Exam 1

Financial statements can be used by which of the following groups?

• Regulatory bodies

• Individuals

• Investors and creditors

• All of the above.

An organization's investors and creditors will primarily use information provided by:

• the organization's managerial accounting system.

• the Financial Accounting Standards Board.

• the Internal Revenue Service.

• the organization's financial accounting system.

The primary objective of financial reporting is to provide information

• on the cash flows of the company.

• about the profitability of the enterprise.

• to the federal government.

• useful for making investment and credit decisions.

Frost Enterprises buys a warehouse for $ 570,000 to use for its East Coast distribution operations. On the date of the purchase, a professional appraisal shows a value of $620,000 for the warehouse. The seller had originally purchased the building for $525,000. Frost has a similar warehouse on the West Coast that has a book value of $586,000. Under the historical cost principle, Frost should record the building for

• $ 525,000.

• $ 620,000.

• $ 570,000.

• $ 586,000.

To be useful, information must have which of the following fundamental qualitative characteristics?

• Faithful representation and diversity

• Timeliness and affordability

• Relevance and faithful representation

• Expediency and relevance

Assume that a business is headed for certain bankruptcy and it is evident that its liabilities greatly exceed its assets. Which principle would be violated if its financial statements were prepared using standard U.S. GAAP?

• Entity assumption

• Continuity assumption

• Stable-monetary-unit assumption

• Historical cost principle

The accounting equation can be expressed as

• Assets = Liabilities-Equity.

• Assets-Liabilities = Equity.

• Assets + Liabilities = Equity.

• Equity-Assets = Liabilities.

Sebastopol Corporation holds cash of $ 2,000 and owes $ 28,000 on accounts payable. Sebastapol has accounts receivable of $ 35,000, inventory of $ 18,000, and land that cost $ 60,000. How much are Sebastopol's total assets and liabilities?

• $115,000 $ 28,000

• $115,000 $46,000

• $97,000 $46,000

• $55,000 $88,000

During the year, Greenwash Corporation has $270,000 in revenues, $145,000 in expenses, and $3,000 in dividend declarations and payments. Net income for the year was:

• $ 270,000

• $ 148,000

• $ 128,000

• $ 125,000

How would the issuance of common stock for cash affect the accounting equation?

• Decrease assets and decrease liabilities

• Increase liabilities and decrease stockholders' equity

• Increase assets and increase liabilities

• Increase assets and increase stockholders' equity