Question

1. 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.

a. true
b. false

1. which of the following statements best describes the term “revenues”?

a. revenues represent an outflow of assets resulting from the sale of goods or services.
b. revenues represent the dollar amount of bonds sold to the public.
c. revenues represent assets used or consumed in the sale of products or services.
d. revenues represent assets received from the sale of products or services.

1. which one of the following business decisions will most likely require financial information?

a. the national bank is reviewing the loan application from petra’s restaurant.
b. petra’s restaurant is attempting to sell its stock to the public.
c. the labor union representing winn’s fitness spa employees is negotiating a pay raise as part of a new labor agreement.
d. all of these choices.

1. the purpose of financial reporting is to provide economic information to external decision - makers only.

a. true
b. false

1. the concept of conservatism is the capacity of information to make a difference in a decision.

a. true
b. false

1. obligations related to operating activities that will be paid within the company’s operating cycle must be reported as current liabilities on a classified balance sheet.

a. true
b. false

1. a balance sheet shows cash, $75,000; marketable securities, $115,000; accounts receivable, $150,000 and $222,500 of inventories. current liabilities are $225,000. the current ratio is 2.5 to 1.

a. true
b. false

Explanation:

1. The purpose of financial reporting is to provide information for investors, lenders and other creditors to make resource - allocation decisions. So it's true.
2. Revenues are assets received from the sale of products or services.
3. A bank reviewing a loan application, a company selling stock, and a union negotiating a pay raise all may need financial information.
4. Financial reporting provides information to both external and internal decision - makers, so it's false.
5. The concept of relevance is the capacity of information to make a difference in a decision, not conservatism. So it's false.
6. Obligations related to operating activities to be paid within the operating cycle are current liabilities on a classified balance sheet. So it's true.
7. Current assets = 75000 + 115000+150000 + 222500=562500. Current ratio = Current assets/Current liabilities = 562500/225000 = 2.5. So it's true.

Answer:

1. a. True
2. d. Revenues represent assets received from the sale of products or services.
3. d. All of these choices
4. b. False
5. b. False
6. a. True
7. a. True