Copyright © 2022 John Wiley & Sons, Inc. (For Instructor Use
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, INTRODUCTION TO FINANCIAL STATEMENTS ww ww ww
CHAPTER LEARNING OBJECTIVES ww ww
1. Identify the forms of business organization and the uses of accounting
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information. A sole proprietorship is a business owned by one person. A partnership is
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a business owned by two or more people associated as partners. A corporation is a
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separate legal entity for which evidence of ownership is provided by shares of stock.
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Internal users are managers who need accounting information to plan, organize, and
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run business operations. The primary external users are investors and creditors.
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Investors (stockholders) use accounting information to decide whether to buy, hold, or
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sell shares of a company‘s stock. Creditors (suppliers and bankers) use accounting
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information to assess the risk of granting credit or loaning money to
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Other groups who have an indirect interest in a business are taxing authorities,
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customers, labor unions, and regulatory agencies.
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2. Explain the three principal types of business activity. Financing activities involve
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collecting the necessary funds to support the business. Investing activities involve
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acquiring the resources necessary to run the business. Operating activities involve
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putting the resources of the business into action to generate a profit.
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3. Describe the four financial statements and how they are prepared. An income
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statement presents the revenues and expenses of a company for a specific period of
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time. A retained earnings statement summarizes the changes in retained earnings that
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have occurred for a specific period of time. A balance sheet reports the assets,
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liabilities, and stockholders‘ equity of a business at a specific date. A statement of cash
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flows summarizes information
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(payments) for a specific period of time. Assets are resources owned by a business.
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Liabilities are the debts and obligations of the business. Liabilities represent claims of
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creditors on the assets of the business. Stockholders‘ equity represents the claims of
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owners on the assets of the business. Stockholders‘ equity is subdivided into two parts:
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common stock and retained earnings. The basic accounting equation is Assets =
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Liabilities + Stockholders‘ Equity. Within the annual report, the management discussion
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and analysis provides management‘s interpretation of the company‘s results and
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financial position as well as a discussion of plans for the future. Notes to the financial
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statements provide additional explanation or detail to make the financial statements
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more informative. The auditor‘s report expresses an opinion as to whether the financial
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statements present fairly the company‘s results of operations and financial position.
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*4. Explain the career opportunities in accounting. Accounting offers many different jobs
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in fields such as public and private accounting, governmental, and forensic accounting.
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Accounting is a popular major because there are many different types of jobs, with
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unlimited potential for career advancement
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Copyright © 2022 John Wiley & Sons, Inc. (For Instructor Use
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Only)
,
, 2-2 Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making,
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10e
Difficulties:
Easy: 143 ww
Medium: 101 ww
Hard: 12 ww
Question List by Section ww ww ww
Business Organization and Accounting Information Uses:
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Forms of Business Organization; 47, 48, 202, 246
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Sole Proprietorship: 5, 44, 49, 58, 59
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Partnership: 1, 4, 46, 56 ww ww ww ww
Corporation: 2, 3, 45, 50, 51, 52, 53, 55, 57, 233, 245 ww ww ww ww ww ww ww ww ww ww ww
Hybrid Forms of Organization: 60, 61 ww ww ww ww ww
Users and Uses of Financial Information: 6, 7, 11, 74, 87
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Internal Users: 62, 63, 64, 75, 77, 82, 234
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External Users: 8, 9, 10, 12, 65, 76, 78, 79, 80, 81, 83, 84, 85, 86, 88, 89
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Data Analytics: 66, 67, 68, 69, 70, 235, 236
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Ethics in Financial Reporting: 71, 72, 73, 237,
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255 The Three Types of Business Activity: 97
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Financing Activities: 13, 15, 18, 90, 91, 93, 94, 95, 96, 97, 102, 109, 117, 118, 119, 238
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Investing Activities: 14, 16, 98, 99, 115, 116
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Operating Activities: 17, 19, 20, 100, 101, 103, 104, 105, 106, 107, 108, 110, 111, 112, 113,
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114
The Four Financial Statements:
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Income Statement: 21, 22, 23, 24,127, 128, 132, 133, 134, 138, 142, 143
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Retained Earnings Statement: 120, 122, 123, 124, 125, 126, 129, 130, 131, 135, 137, 139, 140,
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141, 144, 145, 146, 147, 148, 149, 150, 154, 164, 169, 178, 181, 252
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Balance Sheet: 25, 27, 28, 29, 30, 31, 32, 33, 34, 35, 136, 151, 152, 153, 163, 165, 166,
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170, 173, 177, 179, 180, 182, 185, 186, 187, 188, 199, 200, 201, 207, 208, 213, 214, 215,
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217, 218, 219, 220, 221, 222, 225, 229, 239, 240, 241, 253
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Statement of Cash Flows: 26, 121, 171, 174, 183, 242, 249
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Interrelationships of Statements: 155, 156, 157, 158, 159, 160, 161, 162, 167, 175, 176, 184,
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250, 251, 256
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Elements of an Annual Report: 36, 41, 192, 196, 197
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Management Discussion and Analysis: 40, 191 ww ww ww ww ww
Notes to the Financial Statements: 37, 42, 190, 193, 194, 198, 254
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Auditor‘s Report: 38, 39, 195 ww ww ww ww
Copyright © 2022 John Wiley & Sons, Inc. (For Instructor Use
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