Deck 6: Financial Statements

Question 1

A consolidated income statement is a summary statement of all the departmental income statements of a property.

Answer 1

False

Question 2

In preparing the statement of cash flows, determining the net increase or decrease in cash requires the use of

A)the adjusted trial balance.
B)the current period's retained earnings statement.
C)a comparative balance sheet.
D)a comparative income statement.

Answer 2

C

Question 3

Any dollar a business makes as net income will flow

A)from the income statement as profit to the cash flow statement to add into the retained earnings or equity account.
B)from the balance sheet as profit to the income statement as retained earnings.
C)from the income statement as profit to the balance sheet to add into the retained earnings or equity account.
D)from the cash flow statement to the retained earnings statement as shareholder's equity.

Answer 3

A

Question 4

To determine the net cash provided (used) by operating activities, it is necessary to analyze

A)the current year's income statement.
B)a comparative balance sheet.
C)additional information.
D)all of these.

Question 5

Gross profit is a measure of the overall profitability of a company.

Question 6

Using the indirect method, an increase in accounts payable during a period is deducted from net income in calculating cash provided by operations.

Question 7

The operating expense section of an income statement for a wholesaler would not include

A)freight-out.
B)utilities expense.
C)cost of goods sold.
D)insurance expense.

Question 8

Gross profit does not appear

A)on a multiple-step income statement.
B)on a single-step income statement.
C)to be relevant in analyzing the operation of a merchandising company.
D)on the income statement if the periodic inventory system is used because it cannot be calculated.

Question 9

Indicate which one of the following would appear on the income statement of both a merchandiser and a service enterprise.

A)Gross profit
B)Operating expenses
C)Sales revenues
D)Cost of goods sold

Question 10

Merchandise inventory is classified as a current asset on a classified balance sheet.

Question 11

Selling expenses relate to general operating activities such as personnel management.

Question 12

Gross profit for a merchandiser is net sales minus

A)operating expenses.
B)cost of goods sold.
C)sales discounts.
D)cost of goods available for sale.

Question 13

Net income flows

A)into cash as a debit.
B)into retained earnings as a debit.
C)into cash as a credit.
D)into cash flow from operating activities as a credit.

Question 14

The statement of cash flows classifies cash receipts and payments as operating, nonoperating, financial, and extraordinary activities.

Question 15

The statement of cash flows will not provide insight into

A)why dividends were not increased.
B)whether cash flow is greater than net income.
C)the exact proceeds of a future bond issue.
D)how the retirement of debt was accomplished.

Question 16

For external reporting, a company must prepare either an income statement or a statement of cash flows, but not both.

Question 17

The payment of interest on bonds payable is classified as a cash outflow from operating activities.

Question 18

Which departmental income statement will not show any revenues?

A)rooms
B)food
C)beverage
D)engineering

Question 19

Once all departmental income statements are put together, added, and summarized, the company now has:

A)a consolidated income statement.
B)a single-step income statement.
C)a multi-step income statement.
D)a statement of cash flows.

Question 20

In preparing a statement of cash flows, cash equivalents are subtracted from cash in order to compute the net change in cash during a period.

Question 21

Which of the following characteristics do not apply to cash equivalents?

A)Short-term
B)Highly-liquid
C)Readily convertible into cash
D)Sensitive to interest rate changes

Question 22

If a company has both an inflow and outflow of cash related to property, plant, and equipment, the

A)two cash effects can be netted and presented as one item in the investing activities section.
B)cash inflow and cash outflow should be reported separately in the investing activities section.
C)two cash effects can be netted and presented as one item in the financing activities section.
D)cash inflow and cash outflow should be reported separately in the financing activities section.

Question 23

Generally, the most important category on the statement of cash flows is cash flows from

A)operating activities.
B)investing activities.
C)financing activities.
D)significant noncash activities.

Question 24

If accounts receivable have increased during the period,

A)revenues on an accrual basis are less than revenues on a cash basis.
B)revenues on an accrual basis are greater than revenues on a cash basis.
C)revenues on an accrual basis are the same as revenues on a cash basis.
D)expenses on an accrual basis are greater than expenses on a cash basis.

Question 25

Retained earnings in a corporation is the same as

A)cash and cash equivalents.
B)operating activities in a corporation.
C)owner's equity in a small business.
D)accounts receivables in a partnership.

Question 26

If $300,000 of bonds are issued during the year but $100,000 of old bonds are retired during the year, the statement of cash flows will show a(n)

A)net increase in cash of $100,000.
B)net decrease in cash of $100,000.
C)increase in cash of $300,000 and a decrease in cash of $100,000.
D)net gain on retirement of bonds of $200,000.
COMPLETION STATEMENTS

Question 27

Which of the following adjustments to convert net income to net cash provided by operating activities is correct? $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Add to Net Income $\quad$ Deduct from Net Income

A) $\quad$ Accounts Receivable $\quad$ $\quad$ increase $\quad$$\quad$ decrease
B) $\quad$ Prepaid Expenses $\quad$ $\quad$ increase $\quad$$\quad$ $\quad$ decrease
C) $\quad$ Inventory $\quad$ $\quad$ $\quad$ $\quad$ decrease $\quad$ $\quad$ $\quad$ increase
D) $\quad$ Taxes Payable $\quad$ $\quad$ $\quad$ decrease $\quad$ $\quad$ $\quad$ increase

Question 28

Significant noncash transactions would not include

A)conversion of bonds into common stock.
B)asset acquisition through bond issuance.
C)treasury stock acquisition.
D)exchange of plant assets.

Question 29

The order of presentation of activities on the statement of cash flows is

A)operating, investing, and financing.
B)operating, financing, and investing.
C)financing, operating, and investing.
D)financing, investing, and operating.

Question 30

Using the indirect method, if equipment is sold at a gain, the

A)sale proceeds received are deducted in the operating activities section.
B)sale proceeds received are added in the operating activities section.
C)amount of the gain is added in the operating activities section.
D)amount of the gain is deducted in the operating activities section.

Question 31

Which of the following would be added to net income using the indirect method?

A)An increase in accounts receivable
B)An increase in prepaid expenses
C)Depreciation expense
D)A decrease in accounts payable

Question 32

Financing activities involve

A)lending money.
B)acquiring investments.
C)issuing debt.
D)acquiring long-lived assets.

Question 33

When a business earns net income

A)expenses exceed operating income and the business has less buying power.
B)the business has more cash for investment in the future and buying more assets to generate more revenues.
C)cash flow from investing activities exceeds operating income.
D)food & beverage inventories exceed operating expenses.

Question 34

Income from operations is determined by subtracting total operating expenses from ________________.

Question 35

Which of the following adjustments to convert net income to net cash provided by operating activities is incorrect? $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$ $\quad$ $\quad$ Add to Net Income $\quad$ $\quad$ Deduct from Net Income

A) $\begin{array}{llcc} \text {Accounts Receivable}& \text {decrease}&&&&\text {increase}\end{array}$

B) $\begin{array}{llcc} \text {Prepaid Expenses}& &\text {increase}&&&&&\text {decrease}\end{array}$

C) $\begin{array}{llcc} \text {Inventory }&&&&& &\text {decrease}&&&&\text {increase}\end{array}$

D) $\begin{array}{llcc} \text {Accounts Payable }&&& \text {increase}&&&\text {decrease}\end{array}$

Question 36

If a company reports a net loss, it

A)may still have a net increase in cash.
B)will not be able to pay cash dividends.
C)will not be able to get a loan.
D)will not be able to make capital expenditures.

Question 37

On the statement of cash flows using the indirect method, patent amortization expense will
B)be added to net income in the operating section.
C)be deducted from net income in the operating section.
D)appear as an inflow of cash in the investing section.
E)appear as an outflow of cash in the investing section.

Question 38

Which one of the following items is not generally used in preparing a statement of cash flows?

A)Adjusted trial balance
B)Comparative balance sheets
C)Current income statement
D)Additional information

Question 39

If accounts payable have increased during a period,

A)revenues on an accrual basis are less than revenues on a cash basis.
B)expenses on an accrual basis are less than expenses on a cash basis.
C)expenses on an accrual basis are greater than expenses on a cash basis.
D)expenses on an accrual basis are the same as expenses on a cash basis.

Question 40

Hot Stuff Hot Wings reported net income of $50,000 for the year.During the year, accounts receivable increased by $18,000, accounts payable decreased by $7,000 and depreciation expense of $10,000 was recorded.Net cash provided by operating activities for the year is

A)$25,000.
B)$15,000.
C)$32,000.
D)$22,000.

Question 41

Net income from operations is generally not the same as cash provided from operations because revenues and expenses are recognized in the income statement on the ______________ basis.

Question 42

Any dollar a business makes as net income will flow from the income statement as ____________ and to the balance sheet as ____________ or owner's equity.

Question 43

If accounts receivable increase during a period, revenues on an accrual basis are ______________ than revenues on a cash basis.

Question 44

A statement of cash flows summarizes the operating, ____________, and ___________ activities of an entity.