Financial statements are periodic reports published by the company for the purpose of providing information to managers.

121. One advantage of the corporate form of business is double taxation. 

FALSE

Double taxation is a disadvantage of the corporate form of business. 

122. Double taxation refers to a corporation's income being taxed twice—first when the company earns it and pays corporate income taxes on it, and then again when stockholders pay personal income taxes on any amounts the firm distributes to them as dividends. 

TRUE

123. Financial statements are periodic reports published by the company for the purpose of providing information to managers. 

FALSE

Financial statements are designed to provide information to external users.

124. The balance sheet is a financial statement that reports the company's revenues and expenses over an interval of time. 

FALSE

The income statement reports revenues and expenses.

125. The statement of stockholders' equity is a financial statement that summarizes the changes in stockholders' equity over an interval of time. 

TRUE

126. The two primary components of stockholders' equity include common stock and revenue. 

FALSE

The two components of stockholders' equity include common stock and retained earnings.

127. Common stock represents an external source of stockholders' equity, whereas retained earnings represents an internal source. 

TRUE

128. Retained earnings represents the cumulative amount of net income earned over the life of the company that has not been distributed to stockholders as dividends. 

TRUE

129. Dividends are considered an expense in running the business and reported in the income statement. 

FALSE

Dividends are a distribution of resources to owners and not considered a cost in running the business to produce revenues. Dividends are reported in the statement of stockholders' equity.

130. All cash transactions reported in the statement of cash flows are classified as either (1) operating activities, (2) investing activities, or (3) financing activities. 

TRUE

Accounting information that does not provide measurement bias in favor of a particular set of companies has the characteristic of:

91. Accounting information that does not provide measurement bias in favor of a particular set of companies has the characteristic of: 

A. Relevance.
B. Consistency.
C. Materiality.
D. Neutrality.

92. If accounting information is considered to have faithful representation, then which of the following is true? 

A. The information represents to users what it claims to represent.
B. The information follows conservatism principles and is also material.
C. The information is considered pertinent to or affects decisions.
D. The information will have predictive value, feedback value, and is timely.

93. For accounting information to be relevant, it must have which of the following characteristics? 

A. Predictive value or confirmatory value.
B. Large in amount and timely.
C. Comparability or consistency.
D. Freedom from material error, neutrality, or completeness.

94. Materiality is based upon which factor(s)? 

A. Timeliness of an item.
B. Amount and nature of an item.
C. Consistency of an item.
D. Relevance of an item.

95. If a company has gone bankrupt, its financial statements likely violate the: 

A. Periodicity assumption.
B. Monetary unit assumption.
C. Going concern assumption.
D. Economic entity assumption.

96. The conceptual framework's qualitative characteristic of relevance includes: 

A. Predictive value.
B. Verifiability.
C. Completeness.
D. Neutrality.

 

97. The conceptual framework's qualitative characteristic of faithful representation includes: 

A. Predictive value.
B. Neutrality.
C. Confirmatory value.
D. Comparability.

98. Constraints on qualitative characteristics of accounting information include: 

A. Freedom from material error.
B. Going concern.
C. Neutrality.
D. Cost effectiveness.

99. Primary qualitative characteristics of accounting information are: 

A. Relevance and comparability.
B. Comparability and consistency.
C. Faithful representation and relevance.
D. Faithful representation and consistency.

100. Enhancing qualitative characteristics of accounting information include: 

A. Relevance and comparability.
B. Comparability and consistency.
C. Faithful representation and relevance.
D. Cost effectiveness and materiality.

Of the following, the most important objective for financial reporting is to provide information useful for

81. Of the following, the most important objective for financial reporting is to provide information useful for: 

A. Predicting cash flows.
B. Determining taxable income.
C. Providing accountability.
D. Increasing future profits.

82. The International Accounting Standards Board: 

A. Is governed by the U.S. Securities and Exchange Commission.
B. Can overrule the FASB when their policies disagree.
C. Promotes the use of high-quality, understandable global accounting standards.
D. Is the primary standard-setting body in the United States.

83. Independent auditors express an opinion on the: 

A. Fairness of financial statements.
B. Amount of income taxes a company owes to the government.
C. Quality of the company's products.
D. Quality of a company's workforce.

84. The body of rules and procedures that guide the measurement and communication of financial accounting information is known as: 

A. Standards of Professional Compliance (SPC).
B. Generally Accepted Accounting Principles (GAAP).
C. Generally Accepted Auditing Standards (GAAS).
D. Rules of Financial Reporting (RFR).

85. The independent, private-sector group that is primarily responsible for setting financial reporting standards in the United States is the: 

A. FASB.
B. IASB.
C. SEC.
D. IRS.

86. Which statement below best describes the objectives of financial accounting? 

A. Provide information that helps predict cash flows.
B. Provide information about the economic resources, claims to resources and changes in resources and claims.
C. Provide information that is useful in making decisions.
D. All of the above are correct.

87. The assumption that a business can continue to remain in operation into the future is the: 

A. Monetary unit assumption.
B. Periodicity assumption.
C. Economic entity assumption.
D. Going concern assumption.

88. The qualitative characteristic that says accounting information can influence users' decisions by allowing them to assess past performance is: 

A. Timeliness.
B. Neutrality.
C. Confirmatory value.
D. Predictive value.

89. The major underlying assumptions of accounting include all of the following except: 

A. Economic entity.
B. Monetary unit.
C. Legal liability.
D. Going concern.

90. The assumption that the assets and liabilities of the business are accounted for on the books of the company but not included in the records of the owner is the: 

A. Monetary unit assumption.
B. Going concern assumption.
C. Economic entity assumption.
D. Periodicity assumption.