The primary objective of financial reporting is to provide useful information to managers in making decisions.

141. The 1934 act gives the Securities and Exchange Commission (SEC) the power to require companies with publicly traded securities to prepare periodic financial statements for distribution to investors and creditors.
TRUE

142. The role of auditors is to help ensure that management has in fact appropriately applied Generally Accepted Accounting Principles (GAAP) in preparing the company's financial statements.
TRUE

143. Auditors are trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company's financial statements.
TRUE

 

144. The primary objective of financial reporting is to provide useful information to managers in making decisions.
FALSE

Financial reporting is intended primarily to provide information to investors and creditors.

145. Public accounting firms are professional service firms that traditionally have focused on three areas: auditing, tax preparation/planning, and business consulting.
TRUE

 

146. The Financial Accounting Standards Board's conceptual framework does not prescribe Generally Accepted Accounting Principles. It provides an underlying foundation for the development of accounting standards and interpretation of accounting information.
TRUE

Matching Questions
 

147. Match each account classification with its example. 

1. Assets	Land owned by a company.	1
2. Liabilities	Amounts owned to the bank.	2
3. Revenues	Common stock issued to investors.	6
4. Dividends	Payments made to stockholders.	4
5. Expenses	Cleaning services provided to customers.	3
6. Stockholders' equity	Workers' salaries for the current period.	5

148. Match each business activity with its example. 

1. Financing	Receive investments from stockholders.	1
2. Investing	Purchase office building.	2
3. Operating	Pay utilities.	3

149. Match each financial statement with the accounts reported in it. 

1. Income statement	Revenues and expenses.	1
2. Balance sheet	Dividends.	3
3. Statement of stockholders' equity	Assets and liabilities.	2

150. Match each qualitative characteristic with its definition. 

1. Completeness	Information provides feedback on past activities.	4
2. Neutrality	All information necessary to describe an item is reported.	1
3. Verifiability	Information is presented in time to make useful decisions.	5
4. Confirmatory value	Measurements that independent parties would agree upon.	3
5. Timeliness	Information that does not bias the decision maker.	2
6. Predictive value	Information is useful in helping to forecast future outcomes.	6

Essay Questions
 

 The following answers point out the key phrases that should appear in students' answers. They are not intended to be examples of complete student responses. It might be helpful to provide detailed instructions to students on how brief or in-depth you want their answers to be.

151. Define accounting. Describe the two primary functions of financial accounting and its role in our society. 

Accounting is "the language of business." The functions of financial accounting are to measure the business activities of a company and to communicate those measurements to external parties for decision-making purposes. A large number of people, including investors and creditors, rely on financial accounting information to make informed, and presumably, better decisions about companies.

152. Indicate whether a company would classify the transaction as financing, investing, or operating.

   

1. Financing; 2. Operating; 3. Investing; 4. Financing; 5. Operating.

153. Below are typical transactions for a company. Indicate whether each transaction is classified as a financing, investing, or operating activity.

  

1. Investing; 2. Operating; 3. Operating; 4. Operating; 5. Financing; 6. Operating; 7. Investing; 8. Financing.

154. Below are typical transactions for a company. Indicate whether each transaction is classified as a financing, investing, or operating activity.

   

1. Financing; 2. Operating; 3. Operating; 4. Operating; 5. Operating; 6. Operating; 7. Operating; 8. Investing; 9. Operating; 10. Financing.