63 Free Test Bank for Financial Accounting in an Economic Context 8th Edition by Pratt

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Cash received by a company from its regular operations during the year is found in its

•  a. balance sheet.
•  b. statement of cash flows.
•  c. statement of shareholders’ equity.
•  d. auditor’s report.

CPA is an abbreviation for

•  a. Certified Public Accountant.
•  b. Certified Production Accountant.
•  c. Consumer Protection Agency.
•  d. Certified Permissible Accounting.

An equity investor is

•  a. a person who provides money to a company with the expectation that it will be paid back with interest.
•  b. a creditor that has a regular trade relationship.
•  c. a person who provides money to a company as a gift with a stipulation that it will be used as agreed.
•  d. a person who provides money to a company, though the original money never has to be repaid, and who may be entitled to receive periodic cash payments.

To run a company effectively, which one of the following might be a source from which management might acquire capital?

•  a.Customers
•  b.FASB
•  c.Debt and equity investors
•  d.Auditors

The retained earnings section of the statement of shareholders’ equity communicates

•  a. beginning balance plus income less dividends.
•  b. revenues less expenses during a period of time.
•  c. how much cash that management has paid for bonuses.
•  d. operating, investing, and financing activities.

Footnotes to financial statements

•  a.more fully explain certain items in the financial statements.
•  b.reflect financial notes personalized by the company’s executive team.
•  c.show the detail of salaries of every employee.
•  d.justify fraudulent business practices.

As a potential creditor, you are interested in a company’s ability to pay loan interest and principal as they come due. Which of the following would be of the greatest interest to you in your analysis?

•  a. statement of shareholders’ equity.
•  b. income statement.
•  c. statement of cash flows.
•  d. Statement of Financial Accounting Standards.

Retained earnings may be described as

•  a. the total past profits retained in the business.
•  b. a company’s future growth.
•  c. the amount invested in the firm by its owners.
•  d. amounts retained for payments to vendors.

Which one of the following statements is true?

•  a.Financial accounting is the only accounting used in the United States.
•  b.Companies that have a profit objective use not-for-profit accounting.
•  c. Managerial accounting targets operating decisions.
•  d. Financial and tax accounting are virtually the same.

An explanation about the assumptions, estimates, and choices of alternative accounting methods used in the financial statements is found in the

•  a. footnotes to the balance sheet.
•  b. auditor’s report.
•  c. statement of shareholders’ equity.
•  d. president’s letter to the shareholders.

Considering and understanding how business decisions affect the financial statements is

•  a.the sole responsibility of the Securities and Exchange Commission.
•  b.provided in the auditor’s report.
•  c.referred to as an economic consequence perspective.
•  d.interpreted strictly by the company’s suppliers.