against the assets of the business.
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Liabilities
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A separate legal entity under state laws.
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I.
Corporation
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A report prepared by management that presents financial information.
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Annual report
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A section of the annual report that presents management’s views.
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Management discussion and analysis
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Resources expected to provide future economic benefits.
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Expenses
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The acquiring of the resources necessary to run the business.
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Assets
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All Answer Choices
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A.
Sole proprietorship
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B.
Assets
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C.
Liabilities
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Management discussion and analysis
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Internal users
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F.
Expenses
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G.
Dividends
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H.
Annual report
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I.
Corporation
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J.
Investing activities
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Which of the following is not a common way that managers use the balance sheet?
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Answers:
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To analyze the balances of assets, liabilities, and stockholders’ equity throughout the accounting period
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To determine if the cash balance is sufficient for future needs
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To analyze the balance between debt and common stock financing
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To analyze the balance of accounts receivable on the last day of the accounting period
MT
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Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX)?
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The Act calls for increased oversight responsibilities for boards of directors.
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The Act has resulted in increased penalties for financial fraud by top management.
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The Act calls for decreased independence of outside auditors reviewing corporate financial statements.
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The Act is meant to decrease the likelihood of unethical corporate behavior.
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The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.
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A business organized as a separate legal entity owned by stockholders is a partnership.
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One way of stating the accounting equation is: Assets + Liabilities = Stockholders’ Equity.
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Claims of creditors and owners on the assets of a business are called liabilities.
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When expenses exceed revenues, which of the following is true?
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Answers:
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a net loss results
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a net income results
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assets equal liabilities
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assets are increased
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External users want answers to all of the following questions except
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Answers:
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Is the company earning satisfactory income?
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Will the company be able to pay its debts as they come due?
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Will the company be able to afford employee pay raises this year?
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How does the company compare in profitability with competitors?
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A business organized as a corporation
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is not a separate legal entity in most states.
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requires that stockholders be personally liable for the debts of the business.
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is owned by its stockholders.
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has tax advantages over a proprietorship or partnership.
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External users want answers to all of the following questions except
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Answers:
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Is the company earning satisfactory income?
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Will the company be able to pay its debts as they come due?
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Will the company be able to afford employee pay raises this year?
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How does the company compare in profitability with competitors?
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USA 
India