Deck 2: The Financial Statements

Question 1

Which one of the following creates a decrease in retained earnings?

A) Prepaid assets.
B) Equipment.
C) Dividends.
D) Merchandise inventory not sold.

Answer 1

C

Question 2

Which one of the following groups of accounts contains only liabilities?

A) Accounts payable, retained earnings, notes payable.
B) Supplies expense, cost of goods sold, interest expense.
C) Wages payable, mortgage payable, taxes payable.
D) Contributed capital, accounts payable, retained earnings.

Answer 2

C

Question 3

Which one of the following is a liability?

A) Interest receivable.
B) Contributed capital.
C) Retained earnings.
D) Wages payable.

Answer 3

D

Question 4

The major accounting difference between interest expenses for creditors and dividends declared and paid to shareholders is that interest expenses:

A) decrease retained earnings and dividends increase retained earnings.
B) impact cash flows, while dividends do not.
C) are not on the income statement while dividends declared and paid are.
D) are on the income statement and dividends declared and paid are not.

Question 5

Which expense is associated with the use of patents?

A) Interest.
B) Amortization.
C) Cost of goods sold.
D) Depreciation.

Question 6

Which one of the following is an asset?

A) A patent of a company's secret formula for reverse osmosis.
B) Retained earnings.
C) Notes payable.
D) Accounts payable.

Question 7

Favre Company has current assets, shareholders' equity, current liabilities, and long-term liabilities of $8,000, $26,000, $4,000, and $8,000, respectively. How much are long-term assets?
a. $12,000
b. $30,000
c. $32,000
d. $46,000

Question 8

Long-term investments can include all of the following except:

A) notes receivable maturing in nine months.
B) equity securities of another company to be held for more than a year.
C) ten-year debt securities of another company.
D) land to be held beyond one year.

Question 9

Which one of the following equations represents retained earnings activity for a year?

A) Beginning balance + expenses - dividends = ending balance.
B) Beginning balance + cash receipts - cash payments = ending balance.
C) Beginning balance + dividends - net income = ending balance.
D) Beginning balance + net income - dividends = ending balance.

Question 10

Which one of the following groups of accounts contains only assets?

A) Contributed capital, retained earnings, revenues.
B) Cash, contributed capital, retained earnings.
C) Prepaid expenses, land, accounts receivable.
D) Building, equipment, depreciation expense.

Question 11

Which account is associated with the sale of inventory?

A) Cost of goods sold.
B) Depreciation.
C) Inventory expense.
D) Equipment.

Question 12

Desert Company has retained earnings of $12,000, total assets totaling $39,000, and total liabilities of $20,000. How much is total shareholders' equity?
a. $6,000
b. $17,000
c. $19,000
d. $27,000

Question 13

Which one of the following groups of accounts contains only assets?

A) Equipment, patents, accounts receivable.
B) Accounts receivable, building, retained earnings.
C) Accounts payable, notes payable, contributed capital.
D) Retained earnings, goodwill, and accounts payable.

Question 14

Which one of the following groups of accounts contains only current assets?

A) Inventory, accounts receivable, equipment.
B) Cash, equipment, copyrights.
C) Cash, accounts receivable, merchandise inventory.
D) Patents, copyrights, and trademarks.

Question 15

Which account is associated with borrowing money?

A) Interest expense.
B) Goodwill.
C) Cost of goods sold.
D) Depreciation.

Question 16

Intangible assets are:

A) goodwill, patents, copyrights, and trademarks.
B) property, plant, and equipment.
C) all assets except current assets.
D) those assets that an owner can purchase with cash only.

Question 17

Which one of the following appears on the income statement?

A) Inventory.
B) Retained earnings.
C) Dividends.
D) Interest revenue.

Question 18

Current assets are:

A) all assets except inventory.
B) all assets that provide benefits extending beyond one year.
C) cash, accounts receivable, and buildings.
D) all assets that are expected to be converted to cash in the near future.

Question 19

Valley Company has cash, current liabilities, and long-term liabilities of $110,000, $20,000, and $31,000, respectively. Valley has no current assets other than cash. How much cash can Valley use to acquire equipment so that amount of current assets is double the amount of current liabilities?
a. $10,000
b. $70,000
c. $91,000
d. $60,000

Question 20

Which expense is associated with long-term assets?

A) Dividends.
B) Depreciation.
C) Cost of goods sold.
D) Interest.

Question 21

When an entrepreneur wishes to start a business, capital must be attracted in the form of:

A) net income.
B) cost of goods sold.
C) operating activities.
D) equity or debt financing.

Question 22

Smith Corp. earned $200,000 profit during 2010. On which financial statement(s) will the exact dollar amount of the profit be clearly stated?

A) Statement of shareholders' equity and income statement.
B) Income statement only.
C) Balance sheet and income statement.
D) Statement of shareholders' equity, income statement, and the balance sheet.

Question 23

Property, plant and equipment may include which of the following?

A) Intangible assets and land.
B) Inventory and equipment.
C) Buildings and cash.
D) Land and office buildings.

Question 24

Below are several accounts from Norel Company's accounting records. The amount of retained earnings at the end of the year is:

A) $34,000.
B) $40,000.
C) $52,000.
D) $64,000.

Question 25

If the beginning and ending balances in retained earnings are $13,000 and $10,000, respectively, and dividends during the year are $10,000, then net income for the year is:
a. $14,000.
b. $7,000.
c. $18,000.
d. $32,000.

Question 26

Your bank loaned ten million dollars to Hamilton Stores to finance the construction of a manufacturing plant. In which section of Hamilton's statement of cash flows would you be able to determine whether the company used the cash to build the new plant?

A) Operating activities
B) Owner activities
C) Financing activities
D) Investing activities

Question 27

The amount a company expects to collect from its customers is:

A) accounts receivable.
B) short-term equity securities.
C) inventory.
D) accounts payable.

Question 28

Which one of the following statements is true?

A) A company's own stock is its most liquid asset.
B) Profits are normally kept in a company's retained earnings until distributed as dividends.
C) Long-term investments will be used to pay current liabilities.
D) Current assets have no physical substance.

Question 29

Why are liabilities separated into current and long-term?

A) Users want to know which amounts will be paid using current assets.
B) Because current and long-term classifications are just common sense.
C) This format helps a company determine how much profit was made.
D) The SEC requires companies to do so.

Question 30

Sanchez Corporation has total assets, current liabilities, and long-term liabilities of $38,000, $2,000, and $13,000, respectively. If Sanchez purchases equipment for $4,000 for cash, how much would shareholders' equity be?
a. $23,000
b. $10,000
c. $24,000
d. $11,000

Question 31

Most investors believe that the statement of cash flows is

A) a useful source of information regarding the cash flow of an entity.
B) the only statement in an annual report whose results correlates to stock price value.
C) too complicated.
D) a useful measure of a company's profit.

Question 32

Kelly Company has total assets, liabilities, and shareholders' equity of $30,000, $17,000, and $13,000, respectively at the beginning of 2010. If Kelly reports revenues of $130,000, expenses of $85,000, and pays dividends of $30,000, how much is shareholders' equity at the end of 2010?
a. $28,000
b. $53,000
c. $44,000
d. Not enough information to determine.

Question 33

The most common revenue account is:

A) cash.
B) sales.
C) shareholders' equity.
D) liabilities.

Question 34

On the balance sheet, a company should report the cost of intangible assets:

A) in the current assets section.
B) as an amount owed to shareholders.
C) as an amount that is estimated by the CFO.
D) at acquired cost less any accumulated amortization.

Question 35

Cash reported on a company's balance sheet represents

A) the profit a company made during the current year.
B) the amount the President of the Company has in his or her personal account.
C) the amount collected from customers during the current year less the amount paid for expenses.
D) the currency a company has access to at the balance sheet date.

Question 36

Which one of the following is considered an operating activity?

A) Payment to a vendor for supplies.
B) Purchase of company trucks for cash.
C) Payment of dividends to shareholders.
D) Issuing stock to investors.

Question 37

A partnership and a corporation differ in that:

A) a partnership is a legal entity, while a corporation is not.
B) the equity sections of partnership and corporation balance sheets report different items.
C) partnerships always have more cash than corporations.
D) a corporation has an income statement and a partnership does not.

Question 38

On which financial statements will you find a company's financial position at a specific point in time?

A) All financial statements combined.
B) Income statement and balance sheet.
C) Balance sheet and statement of shareholders' equity.
D) Balance sheet only.

Question 39

The acquisition of equity and debt financing is considered:

A) a financing activity.
B) net income.
C) an investing activity.
D) an operating activity.

Question 40

As used in accounting, "notes" may be reported:

A) only as company debt offerings.
B) only as assets on the balance sheet.
C) as either assets or liabilities.
D) on the income statement or the balance sheet.

Question 41

For each financial statement item listed in 1 through 7 below, identify in which balance sheet category (listed in a through h) it should be reported. You may use each letter more than once or not at all.

Question 42

Which one of the following is not an asset?

A) A company's equity in the common stock of another company.
B) A company's trademarked name for a process.
C) Retained earnings.
D) Notes receivable.

Question 43

For each financial statement item listed in 1 through 5 below, identify in which balance sheet category (listed in a through h) it should be reported. You may use each letter more than once or not at all.

Question 44

For each item numbered 1 through 6 below, identify which accounting element(s) listed in A through H each statement describes. You may use each letter more than once or not at all.

Question 45

At the beginning of 2010, Kristol Company sold stock and began operations. Information from Kristol's accounting records for the year ending December 31, 2010, follows:
A. Circle the names of any accounts above that would not be reported on the income statement.
B. Determine the amount of net income.

Question 46

Below are several amounts from Netcom Company's accounting records. Answer the questions that follow. A. Calculate the amount of retained earnings at the end of the year.
B. If revenue amounts to $220,000, how much is 'total expenses'?
C. How do you know the company has been profitable since it began operations?

Question 47

The information below was taken from the 2010 annual report of Jena Corporation. Which of the following is the missing amount for the net cash flow from investing activities for 2008?

A) $4,053
B) $9,947
C) $19,827
D) $2,447

Question 48

Seuss Company determined its total sales were $535,000, salaries expense was $210,000, dividends paid were $15,000, rent expense was $25,000, other operating expenses were $13,000, and customers still owed $4,000 at the end of the year. How much is net income for the year?
a. $267,000.
b. $287,000.
c. $263,000.
d. $530,000.

Question 49

For each financial statement item listed in 1 through 5 below, identify the best description by selecting from items a through f below. You may use each letter more than once or not at all. Write the letter 'X' for each item for which no description is listed.

Question 50

For each statement listed in 1 through 5 below, state whether it is correct or not by writing 'Yes' or 'No' in the space provided.
.

Question 51

The amount reported on a company's balance sheet as retained earnings is the same as the amount reported on the company's:

A) income statement as net income.
B) statement of shareholders' equity as beginning retained earnings.
C) statement of cash flows as cash received from operating activities.
D) statement of shareholders' equity as ending retained earnings.

Question 52

The information below was taken from the 2010 annual report of Jena Corp. Which of the following is the missing amount for the beginning cash balance for 2009?

A) $5,925
B) $8,741
C) $12,478
D) $5,282

Question 53

The information below was taken from the 2010 annual report of Jena Corp. Which of the following is the missing amount for the ending cash balance for 2009?

A) $2,759
B) $7,158
C) $12,703
D) $11,596

Question 54

For items 1 through 3, select the appropriate section of the balance sheet in which the item would be reported.

Question 55

The information below was taken from the 2010 annual report of Jena Corp. Which of the following is the missing amount for the net cash flow from operating activities for 2009?

A) $8,110
B) $4,400
C) $8,475
D) $3,874

Question 56

Following are several items from Arbor Company's financial statements. Use this information to calculate the amounts for the questions that follow. A. Calculate the dollar amount of net income.
B. How much is inventory expense?
C. Was the company profitable during the current year? How do you know?

Question 57

Given below are several accounts from Caterpillar Company's accounting records. Net income for the year was $37,000. How much is total shareholders' equity at the end of the year?
a. $86,000.
b. $82,000.
c. $87,000.
d. $79,000.

Question 58

For each statement listed in 1 through 5 below, state whether it is correct or not by writing 'Yes' or 'No' in the space provided.
.

Question 59

Given below are several accounts from Kramer Company's accounting records. Net income for the year was $20,000. How much is total shareholders' equity at the end of the year?

Question 60

The information below was taken from the 2010 annual report of Jena Corp. Which of the following is the missing amount for the net cash flow from financing activities for 2010?

A) ($21,994)
B) ($9,050)
C) ($1,120)
D) ($14,085)

Question 61

What business aspect does the income statement measure?

Question 62

What business aspect does the statement of shareholders' equity measure?

Question 63

If cash flows from operating activities were $3,000, cash outflows for financing activities were $2,500, and the net increase in cash was $5,000, how much are cash flows from investing activities?

Question 64

The following is the balance sheet of Able Corporation immediately prior to deciding how to finance the purchase of a $300 addition to its building. The bonds payable contract agreement requires current assets to be twice as much as current liabilities. Assume the $300 addition to the building is to be paid in cash and financed by issuing more stock. Calculate and explain the maximum cash that Able can pay and still honor its debt agreement.

Question 65

Use the information provided from Haloid Company's accounting records to answer questions 6 and 7.
For the Years Ended December 31, 2010, and 2009
How is it possible that Haloid reports "property" in two different places on its balance sheet?

Question 66

Give an example of a prepaid expense. Why would a company use this account?

Question 67

Describe operating activities.

Question 68

Explain the concept of liquidity.

Question 69

Which asset is more liquid, inventory or accounts receivable? Why?

Question 70

Below is all of the account information from Chamber Company's balance sheet, with the exception of Retained Earnings. Using this information, please calculate the following:
A. The total amount of retained earnings for Chamber Company.
B. The total amount of shareholders' equity for the company at the end in the year.

Question 71

Which business activity occurs first for a business? Why does this business activity occur first?

Question 72

Use the information that follows concerning Ulrich Computer for the year ending December 31, 2010 for problems 7 through 10.
Several accounts and amounts from the financial statements of Ulrich Computer appear below for the year ending December 31, 2010.
How much must Ulrich pay out during its next accounting period for amounts owed?

Question 73

Autry Company determined its total sales were $380,000, salaries expense was $120,000, dividends paid were $8,000, rent expense was $14,000, other operating expenses were $20,000, and customers still owed $2,000 at the end of the year. How much is net income for the year?

Question 74

Use the information that follows concerning Ulrich Computer for the year ending December 31, 2010 for problems 7 through 10.
Several accounts and amounts from the financial statements of Ulrich Computer appear below for the year ending December 31, 2010.
Calculate Ulrich's total current assets.

Question 75

The following information is shown on Morris Company's balance sheet. Answer the questions that follow. A. How much did debt investors provide to Morris Company?
B. What is the amount of money provided by equity investors to Morris Company?
C. How much would be classified as property, plant, and equipment?

Question 76

Use the information provided from Haloid Company's accounting records to answer questions 6 and 7.
For the Years Ended December 31, 2010, and 2009
Comment on the following statement: "On December 31, 2010, Haloid's accounts payable exceeds its cash by $5. If Haloid needs additional money to pay its accounts payable, it can use the $125 stashed in its retained earnings".

Question 77

The following are account balances of Phineas Company on 12/31/10.
Prepare a classified balance sheet for Phineas Company on December 31, 2010.

Question 78

Use the information that follows concerning Ulrich Computer for the year ending December 31, 2010 for problems 7 through 10.
Several accounts and amounts from the financial statements of Ulrich Computer appear below for the year ending December 31, 2010.
What is the total amount owed to Ulrich by its customers at the end of 2010?

Question 79

Use the information that follows concerning Ulrich Computer for the year ending December 31, 2010 for problems 7 through 10.
Several accounts and amounts from the financial statements of Ulrich Computer appear below for the year ending December 31, 2010.
Calculate total expenses for Ulrich.

Question 80

The following is the balance sheet of Columbus Corporation immediately prior to deciding how to finance the purchase of an additional $200,000 parcel of land. Answer the question that follows. REQUIRED: Columbus will finance the $200,000 investment in land by issuing either $200,000 of common stock or using $200,000 of additional accounts payable that will be due in 90 days. Indicate which method of financing is preferable for Columbus. Consider the effects on short-term solvency positions.