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Test Bank for Financial Accounting, 6th Edition By Jay S. Rich, Jeff Jones - All Chapters (1-12) With All Appendix ( Newest Version) 2025$12.99
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Test Bank for Financial Accounting, 6th Edition By Jay S. Rich, Jeff
Jones - All Chapters (1-12) With All Appendix ( Newest Version) 2025
1. Accounting and the Financial Statements. Indicate whether the statement is true or
false.
—-1. A company with healthy cash flows from operating activities is in a good position
to repay its debts.
a. True
b. False
ANSWER: True
—- 2. Dividend payments appear on the retained earnings statement.
a. True
b. False
ANSWER: True
—- 3. Contributed capital is the residual interest that remains after deducting liabilities
from stockholders' equity.
a. True
b. False
ANSWER: False
—- 4. Creditors use accounting information to evaluate whether to loan money to a
company.
a. True
b. False
ANSWER: True
—- 5. The three main business activities are financing, operating, and investing.
a. True
b. False
ANSWER: True
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—- 6. Internal users of accounting information include present creditors and
management.
a. True
b. False
ANSWER: False
—- 7. Current assets include cash, inventory, equipment, supplies, and accounts
receivable.
a. True
b. False
ANSWER: False
— 8. The income statement provides information at one specific point in time, while the
other basic financial statements provide information on activities that occur over a
period of time.
a. True
b. False
ANSWER: False
— 9. The classifications in the balance sheet are to help users determine how a
company obtained its resources.
a. True
b. False
ANSWER: True
— 10. One primary purpose of the classified balance sheet is to help users evaluate the
working capital of a company.
a. True
b. False
ANSWER: True
— 11. When an entity's stock issuances exceed its expenses for a period of time, the
entity will report net income.
a. True
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b. False
ANSWER: False
— 12. Stockholders' equity is composed of contributed capital and retained earnings.
a. True
b. False
ANSWER: True
— 13. The amount of earnings distributed to stockholders can be found on the income
statement as an expense.
a. True
b. False
ANSWER: False
— 14. The owners of a sole proprietorship, a partnership, and corporations have limited
liability.
a. True
b. False
ANSWER: False
— 15. The purpose of financial reporting is to provide economic information to investors,
creditors, and other financial statement users.
a. True
b. False
ANSWER: True
— 16. Income from operations is computed after taking into account interest revenue
and interest expense because these items are considered to be operating in nature.
a. True
b. False
ANSWER: False
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— 17. Investing is the business activity that measures a company's ability to generate
cash from its revenue and expense activities.
a. True
b. False
ANSWER: False
— 18. In the stockholders' equity section of a classified balance sheet, a distinction is
made between the amounts invested by owners and the amounts financed by creditors.
a. True
b. False
ANSWER: False
— 19. The four steps in preparing the income statement are: (1) prepare a heading, (2)
list the revenues of the company, (3) list the expenses of the company, and (4) list the
dividends of the company.
a. True
b. False
ANSWER: False
— 20. The income statement summarizes the assets, liabilities, and stockholders' equity
for a period of time.
a. True
b. False
ANSWER: False
— 21. The statement of cash flows, like the income statement, reports only the
operating activities of a company.
a. True
b. False
ANSWER: False
— 22. Net loss reduces a company's retained earnings balance.
a. True
b. False
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