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Exam 1: Accounting Information and Decision Making

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Question 1

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Match each qualitative characteristic with its definition.

Premises

Responses

Measurements that independent parties would agree upon.

Neutrality

Information provides feedback on past activities.

Timeliness

Information that does not bias the decision maker.

Completeness

Information is presented in time to make useful decisions.

Predictive value

Information is useful in helping to forecast future outcomes.

Confirmatory value

All information necessary to describe an item is reported.

Verifiability

Premises

Measurements that independent parties would agree upon.

Information provides feedback on past activities.

Information that does not bias the decision maker.

Information is presented in time to make useful decisions.

Information is useful in helping to forecast future outcomes.

All information necessary to describe an item is reported.

Responses

Neutrality

Timeliness

Completeness

Predictive value

Confirmatory value

Verifiability

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Correct Answer

Premises

Responses

Measurements that independent parties would agree upon.

Information provides feedback on past activities.

Information that does not bias the decision maker.

Information is presented in time to make useful decisions.

Information is useful in helping to forecast future outcomes.

All information necessary to describe an item is reported.

Premises

Measurements that independent parties would agree upon.

Information provides feedback on past activities.

Information that does not bias the decision maker.

Information is presented in time to make useful decisions.

Information is useful in helping to forecast future outcomes.

All information necessary to describe an item is reported.

Responses

Question 2

Multiple Choice

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Net income can best be described as:

A) Net cash received by a company during the year.
B) Revenues minus expenses.
C) The amount of profits retained in a company for the year.
D) Resources owned by a company.

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Question 3

Multiple Choice

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Accounting information that does not provide measurement bias in favor of a particular set of companies has the characteristic of:

In general, if a company's net income is increasing, so will its stock price.

If total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000, then total assets equal $7,000.

Retained earnings at the end of the year is calculated using:

Which of the following accounts appears in the statement of stockholders' equity?

The role of auditors is to help ensure that management has in fact appropriately applied Generally Accepted Accounting Principles (GAAP) in preparing the company's financial statements.

Constraints on qualitative characteristics of accounting information include:

The primary objective of financial reporting is to provide useful information to managers in making decisions.

Which of the following items would not appear in an income statement?

In what order are the following financial statements prepared: (1) balance sheet, (2) income statement, and (3) statement of stockholders' equity?

All cash transactions reported in the statement of cash flows are classified as either (1) operating activities, (2) investing activities, or (3) financing activities.

Which of the following statements regarding financial reports is not correct?

Financial accounting:

Generally Accepted Accounting Principles (GAAP) are best defined as:

The accounting equation shows that a company's resources equal creditors' and owners' claims to those resources.

Match each account classification with its example.

The financial statement that represents activity over the entire life of the company is the:

Riley Incorporated reports the following amounts at the end of the year: $\begin{array} { l r l r } \text { Cash } & \$ 3,200 & \text { Service Revenue } & \$ 92,500 \\\text { Buildings } & 60,000 & \text { Salaries Expense } & 72,800 \\\text { Accounts Payable } & 8,500 & \text { Equipment } & 72,000 \\\text { Interest Expense } & 4,000 & \text { Supplies } & 6,400 \\\text { Advertising Expense } & 11,300 & \text { Notes payable } & 40,000\end{array}$