FINANCIAL ACCOUNTING FOR MBAS 8TH EDITION EASTON TEST BANK
Financial Accounting for MBAs
Learning Objectives – Coverage by question
True/False Multiple Choice
LO1 – Explain and assess the four main business activities.
LO2 – Identify and discuss the users and suppliers of fina...
TEST BANK FOR FINANCIAL
ACCOUNTING FOR MBAS 8TH
EDITION
, Module 1
Financial Accounting for MBAs
Learning Objectives – Coverage by question
True/False Multiple Choice
LO1 – Explain and assess the four main business
activities.
LO2 – Identify and discuss the users and suppliers 1- 4 1, 2
of financial statement information.
LO3 – Describe and examine the four financial 5-10 3-19
statements, and define the accounting equation.
LO4 – Explain and apply the basics of profitability 11-13 20-25
analysis.
LO5 – Assess business operations within the 14 26, 27
context of a competitive environment.
LO6 – Access reports filed with the SEC (Appendix
1A).
LO7 – Describe the accounting principles and
regulations that frame financial statements 15 28-30
(Appendix 1B).
These questions are available to assign in myBusinessCourse.
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1-1 Financial Accounting for MBAs, 8th Edition
,Module 1: Financial Accounting for MBAs
True/False
Topic: Users of Financial Statement Information LO: 2
Shareholders demand financial information primarily to assess profitability and risk whereas bankers
demand information primarily to assess cash flows to repay loan interest and principal.
Answer: True
Rationale: While both shareholders and bankers are interested in all the information companies provide,
shareholders care about more about a company’s profitability and bankers care more about solvency and
creditworthiness.
Topic: Publicly Available Financial Reports LO: 2
Publicly traded companies are required to provide quarterly financial reports directly to the public.
Answer: False
Rationale: Companies provide electronic versions of quarterly financial statements to the SEC, which posts
them to the Internet for the public to access them.
Topic: Users of Financial Statement Information LO: 2
Publicly traded companies provide financial information primarily to satisfy the SEC and the tax
authorities (that is, the Internal Revenue Service).
Answer: False
Rationale: Demand for information extends to many users; the regulators such as the SEC and the IRS are
only one class of users.
Topic: SEC Filings LO: 2
Publicly traded companies must provide to the Securities Exchange Commission annual audited
financial statements (10-K reports) and quarterly audited financial statements (10-Q reports).
Answer: False
Rationale: Quarterly reports do not need to be audited.
Topic: Balance Sheet LO: 3
If a company reports retained earnings of $175.3 million on its balance sheet, it must also report
$175.3 million in cash.
Answer: False
Rationale: The accounting equation requires total assets to equal total liabilities plus stockholders’ equity.
That does not imply, however, that liability and equity accounts relate directly to specific assets.
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Test Bank (T/F & MC), Module 1 1-2
, Topic: Balance Sheet LO: 3
A balance sheet shows a company’s position over a period of time, whereas an income statement,
statement of stockholders’ equity, and statement of cash flows show its position at a point in time.
Answer: False
Rationale: The statement is reversed: A balance sheet shows a company’s position at a point in time,
whereas an income statement, statement of equity, and statement of cash flows show its position over a
period of time.
Topic: Accounting Equation LO: 3
Assets must always equal liabilities plus equity.
Answer: True
Rationale: The accounting equation is Assets = Liabilities + Equity. This relation must always hold.
Topic: Income Statement LO: 3
The income statement reports net income which is defined as the company’s profit after all expenses and
dividends have been paid.
Answer: False
Rationale: The statement contains two errors. First, net income does not include any dividends during the
period; these are a distribution of profits and not part of its calculation. Second, the income statement is
prepared on an accrual basis and thus includes expenses incurred (as opposed to paid).
Topic: Statement of Cash Flows LO: 3
A statement of cash flows reports on cash flows for operating, investing and financing activities at a point in
time.
Answer: False
Rationale: A statement of cash flows reports on cash flows for operating, investing, and financing activities
over a period of time.
Topic: Statement of Stockholders’ Equity LO: 3
An increase in common stock would be reflected in the statement of stockholders’ equity.
Answer: True
Rationale: The statement of stockholders’ equity reports on changes in the accounts that make up
stockholders’ equity. This includes contributed capital, retained earnings, and other equity.
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1-3 Financial Accounting for MBAs, 8th Edition
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