Topic: Investing Activities
LO: 2
6. Investing activities involve the acquiring and disposing of liabilities that a company needs in order to
finance its operating activities.
Answer: False
Rationale: Investing activities are the acquiring and disposing of assets that a company needs for the
production and sale of a company’s products and services.
Topic: Financing Activities
LO: 2
7. Other than operating profit, there are three main sources of external financing.
Answer: False
Rationale: There are two main sources of financing: equity (also called shareholder or owner)
financing and debt (also called creditor or lender) financing.
Topic: Financing and Investing Activities
LO: 2
8. Financing activities are defined as the acquiring and disposing of resources for the purpose of selling
products and services.
Answer: False
Rationale: Financing activities are defined as methods a company uses to raise funds to pay for
resources. Investing activities are defined as the acquiring and disposing of resources for the
purpose of selling products and services.
Topic: Purpose of Accounting
LO: 4
9. The basic purpose of accounting is to provide useful financial information.
Answer: True
Rationale:The purpose of accounting is to provide useful financial information. Accordingly, the
accounting process (1) prepared financial reports to meet the needs of the user and (2) helps
interpret the financial results for the user.
Topic: GAAP
LO: 4
10. Generally accepted accounting principles apply to the general-purpose financial statements prepared
primarily for parties outside of an organization.
Answer: True
Rationale:Financial statement users who rely on accounting data expect that all companies will follow
the same standards and procedures when preparing their statements. The