EXERCISES:

Exercise 1. True or False. Write TRUE if the statement is correct and FALSE if the
statement is wrong.

1. Financial statements are beneficial to a wide range of external and internal users.
2. Government agencies use financial statements solely for regulation purposes.
3. A stockholder of a business can be a creditor at the same time.
4. Businesses supply goods and services, but businesses can also be buyers of goods and
services.
5. Investors acquire goods and services from companies for a fee.
6. Customers take into consideration the future commitments of a company.
7. If a supplier is having financial difficulties or has a track of record of being unreliable,
restaurants will probably not ask for its services.
8. Use of financial statements for academic purposes is not confined in the
accountancy field.
9. Accounting information presented in financial reports can be an indicator of the
quality of products and services the company provides.
10. All else being equal, an investor will decide to invest in a company with higher level
of profit.
11. The primary reason why employees need accounting information is to enable them
to perform better for the benefit of the company.
12. The regulatory function of the government is disposable since businesses have no
incentive to mispresent the results of the company’s operations.
13. The benefits of accounting information to managers are seemingly unlimited.
14. An analysis of the financial statements is more important for one-time customers than
customers who plan to build a long-term relationship with the company.
15. It is beneficial for a company to prepare financial statements with a presentation style
that will cate to the needs of each user group.
16. The creation of jobs of a company is of great concern to the public.
17. Normally, creditors receive varying amounts of payment from the business.
18. Creditors are less concerned with the riskiness of a company than the customers.
19. External users include creditors, customers, the general public, and all investor.
20. Owners or stockholders are part of management if they take an active role in the
operations of the business.

Exercise 2. Identification. Identify what kind of stakeholder is being referred to.

1. To assess the capability of the business to pay its obligation including the related
interests on maturity date.
2. To find out the financial capacity of the company in order to bargain for benefits.
3. To ensure that the company’s disclosure of accounting information is in accordance
with rules and regulations.
4. To know whether an entity can continue to honor product warranties.
5. To decide whether they should withdraw or increase their investments.
6. To decide whether to invest in the company or not.
7. To determine the correctness of the tax returns filed by the company.
8. To determine whether debts owed to them will be paid when due.
9. To know how the business helps the economy.
10. To plan, organize, and run the business.

Exercise 3. Multiple Choice. Choose the letter of the best answer. Use CAPITAL
LETTERS ONLY.

1. Users of financial reports include which of the following?

a. Creditors
b. Creditors and government agencies
c. Creditors and unions
d. Creditors, unions and government agencies

2. Which group is not among the external users for whom financial statements are
prepared?
a. Customers
b. Suppliers
c. Employees
d. All of these are external users of financial statements

3. Which of the following is an internal user of financial information?

a. Board of Directors
b. Government
c. Public
d. Creditor with long-term contract

4. These users require information on risk and return provided by their investment.
a. investors
b. Employees
c. Lenders
d. Customers

5. These users are interested in information about the profitability and stability of the
entity in order to assess the ability of entity to provide remuneration, retirement
benefits and employment opportunities.
a. Customers
b. Public
c. Governments and their agencies
d. Employees

6. These users are interested in information that enables them to assess whether their
loans, the related interest thereon, and other amounts owing to them will be paid
when due.
a. Lenders and other creditors
b. Borrowers
c. Trade creditors
d. Owners
7. These users are interested in information about the continuance of an entity,
especially when they have a long-term investment with or are dependent on the
entity.
a. Customers
b. Employees
c. Trade unions
d. Suppliers

8. These users are interested in information in order to regulate the activities of an entity,
determine taxation policies and provide a basis for national statistics.
a. Governments and their agencies
b. Major organization of users
c. Bureau of Internal Revenue
d. Department of Finance

9. These users need information on trends and recent developments where an entity
makes a substantial contribution to the local economy providing employment and
using local suppliers.
a. Public
b. Governments and their agencies
c. Finance entities
d. Private entities

10. Which of these is not an external user of accounting information?

a. Regulatory agencies
b. Customers
c. Investors
d. Head of the Marketing Department of a company

11. Which of the following does not fall under the category of customer?
a. Loonyo, a client of SGV Firm.
b. Ivana, a regular purchaser of deodorant of Aling Nena’s Sari-Sari Store.
c. Everything, an individual collecting annual payments from Company K.
d. Mike, a loyal gamer in Net X Computer Shop.

12. Creditors differ from potential investors in what aspect?

a. Creditors are wary of the riskiness of a company.
b. Wealthy individuals can only invest not lend to a company.
c. Creditors receive fixed amount of fess in their loans to the business.
d. Creditors are exposed to more risks than investors.

13. Which of the following is false about the owners of a business?

a. Owners of a business are concerned with the profit levels of the company.
b. Owners of a business are not allowed to take managerial roles in the company.
c. Some owners do not participate in the management of the business.
d. Owners of a business can also be creditors of the company.
14. What information in the company’s financial statements is the most important for
creditors?
a. Level of profit
b. Current borrowings
c. Revenues
d. All information are equally important

15. Of all the external users, which group would least likely examine a company’s
financial statements?
a. General public
b. Government
c. Creditors
d. Customers