Deck 1: The Financial Statements

Question 1

Which of the following best describes a liability?

A) Liabilities are future economic benefits to which a company is entitled.
B) Liabilities are a form of share capital.
C) Liabilities are economic obligations to creditors to be paid at some future date by the company.
D) Liabilities are accounts receivable of the company.

Answer 1

C

Question 2

Claims held by the shareholders (owners) of a corporation are referred to as:

A) share capital
B) share capital plus retained earnings
C) retained earnings
D) share capital minus retained earnings

Answer 2

B

Question 3

The main source of cash for a business normally arises from:

A) operating activities
B) investing activities
C) current assets
D) financing activities

Answer 3

A

Question 4

When a repurchase of shares is done by a company it:

A) increases the amount of owners' equity
B) decreases the amount of total liabilities
C) decreases the amount of owners' equity
D) increases the amount of total liabilities

Question 5

Dividends:

A) always affect net income
B) are expenses
C) must be paid to shareholders when the company earns a profit
D) are distributions to shareholders of assets (usually cash) generated by net income

Question 6

Losses are reported on the:

A) balance sheet
B) income statement
C) cash flow statement
D) statement of retained earnings

Question 7

Which financial statement is based on the accounting equation?

A) income statement
B) balance sheet
C) cash flow statement
D) statement of retained earnings

Question 8

On January 1, 2020, total assets for Liftoff Technologies were $125,000; on December 31, 2020, total assets were $145,000. On January 1, 2020, total liabilities were $110,000; on December 31, 2020, total liabilities were $115,000. What are the amount of the change and the direction of the change in Liftoff Technologies shareholders' equity for 2020?

A) increase of $15,000
B) decrease of $30,000
C) decrease of $15,000
D) increase of $30,000

Question 9

Shareholders' equity for Raisin Corporation on January 1, 2020 and December 31, 2020 were $60,000 and $75,000, respectively. Assets on January 1, 2020 and December 31, 2020 were $115,000
And $105,000, respectively. Liabilities on January 1, 2020 were $55,000. What is the amount of liabilities on December 31, 2020?

A) $30,000
B) $55,000
C) $15,000
D) $40,000

Question 10

How do revenues for a period relate to the beginning and ending balances in retained earnings?

A) Revenues less expenses will either increase or decrease the ending balance of retained earnings for the period.
B) Revenues will increase the beginning balance of retained earnings for the period.
C) Revenues will decrease the beginning balance of retained earnings for the period.
D) Revenues less expenses will either increase or decrease the beginning balance of retained earnings for the period.

Question 11

Expenses are:

A) increases in retained earnings resulting from operations
B) increases in liabilities resulting from purchasing assets
C) decreases in retained earnings resulting from operations
D) increases in assets resulting from operations

Question 12

The owners' interest in the assets of a corporation is known as:

A) shareholders' equity
B) expenses
C) assets
D) revenues

Question 13

Which of the following financial statements would a potential investor most likely use to evaluate a company's financial performance for the current period?

A) cash flow statement
B) retained earnings statement
C) balance sheet
D) income statement

Question 14

Increases in shareholders' equity arise from:

A) net income earned during the period
B) payment of dividends
C) investments by the owner
D) both investments by the owner and net income earned during the period

Question 15

The stable-monetary-unit assumption is the basis for ignoring:

A) the effect of inflation in the accounting records
B) the difference between the appraised value and the actual cost when recording an asset at its historical cost
C) the possibility that the value of inventory might drop below its historical cost
D) fluctuations in the value of the Canadian dollar relative to foreign currencies

Question 16

Which of the following persons or groups have the ultimate control of a corporation?

A) the audit committee
B) the shareholders
C) the board of directors
D) the chief executive officer

Question 17

Which financial statement must be prepared before the others?

A) balance sheet
B) cash flow statement
C) income statement
D) retained earnings statement

Question 18

Current assets are assets expected to be converted to cash, sold, or consumed:

A) within the next 12 months or within the business's normal operating cycle if longer than a year
B) within the next 6 months
C) within the next 24 months
D) within the next 12 months or within the business's normal operating cycle if less than a year

Question 19

An investor wishes to assess a company's financial position at the end of the period. Which financial statement would the investor probably examine?

A) the statement of retained earnings
B) the income statement
C) the cash flow statement
D) the balance sheet

Question 20

What is one component of shareholders' equity?

A) notes payable
B) common shares
C) property, plant, and equipment
D) cash

Question 21

Cash received from the issuance of share capital would appear:

A) as a financing activity on the cash flow statement
B) would not appear on a cash flow statement
C) as an operating activity on the cash flow statement
D) as an investing activity on the cash flow statement

Question 22

Which of the following statements should be prepared right before the balance sheet?

A) cash flow statement
B) statement of financial position
C) income statement
D) statement of retained earnings

Question 23

The issuance of shares for cash would be classified as a(n):

A) financing activity on a cash flow statement
B) investing activity on a cash flow statement
C) current asset on the balance sheet
D) operating activity on a cash flow statement

Question 24

The repayment of a note payable would be classified as a(n):

A) operating activity on a cash flow statement
B) investing activity on a cash flow statement
C) current asset on the balance sheet
D) financing activity on a cash flow statement

Question 25

The date of the income statement:

A) is not dated
B) covers one day in time
C) may cover a period of time or only one day in time, like a snapshot photograph
D) covers a period of time, usually for an accounting period

Question 26

Common shares appear on the:

A) balance sheet
B) cash flow statement
C) income statement
D) retained earnings statement

Question 27

Purchases and sales of non-current assets are examples of:

A) dividend activities
B) operating activities
C) financing activities
D) investing activities

Question 28

The ending balance in retained earnings appears on the:

A) balance sheet only
B) income statement
C) balance sheet and statement of retained earnings
D) statement of retained earnings only

Question 29

If assets increase $120,000 during a given period and liabilities decrease $25,000 during the same period, shareholders' equity must:

A) decrease $145,000
B) decrease $95,000
C) increase $95,000
D) increase $145,000

Question 30

Revenues are:

A) decreases in retained earnings resulting from delivering goods or services to customers
B) decreases in assets resulting from delivering goods or services to customers
C) increases in retained earnings resulting from delivering goods or services to customers
D) increases in liabilities resulting from delivering goods or services to customers

Question 31

The amount of net income shown on the income statement also appears on the:

A) statement of assets
B) statement of retained earnings
C) balance sheet
D) statement of financial position

Question 32

Cash dividends:

A) increase expenses on the income statement
B) decrease revenue on the income statement
C) decrease retained earnings on the retained earnings statement
D) decrease operating activities on the cash flow statement

Question 33

The assumption assumes that the organization will continue operating normally for the foreseeable future.

A) entity
B) cost
C) stable monetary unit
D) going-concern

Question 34

Gains and losses appear on which of the financial statements listed below?

A) the cash flow statement
B) the income statement
C) the retained earnings statement
D) the balance sheet

Question 35

Decreases in shareholders' equity result from:

A) a net income during the period
B) owner investments and a net loss during the period
C) a net loss during the period
D) owner investments

Question 36

Receivables are classified as:

A) decreases in earnings
B) increases in earnings
C) liabilities
D) assets

Question 37

The relevant measure of value of the assets of a company that is going out of business is its:

A) liquidation value
B) historical cost
C) carrying amount
D) recorded value

Question 38

Assets are generally divided into:

A) current assets and reliable assets
B) non-current assets and solvent assets
C) current assets and non-current assets
D) current assets and solvent assets

Question 39

Income taxes owed to the federal government would be classified as a:

A) financing activity on the cash flow statement
B) non-current asset on the balance sheet
C) current liability on the balance sheet
D) current asset on the balance sheet

Question 40

Which of the following financial statements shows the net increase or decrease in cash during the period?

A) statement of retained earnings
B) balance sheet
C) cash flow statement
D) income statement

Question 41

Accounting standards for accountants in Canada are established by:

A) the International Accounting Standards Board
B) the Canadian Securities Administrators
C) the Chartered Professional Accountants of Canada
D) the Canadian Public Accountability Board

Question 42

All of the following are considered standard financial statements except the:

A) statement of earnings
B) cash flow statement
C) statement of assets
D) statement of retained earnings

Question 43

The payment of the chief financial officer's salary would appear:

A) on the cash flow statement with the operating activities
B) on the income statement with the revenues
C) on the income statement as part of cost of goods sold
D) on the balance sheet with the current liabilities

Question 44

Cash would appear on the:

A) balance sheet with the current assets
B) retained earnings statement with the net income
C) income statement with the revenues
D) balance sheet with the current liabilities

Question 45

What is the proper order for the cash flow statement?

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

Question 46

To determine a company's gross margin for the period, an investor would look on the:

A) cash flow statement
B) statement of retained earnings
C) balance sheet
D) income statement

Question 47

The balance sheet contains information about:

A) liabilities, equity, and expenses
B) assets, liabilities, and equity
C) revenues, expenses, and equity
D) assets, revenues, and liabilities

Question 48

Retained earnings appear on which of the following financial statements?

A) statement of retained earnings and cash flow statement, but not the income statement or balance sheet
B) statement of retained earnings, cash flow statement, and income statement, but not the balance sheet
C) statement of retained earnings, cash flow statement, and balance sheet, but not the income statement
D) statement of retained earnings and balance sheet, but not the income statement or cash flow statement

Question 49

Accounts payable would appear on the:

A) balance sheet with the current liabilities
B) retained earnings statement with the dividends
C) income statement with the expenses
D) balance sheet with the current assets

Question 50

Dividends appear on the:

A) balance sheet
B) retained earnings statement
C) income statement
D) both the retained earnings statement and the income statement

Question 51

The CEO of a business owns a home and two automobiles. The company the CEO works for also owns automobiles and a home in a remote area used for strategic planning meetings by its executives. Which principle or assumption "draws a sharp boundary" around the possessions of the CEO and the assets of the business for which he works?

A) the stable-monetary-unit assumption
B) the objectivity assumption
C) the going-concern assumption
D) the entity assumption

Question 52

The primary objective of financial reporting is to provide information:

A) regarding the cash flows of the business
B) to the federal government about tax matters
C) about the profitability of the business
D) useful for making investment and lending decisions

Question 53

Suppose The Fruit Group buys a kiwi for $.10 and sells the kiwi for $.50. The cost of goods sold would be:

A) $.10
B) $.40
C) $.05
D) $.50

Question 54

Common shares is a component of:

A) total liabilities
B) retained earnings
C) share capital
D) total assets

Question 55

If liabilities increase $120,000 during a given period and shareholders' equity decreases $25,000 during the same period, assets must:

A) decrease $95,000
B) increase $95,000
C) decrease $145,000
D) increase $145,000

Question 56

The income statement presents a summary of the:

A) changes that occurred in the shareholders' equity of an entity
B) revenues and expenses of an entity for a specific time period
C) cash inflows and outflows of an entity
D) assets and liabilities of an entity

Question 57

In order for information to be considered a faithful representation it must be all of the following except:

A) complete
B) without material error
C) predictive
D) neutral

Question 58

Financial statements are:

A) reports issued by outside consultants who are hired to analyze key operations of the business
B) standard documents that tell us how well a business is performing and where it stands in financial terms
C) reports created by management that states it is responsible for the acts of the corporation
D) standard documents issued by outside consultants who are hired to analyze key operations of the business in financial terms

Question 59

Assets appear on the:

A) retained earnings statement
B) balance sheet
C) income statement
D) cash flow statement

Question 60

Depreciation is normally associated with which asset on the balance sheet?

A) equipment
B) inventory
C) land
D) accounts receivable

Question 61

The three forms of business organizations are proprietorships, partnerships, and non-profit organizations.

Question 62

Notes receivable due in 60 days would be classified as a:

A) non-current liability on the balance sheet
B) non-current asset on the balance sheet
C) current liability on the balance sheet
D) current asset on the balance sheet

Question 63

The accounting concept that maintains that each organization or section of an organization stands apart from other organizations and individuals is known as the:

A) reliability principle
B) going-concern assumption
C) monetary unit assumption
D) entity assumption

Question 64

Since they are both the same activities, the terms "accounting" and "bookkeeping" are synonymous and can be used interchangeably.

Question 65

Which of the following financial statements provides a "snapshot photo" of one moment in time?

A) income statement
B) balance sheet
C) statement of retained earnings
D) cash flow statement

Question 66

All of the following are factors that influence business and accounting decisions except:

A) legal
B) operational inefficiency
C) economic
D) ethical

Question 67

Net income is:

A) added to beginning retained earnings on the retained earnings statement
B) deducted from beginning retained earnings on the retained earnings statement
C) added to assets on the balance sheet
D) deducted from net sales on the income statement

Question 68

The cash flow statement is divided into three categories relating to cash flows from operating, investing, and:

A) financing activities
B) management planning activities
C) strategic positioning activities
D) marketing activities

Question 69

From a legal perspective, proprietors, partners, and shareholders are personally liable for a corporation's debts.

Question 70

Cost of goods sold is:

A) deducted from sales on the balance sheet
B) added to sales on the retained earnings statement
C) deducted from sales on the income statement
D) added to sales on the income statement

Question 71

For business purposes, dividend payments are classified as expenses.

Question 72

The accounting equation can be stated as:

A) Assets + Shareholders' equity = Liabilities
B) Assets + Liabilities = Shareholders' equity
C) Assets = Liabilities + Shareholders' equity
D) Assets = Liabilities - Shareholders' equity

Question 73

The balance sheet is sometimes also called the:

A) statement of financial position
B) statement of income and expense
C) statement of cash position
D) statement of operations

Question 74

The principle that states that assets acquired by the business should be recorded at their actual price is the:

A) stable monetary unit assumption
B) objectivity assumption
C) cost assumption
D) reliability assumption

Question 75

Equipment would appear on the:

A) balance sheet with the current assets
B) income statement with the revenues
C) balance sheet with the non-current assets
D) income statement with the operating expenses

Question 76

Cash spent to purchase a new building would appear on the cash flow statement as:

A) an operating activity
B) an investing activity
C) a dividend activity
D) a financing activity

Question 77

Operating expenses appear on the income statement:

A) directly after revenue
B) directly after gross margin
C) directly after cost of goods sold
D) do not appear on the income statement

Question 78

The balance sheet measures how well the company performed during the year.

Question 79

When accounting for cash collected from customers, the transaction would appear on the cash flow statement as a(an):

A) investing activity
B) activity that would not appear on the cash flow statement
C) financing activity
D) operating activity

Question 80

The statement that presents a summary of the revenues and expenses of an entity is called the:

A) statement of retained earnings
B) income statement
C) balance sheet
D) cash flow statement