Deck 3: Financial Statements

Question 1

The business form that is equivalent to the personal statement of financial position is the balance sheet.

Answer 1

True

Question 2

A refund of the purchase price, increased warranty, or partial credit on the next purchase would be listed on the income statement as returns and allowances.

Answer 2

True

Question 3

U.S. government savings bonds are the most liquid asset that we can own because they can be converted to cash at any bank.

Answer 3

False

Question 4

The income statement shows the cash flows of a business during the accounting period.

Question 5

Every business, regardless of its size, should hire an accountant to help it set up its books.

Question 6

The business form that is equivalent to the personal cash flow statement is the income statement.

Question 7

Public corporations have the ability to raise large quantities of cash by selling stocks and bonds.

Question 8

Joan has a $100,000 mortgage on her commercial building. This would be carried on her balance sheet as long -term debt.

Question 9

How owner's equity is shown on the balance sheet for a partnership is based on the partnership agreement.

Question 10

Liquidity is how fast an asset can be converted to cash.

Question 11

The statement of cash flows is based on the comparison of two consecutive balance sheets.

Question 12

A refund of the purchase price, increased warranty, or partial credit on the next purchase would be listed on the income statement as cost of goods sold.

Question 13

The business form that is equivalent to the personal statement of financial position is the income statement.

Question 14

Partnerships have the ability to raise large quantities of cash by selling stocks and bonds.

Question 15

The business form that is equivalent to the personal cash flow statement is the balance sheet.

Question 16

Every business, regardless of its size, requires a full -time accountant.

Question 17

Joan has a $100,000 mortgage on her commercial building. This would be carried on her balance sheet as a current liability.

Question 18

Medicare payments for both the employer and employee are not subject to an annual limit.

Question 19

The employer's contribution to Social Security is 6.20% of the employee's salary.

Question 20

The first section of the statement of cash flows is cash flow from financing activities.

Question 21

Cash flow from operating activities is the first item on the statement of cash flows.

Question 22

An increase in inventory is a cash outflow.

Question 23

Which of the following would be considered to be an operating expense for a computer manufacturing firm?

A) assembly line wages
B) accountant's wages
C) disk drives
D) speakers
E) memory chips

Question 24

For a manufacturing firm that makes computers, which of the following would NOT be considered part of the cost of goods sold?

A) speakers
B) accountant's wages
C) disk drives
D) assembly line wages
E) memory chips

Question 25

The income statement shows net profit, which is equal to

A) gross revenues minus returns and allowances.
B) operating income minus operating expenses.
C) net sales minus cost of goods sold.
D) earnings before taxes minus taxes.
E) operating income minus interest.

Question 26

An increase in accounts receivable from last year's balance sheet to this year's balance sheet indicates that the business experienced a cash outflow.

Question 27

Variable expenses include all of the following EXCEPT

A) insurance.
B) automobile maintenance.
C) clothing.
D) gas.
E) food.

Question 28

Public corporations require independent audits due to requirements established by the

A) Small Business Administration (SBA).
B) Financial Accounting Standards Board (FASB).
C) Securities and Exchange Commission (SEC).
D) Federal Reserve (Fed).
E) Occupational Safety and Health Administration (OSHA).

Question 29

The normal accounting period for a business is one

A) quarter.
B) year.
C) week.
D) month.

Question 30

For a retail firm that sells clothing, which of the following would be considered part of the cost of goods sold?

A) price paid for dresses to be sold
B) freight
C) wages paid to sales clerks
D) A and B above
E) all of the above

Question 31

The income statement shows earnings before taxes, which is equal to

A) net sales minus cost of goods sold.
B) operating income minus interest.
C) gross revenues minus returns and allowances.
D) operating income minus operating expenses.
E) earnings before taxes minus taxes.

Question 32

The income statement shows net sales, which is equal to

A) earnings before taxes minus taxes.
B) gross revenues minus returns and allowances.
C) operating income minus operating expenses.
D) operating income minus interest.
E) net sales minus cost of goods sold.

Question 33

The general ledger uses a chart of accounts that lists only those transactions which are liabilities.

Question 34

The income statement shows gross profit, which is equal to

A) gross revenues minus returns and allowances.
B) net sales minus cost of goods sold.
C) earnings before taxes minus taxes.
D) operating income minus operating expenses.
E) operating income minus interest.

Question 35

Net income on the income statement is obtained after subtracting taxes for the

A) sole proprietorship.
B) corporation.
C) partnership.
D) Subchapter S corporation.
E) all of the above.

Question 36

Expenses that are contractual in nature and are normally paid every month are

A) monthly expenses.
B) automatic expenses.
C) variable expenses.
D) accounting expenses.
E) fixed expenses.

Question 37

For most businesses, operating expenses include

A) salaries for executives and administrative personnel, raw materials used in manufacturing, rent, insurance, utilities, and advertising expenses.
B) salaries for executives and administrative personnel, cost of merchandise to be sold, rent, insurance, utilities, and advertising expenses.
C) salaries for executives and administrative personnel, rent, freight on items to be sold, insurance, utilities, and advertising expenses.
D) salaries for executives, administrative personnel, and assembly line workers; rent; insurance; utilities; and advertising expenses.
E) salaries for executives and administrative personnel, rent, insurance, utilities, and advertising expenses.

Question 38

An increase in accounts receivables is a cash inflow.

Question 39

In order to create a statement of cash flows, depreciation must be subtracted from net income.

Question 40

The general ledger uses a chart of accounts that lists every transaction of the business.

Question 41

Cash paid in the acquisition of land, buildings, or equipment; loans to other companies; and the proceeds from the sale of land, buildings, or equipment will show up on the cash flow statement under the category of

A) cash flows from financing activities.
B) cash flows from investing activities.
C) cash flows from operating activities.
D) A and B above.
E) B and C above.

Question 42

Janet has a company that pays all employees a salary on the first and the fifteenth of the month. Her normal payroll is $10,000 per pay period. On the last day of the month she would have shown

A) $10,000 as payroll payable on the balance sheet.
B) $20,000 as a cash flow from operating expenses on the statement of cash flows.
C) $20,000 as an operating expense under salaries on the income statement.
D) All of the above.
E) Not enough information is provided to answer this question.

Question 43

Total assets on the balance sheet include

A) current assets + fixed assets + depreciation.
B) current assets + fixed assets -depreciation.
C) current assets - fixed assets + depreciation.
D) current assets - fixed assets -depreciation.
E) none of the above.

Question 44

Current assets are assets and fixed assets are assets .

A) converted to cash during the accounting year; converted to cash during the accounting year
B) that have an expected life in excess of one year; that have an expected life in excess of one year
C) that have an expected life in excess of one year; converted to cash during the accounting year
D) converted to cash during the accounting year; that have an expected life in excess of one year

Question 45

Which of the following fixed assets are always carried on the business books at the price paid for the asset, and cannot be depreciated?

A) store fixtures
B) land
C) machinery
D) equipment
E) buildings

Question 46

Cash received from the sale of stocks or bonds and the actual cash paid to others in the form of dividends to owners and the payment of long -term debt would show up on the cash flow statement under the category of

A) cash flows from financing activities.
B) cash flows from investing activities.
C) cash flows from operating activities.
D) A and B above.
E) B and C above.

Question 47

The formula for the basic accounting equation is

A) OWNER'S EQUITY = TOTAL LIABILITIES -TOTAL ASSETS.
B) OWNER'S EQUITY = TOTAL ASSETS + TOTAL LIABILITIES.
C) TOTAL ASSETS = TOTAL LIABILITIES + OWNER'S EQUITY.
D) TOTAL ASSETS = TOTAL LIABILITIES - OWNER'S EQUITY.
E) TOTAL LIABILITIES = TOTAL ASSETS + OWNER'S EQUITY.

Question 48

Current assets include all of the following EXCEPT

A) buildings.
B) cash.
C) savings.
D) inventory.
E) accounts receivable.

Question 49

Current assets are assets that will normally be converted to cash during

A) the current month.
B) the next business year.
C) the next week.
D) the accounting year.
E) all of the above.

Question 50

Current assets include

A) inventory.
B) accounts receivable.
C) savings.
D) cash.
E) all of the above.

Question 51

Janet has a company that pays all employees a salary on the first and the fifteenth of the month. Her normal payroll is $10,000 per pay period. On the last day of the month she would have shown

A) $10,000 as cost of goods sold on the income statement.
B) $10,000 as payroll payable on the balance sheet.
C) $10,000 as a cash flow from operating expenses on the statement of cash flows.
D) $10,000 as an operating expense under salaries on the income statement.

Question 52

Fixed assets are listed on the business balance sheet at the and on the individual's
Statement of financial position at the .

A) price paid for the asset; price paid for the asset
B) current market value; current market value
C) current market value; price paid for the asset
D) price paid for the asset; current market value

Question 53

The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building, $150,000; Note payable bank, $10,000; Savings, $10,000; Long -term debt, $50,000; Accounts payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000; Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Current liabilities for this Corporation are

A) $45,000.
B) $55,000.
C) $95,000.
D) $155,000.
E) $190,000.

Question 54

The actual value of a business can easily be found by finding

A) book value on the cash flow statement.
B) book value on the income statement.
C) book value on the balance sheet.
D) all of the above.
E) none of the above.

Question 55

The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building, $150,000; Note payable bank, $10,000; Savings, $10,000; Long -term debt, $50,000; Accounts payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000; Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Owner's equity for this Corporation are

A) $45,000.
B) $55,000.
C) $95,000.
D) $155,000.
E) $190,000.

Question 56

The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building, $150,000; Note payable bank, $10,000; Savings, $10,000; Long -term debt, $50,000; Accounts payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000; Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Total liabilities for this Corporation are

A) $45,000.
B) $55,000.
C) $95,000.
D) $155,000.
E) $190,000.

Question 57

The personal statement of financial position and the balance sheet show the position of the individual or firm

A) for a period of time, which is normally one year.
B) for the accounting period, as determined by the business firm.
C) with a beginning and ending date.
D) as of a specific date.
E) for the accounting period, as determined by the Internal Revenue Service.

Question 58

The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building, $150,000; Note payable bank, $10,000; Savings, $10,000; Long -term debt, $50,000; Accounts payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000; Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Total assets for this Corporation are

A) $55,000.
B) $95,000.
C) $155,000.
D) $190,000.
E) $245,000.

Question 59

The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building, $150,000; Note payable bank, $10,000; Savings, $10,000; Long -term debt, $50,000; Accounts payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000; Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Current assets for this Corporation are

A) $45,000.
B) $55,000.
C) $95,000.
D) $155,000.
E) $190,000.

Question 60

The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building, $150,000; Note payable bank, $10,000; Savings, $10,000; Long -term debt, $50,000; Accounts payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000; Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Fixed assets for this Corporation are

A) $45,000.
B) $55,000.
C) $95,000.
D) $155,000.
E) $190,000.

Question 61

Cash payments made to employees for wages and salaries; payments made to vendors for the purchase of merchandise; taxes paid to government agencies; payments for rent, utilities, and insurance will show up on the statement of cash flows under the category of

A) cash flows from financing activities.
B) cash flows from investing activities.
C) cash flows from operating activities.
D) A and B above.
E) B and C above.

Question 62

The final step in generating a statement of cash flows is to

A) sum up cash flow from operations, financing, and investment activities and transfer it to the balance sheet.
B) sum up cash flow from operations and transfer it to the balance sheet.
C) sum up cash flow from investing activities and transfer it to the balance sheet.
D) none of the above.

Question 63

The primary objective of Sarbanes -Oxley is to protect investors by

A) II only
B) I, II, & IV
C) I, III, &IV
D) I, II, & III

Question 64

Which of the following is true for free cash flow?

A) III & IV
B) II & IV
C) I, II, & III
D) I & III

Question 65

A company's net cash from operating activities is lower than its net income indicating that

A) too little cash is being spent.
B) the company had less available funds than its net income.
C) too much cash is being spent.
D) none of the above.

Question 66

Which of the following is a cash outflow?

A) a decrease in accounts receivable
B) an increase in accounts receivable
C) an increase in accounts payable
D) a decrease in inventory

Question 67

Depreciation expense

A) is subtracted from the statement of cash flows.
B) is added to the statement of cash flows because it is not an expenditure.
C) is listed on the income statement as a variable expense.
D) appears only on the income statement.