Test Bank For Introduction to Financial Accounting International Edition 8th Edition Curtis L Norton Gary A Porter

Chapter 2: Financial Statements and the Annual Report

MULTIPLE CHOICE

1. What is the primary objective of financial reporting?

a.

To help investors make credit decisions.

b.

To help management assess cash flows.

c.

To protect users from fraudulent financial information.

d.

To provide useful information for decision making

ANS: D PTS: 1 DIF: Difficulty: Easy

REF: pp. 56-57 OBJ: LO: 02-01 NAT: BUSPROG: Communication

STA: AICPA: FN-Reporting | ACBSP: APC-01-Purpose KEY: Bloom’s: Comprehension

2. “Claims to economic resources” are known as

a.

Assets and liabilities

b.

Liabilities and stockholders’ equity

c.

Owners’ equity and stockholders’ equity

d.

Retained earnings and revenues

ANS: B PTS: 1 DIF: Difficulty: Moderate

REF: pp. 56-57 OBJ: LO: 02-01 NAT: BUSPROG: Communication

STA: AICPA: FN-Reporting |ACBSP: APC-09-Financial Statements

KEY: Bloom’s: Knowledge

3. Which of the following is not an objective of financial reporting?

a.

To reflect prospective cash receipts to investors and creditors.

b.

To reflect prospective cash flows to an enterprise.

c.

To reflect resources and claim to resources.

d.

To reflect current stock prices and information concerning stock markets.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: pp. 56-57 OBJ: LO: 02-01 NAT: BUSPROG: Communication

STA: AICPA: FN-Reporting | ACBSP: APC-01-Purpose KEY: Bloom’s: Comprehension

4. Which of the following statements is true concerning external users of financial information?

a.

External users need detailed records of the business to make informed decisions.

b.

External users are primarily responsible for the preparation of financial statements.

c.

External users rely on the financial statements to help make informed decisions.

d.

External users rely on management to tell them whether the company is a good investment

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: pp. 56-57 OBJ: LO: 02-01 NAT: BUSPROG: Communication

STA: AICPA: FN-Reporting | ACBSP: APC-01-Purpose KEY: Bloom’s: Comprehension

5. Relevant information can be quantitative or qualitative. In deciding whether to go to college part-time or full-time, which of the following is a qualitative factor for a student?

a.

The cost of tuition

b.

The opportunity to make friends

c.

The price of football tickets

d.

“Good Student” discounts on auto insurance rates.

ANS: B PTS: 1 DIF: Difficulty: Easy

REF: pp. 58-61 OBJ: LO: 02-02 NAT: BUSPROG: Communication

STA: AICPA: FN-Reporting | ACBSP: APC-01-Purpose KEY: Bloom’s: Comprehension

6. The preparation of financial statements requires that the information be understandable

a.

Only to CPAs.

b.

To those willing to spend the time to understand it.

c.

Only to those who take an accounting course.

d.

Only to financial analysts and brokers.

ANS: B PTS: 1 DIF: Difficulty: Moderate

REF: pp. 58-61 OBJ: LO: 02-02 NAT: BUSPROG: Communication

STA: AICPA: FN-Reporting | ACBSP: APC-01-Purpose KEY: Bloom’s: Comprehension

7. Schneider, Inc., a manufacturer of tires, has given you its most recent annual report in an effort to obtain a sizable loan. The company is very profitable and appears to have a sound financial position. Based on a report presented on prime-time television last night, you are aware that Schneider is a defendant in several lawsuits related to its defective tires that cause vehicles to overturn. The information presented on television is an example of financial information that is

a.

Relevant

b.

Consistent

c.

Predictable

d.

Comparable

ANS: A PTS: 1 DIF: Difficulty: Moderate

REF: pp. 58-61 OBJ: LO: 02-02 NAT: BUSPROG: Communication

STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Application

8. If an investor can use accounting information for two different companies to evaluate the types and amounts of expenses, the information is said to have the quality of

a.

Comparability

b.

Consistency

c.

Neutrality

d.

Understandability

ANS: A PTS: 1 DIF: Difficulty: Moderate

REF: pp. 58-61 OBJ: LO: 02-02 NAT: BUSPROG: Communication

STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Application

9. Cheile Transportation purchases many pieces of office furniture with an individual cost below $200 each. Cheile chooses to account for these expenditures as expenses when acquired rather than reporting them as property, plant, and equipment on its balance sheet. The company’s accountant and independent CPA agree that no accounting principle has been violated. What accounting justification allows Cheile to expense the furniture?

a.

Conservatism

b.

Matching

c.

Materiality

d.

Verifiability

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: pp. 58-61 OBJ: LO: 02-02 NAT: BUSPROG: Communication

STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Application

10. Crouse Company applies the consistency convention. What does this mean?

a.

Crouse Co. uses the same names for all its expenses as its competitors.

b.

Crouse Co. has selected certain accounting principles that can never be changed.

c.

Crouse Co. applies the same accounting principles each accounting period.

d.

Crouse Co. applies the same accounting principles as it competitors.

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: pp. 58-61 OBJ: LO: 02-02 NAT: BUSPROG: Communication

STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Application