Test Bank for Financial Accounting 10th Edition (Libby,2023/2024)Full Chapter Complete Questions and Answers.
Financial Accounting, 10e
... [Show More] (Libby)
Chapter 2 Investing and Financing Decisions and the Accounting System
1) The primary objective of financial reporting is to provide useful information to external
decision makers.
Answer: TRUE
Explanation: The primary objective of external financial reporting is to provide useful financial
information about a business to help external decision makers.
Difficulty: 1 Easy
Topic: Accounting concepts
Learning Objective: 02-01 Define the objective of financial reporting, the elements of the
balance sheet, and the related key accounting assumptions and principles.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) In order for information to be relevant, the information needs to be complete, neutral, and free
from error.
Answer: FALSE
Explanation: Relevant information is timely and has predictive and/or feedback value. Faithful
representation requires that information be complete, neutral, and free from error.
Difficulty: 1 Easy
Topic: Accounting concepts
Learning Objective: 02-01 Define the objective of financial reporting, the elements of the
balance sheet, and the related key accounting assumptions and principles.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
3) In order for information to be relevant, the information should have both predictive and/or
feedback value.
Answer: TRUE
Explanation: Relevant information provides feedback and predictive value on a timely basis.
Difficulty: 1 Easy
Topic: Accounting concepts
Learning Objective: 02-01 Define the objective of financial reporting, the elements of the
balance sheet, and the related key accounting assumptions and principles.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
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4) The continuity assumption states that a business will continue to operate into the foreseeable
future.
Answer: TRUE
Explanation: The continuity assumption assumes that a business will continue operating long
enough to meet its contractual commitments and plans. This is also called the going-concern
assumption.
Difficulty: 1 Easy
Topic: Accounting concepts
Learning Objective: 02-01 Define the objective of financial reporting, the elements of the
balance sheet, and the related key accounting assumptions and principles.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
5) The current assets section of a balance sheet includes both inventory and prepaid expenses.
Answer: TRUE
Explanation: Current assets are resources that a business will use or turn into cash within one
year.
Difficulty: 1 Easy
Topic: Balance sheet—Elements
Learning Objective: 02-01 Define the objective of financial reporting, the elements of the
balance sheet, and the related key accounting assumptions and principles.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) The stockholders' equity section of a balance sheet includes capital contributed by owners and
also retained earnings.
Answer: TRUE
Explanation: The stockholders' equity section reports the financing provided by the owners and
by its business operations.
Difficulty: 1 Easy
Topic: Balance sheet—Elements
Learning Objective: 02-01 Define the objective of financial reporting, the elements of the
balance sheet, and the related key accounting assumptions and principles.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
DOWNLOAD THE Test Bank for Financial Accounting 10th Edition Libby
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7) Under the monetary unit assumption, accounting information should be measured and
reported in terms of the national monetary unit, with an adjustment for changes in purchasing
power.
Answer: FALSE
Explanation: The monetary unit assumption guides financial reporting so that the national
monetary unit is the reporting unit for financial statements and will not be adjusted for changes
in purchasing power.
Difficulty: 2 Medium
Topic: Accounting concepts
Learning Objective: 02-01 Define the objective of financial reporting, the elements of the
balance sheet, and the related key accounting assumptions and principles.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
8) Assets are reported on the balance sheet in the order of liquidity.
Answer: TRUE
Explanation: Assets are reported in order of liquidity. The asset section of the balance sheet
begins with cash.
Difficulty: 1 Easy
Topic: Balance sheet—Elements; Preparing a classified balance sheet
Learning Objective: 02-01 Define the objective of financial reporting, the elements of the
balance sheet, and the related key accounting assumptions and principles.; 02-05 Prepare a trial
balance and simple classified balance sheet and analyze the company using the current ratio.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) Many valuable internally-developed intangible assets such as trademarks and copyrights are
not reported on a company's balance sheet.
Answer: TRUE
Explanation: Intangible assets that are not purchased but that are developed inside a company
are not reported on the balance sheet.
Difficulty: 2 Medium
Topic: Balance sheet—Elements
Learning Objective: 02-01 Define the objective of financial reporting, the elements of the
balance sheet, and the related key accounting assumptions and principles.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
DOWNLOAD THE Test Bank for Financial Accounting 10th Edition Libby
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10) Stockholders' equity reflects the financing provided by owners.
Answer: TRUE
Explanation: The stockholders' equity section of the balance sheet includes financing provided
by owners and net income retained from business operations.
Difficulty: 1 Easy
Topic: Balance sheet—Elements
Learning Objective: 02-01 Define the objective of financial reporting, the elements of the
balance sheet, and the related key accounting assumptions and principles.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
11) Common stock and additional-paid in capital represent the financing sources from
shareholders.
Answer: TRUE
Explanation: Common stock and additional paid-in capital are contributed capital components
representing the financing sources from owners.
Difficulty: 1 Easy
Topic: Balance sheet—Elements; Balance sheet—Common account titles
Learning Objective: 02-01 Define the objective of financial reporting, the elements of the
balance sheet, and the related key accounting assumptions and principles.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation. [Show Less]