Question 1

The balance sheet is linked to the retained earnings statement by the ending retained earnings balance.

Accepted Answer

The ending balance of retained earnings on the retained earnings statement is reported on the balance sheet as a component of shareholders' equity. Therefore, the balance sheet is linked to the retained earnings statement through the ending retained earnings balance.

Question 2

Information must be timely to be relevant.

Accepted Answer

Timeliness is one of the key factors that determines the relevance of information. Outdated or delayed information may no longer be useful or applicable to the current situation or context, whereas timely information is more likely to be relevant and useful for decision-making or other purposes.

Question 3

The time period assumption assumes a company prepares financial statements every month.

Accepted Answer

The time period assumption assumes that a company prepares financial statements at the end of a designated reporting period such as a month, quarter or year. It does not assume that financial statements are prepared every month.

Question 4

The International Accounting Standards Board (IASB)was created in order to develop worldwide accounting standards that must be used for all financial statements prepared regardless of country.

Accepted Answer

The IASB develops International Financial Reporting Standards (IFRS) that organizations can choose to follow, but it does not mandate that all financial statements globally must use these standards, as adoption depends on the decision of individual countries.

Question 5

The Financial Accounting Standards Board defined the objectives of financial reporting.

Accepted Answer

The Financial Accounting Standards Board (FASB) did define the objectives of financial reporting. The main objective of financial reporting is to provide useful information to investors, creditors, and other users for making informed decisions about the entity being reported on.

Question 6

According to the accounting profession,the purpose of financial reporting is to provide information about a company that investors,lenders,and other creditors can use when deciding whether to provide resources to the entity.

Accepted Answer

Financial reporting provides information about a company's financial performance and position, and this information is important to investors, lenders, and other creditors who make decisions about providing resources to the entity.

Question 7

The primary objective of external auditors is to provide assurance to stockholders and other users that the statements are fairly presented.

Accepted Answer

This is a true statement. The external auditors are hired to provide an independent and objective evaluation of the financial statements, and to express an opinion on whether they are presented fairly in accordance with the applicable accounting standards. This helps to provide confidence to stockholders and other users that the financial information is reliable and can be used to make informed business decisions.

Question 8

The income statement is sometimes called the statement of financial position.

Accepted Answer

The income statement is not called the statement of financial position. It is a financial statement that reports a company's revenue, expenses, and net income over a specific period of time, and is also known as the profit and loss statement or P&L statement. The statement of financial position refers to the balance sheet, which reports a company's assets, liabilities, and equity at a specific point in time.

Question 9

The going concern assumption infers that a company will continue to operate until a known date.

Accepted Answer

The going concern assumption infers that a company will continue to operate indefinitely, not until a known date.

Question 10

If a company prepares a statement of retained earnings,net income plus dividends are added to beginning retained earnings on this statement.

Accepted Answer

Net income is added to beginning retained earnings, but dividends are subtracted to calculate the ending retained earnings.

Question 11

A company in the process of liquidation meets the requirements under the going concern assumption.

Accepted Answer

Under the going concern assumption, it is assumed that the company will continue to operate in the foreseeable future. However, in the case of liquidation, it is assumed that the company will not continue to operate and will instead sell off its assets to pay its debts. Therefore, a company in the process of liquidation does not meet the requirements under the going concern assumption.

Question 12

The IASB is a branch of the FASB.

Accepted Answer

The IASB (International Accounting Standards Board) and FASB (Financial Accounting Standards Board) are two separate accounting standard-setting organizations. The IASB is responsible for developing and promoting International Financial Reporting Standards (IFRS), while the FASB is responsible for developing and promoting Generally Accepted Accounting Principles (GAAP) in the United States.

Question 13

The term used to refer to an asset's original cost is "fair market value."

Accepted Answer

The term used to refer to an asset's original cost is actually "historical cost." Fair market value refers to the current value of an asset in the open market.

Question 14

Because market values are subjective,many assets are carried on the balance sheet at their acquisition cost.

Accepted Answer

Market values depend on various factors and can vary based on individual perceptions and demand. As a result, assets are generally recorded on the balance sheet at their historical cost rather than their current market values. This conservative approach helps to avoid potential valuation discrepancies and overstatement of asset values.

Question 15

Profits from operating activities distributed to business owners are called dividends.

Accepted Answer

Dividends are distributed to business owners from profits generated from operating activities.

Question 16

GAAP stands for Generally Accepted Accounting Procedures.

Accepted Answer

GAAP stands for Generally Accepted Accounting Principles, not Procedures.

Question 17

A balance sheet provides information during a period of time,while the other basic financial statements provide information on activities that occur over a point in time.

Accepted Answer

The balance sheet provides information on a point in time, while the income statement and cash flow statement provide information on activities that occur during a period of time.

Question 18

When an entity's revenues exceed its expenses for a period of time,the entity will report net income.

Accepted Answer

This statement is true. Net income is calculated by subtracting an entity's expenses from its revenues for a given period, and if the revenues exceed expenses, the result is positive and referred to as net income.

Question 19

Owners' equity is the residual interest that remains after deducting liabilities from assets.

Accepted Answer

This is a correct definition of owners' equity. It represents the amount of the company's assets that would be left over if all of its liabilities were paid off.

Question 20

Stockholders' equity is owners' equity in a corporation.

Accepted Answer

Stockholders' equity is the portion of a corporation's balance sheet that represents the equity that the shareholders have in the company. It includes the amount of money invested by shareholders, retained earnings, and any other reserves or surplus that the company may have. Therefore, stockholders' equity and owner's equity are essentially the same thing in a corporation.

Quiz 1: Accounting As a Form of Communication