Question 1

Xavier wants to know how much his company owns and how much it owes. He should look at the

Accepted Answer

The balance sheet shows the assets, liabilities, and equity of a company at a specific point in time. It will provide Xavier with the information he needs to see how much his company owns (assets) and how much it owes (liabilities). The income statement and statement of cash flows show different aspects of a company's financial performance. The asset list only provides information on the company's assets, but not its liabilities.

Question 2

For Webster to understand how his company performed during calendar year 2018, he must begin with the firm's financial position on

Accepted Answer

To properly assess the company's performance throughout the entire year, Webster must start with the beginning of the year's financial position. January 1, 2018, represents the first day of the calendar year and has no relevance to the previous year's results, making it the best choice for evaluating the company's performance in the current year.

Question 3

Buildings and machinery are considered to be _____ assets.

Accepted Answer

Buildings and machinery are long-term, non-current assets that are expected to last for many years and are not easily convertible into cash. Therefore, they are classified as fixed assets on a balance sheet.

Question 4

Candace purchased a car for her company's exclusive use. The value of this car

Accepted Answer

The value of a car decreases over time due to wear and tear, depreciation, and market factors.

Question 5

Raul needed an expensive piece of equipment to expand his business. He borrowed the money from the bank and pledged the equipment as _____. If Raul does not repay the loan, the bank can take his equipment.

Accepted Answer

Collateral refers to the property or asset that is used as security for a loan. In this case, Raul pledged the equipment as collateral for the loan. If he fails to repay the loan, the bank can seize the equipment to recover their losses. Promissory note is a written promise to pay a sum of money to a specific person or organization at a specified time in the future. Depreciable asset is an asset that loses value over time due to wear and tear or obsolescence. Long-term debt refers to a financial liability that extends beyond one year.

Question 6

When Darla prepares her company's balance sheet, she should include _____ in the list of current assets.

Accepted Answer

The list of current assets on a balance sheet typically includes assets that are expected to be converted into cash within one year, such as cash and cash equivalents, short-term investments, inventory, and accounts receivable. Equipment, land, and leased property are typically considered long-term assets and would not be included in the current assets section.

Question 7

The income statement answers which of the following questions?

Accepted Answer

The income statement shows the revenues, expenses, and net income (or net loss) of the business during a specific period, thus it answers the question of how profitable the business is. It does not provide information on cash generation, liabilities, or owner investments.

Question 8

Stephanie ordered merchandise from one of her vendors, but she doesn't have to pay for it right away. The amount of this purchase will increase Stephanie's

Accepted Answer

Since Stephanie doesn't have to pay for it right away, the purchase is considered a liability and will increase her accounts payable.

Question 9

Eugenia's company bought a delivery truck to deliver merchandise to customers. This truck should appear as _____ on the balance sheet.

Accepted Answer

The truck is a fixed asset as it is a long-term asset that will be used for a significant period of time to help the company earn revenue. It is not a current asset as it is not expected to be sold or converted into cash within a year, and it is not inventory as it is not a finished good waiting to be sold. It is also not a short-term investment as it is not held for the purpose of generating a quick return.

Question 10

Richard has in his warehouse some raw materials and finished goods that he has ready to fill customer orders. These are two types of

Accepted Answer

Raw materials and finished goods that are on hand and available for sale or distribution are considered inventory. Accounts payable and accounts receivable refer to transactions involving money owed to and from a business, while cost of goods is the cost of producing the goods sold.

Question 11

Denver wants to make sure he puts his company's assets in the correct categories. Which of the following is an example of a current asset?

Accepted Answer

Inventory is considered a current asset because it is expected to be sold or used within a year. Land, equipment, and buildings are considered fixed assets as they are expected to last for longer than a year.

Question 12

Which of the following assets would considered an other asset?

Accepted Answer

Goodwill is considered an "other asset" as it is an intangible asset that arises when a company acquires another business.

Question 13

A two-year-old asset has a useful life of 10 years. Its initial purchase cost was $450,000, and it is depreciated by 10 percent annually. What is the remaining depreciable value of the asset?

Accepted Answer

The annual depreciation amount is calculated as 10% of the initial purchase cost, which is $45,000 ($450,000 x 0.1). After two years, the accumulated depreciation would be $90,000 ($45,000 x 2). The remaining depreciable value can be found by subtracting the accumulated depreciation from the initial purchase cost: $450,000 - $90,000 = $360,000. Therefore, the remaining depreciable value of the asset is $360,000.

Question 14

Ignatio applied for a loan for his business that he will repay in nine months. The best way to describe this loan is as a(n)

Accepted Answer

A loan that is expected to be repaid in less than a year is considered a short-term note. Accounts payable refers to money owed by a business to its creditors for goods or services purchased on credit, while accrued expenses refer to expenses that have been incurred but not yet paid. A long-term note, on the other hand, is a loan that is expected to be repaid in more than a year.

Question 15

For investment purposes, Wilma needs a snapshot of the firm's financial position at a specific point in time. She should look at the

Accepted Answer

The balance sheet provides a snapshot of a firm's financial position at a specific point in time by listing its assets, liabilities, and equity. This information is crucial for investors in making decisions about whether to invest in a company. The marketing plan, statement of cash flows, and income statement do not provide the same level of detail about a company's financial position.

Question 16

Martina invested her savings into her business when she started it. Later she added more capital, and she has kept some of her profits. Together, these are known as

Accepted Answer

The funds that Martina invested into her business, the additional capital she added, and the profits she has kept all contribute to her ownership stake in the business. This is known as owners' equity.

Question 17

The debts that Rhonda's company will repay within the next _____ are considered to be current debt.

Accepted Answer

According to generally accepted accounting principles (GAAP), debts that are expected to be fully repaid within 12 months are considered to be current debt.

Question 18

On the income statement, profit margins are expressed as a percentage of

Accepted Answer

Profit margins on the income statement are expressed as a percentage of sales, which represents the revenue generated by the company. This percentage indicates how much profit the company is making for every dollar of sales generated. Therefore, option D is the correct answer.

Question 19

XYC Corporation pays its income taxes quarterly but withholds payroll taxes from its employees' paychecks each week. Until the taxes are actually paid to the IRS, they appear on the balance sheet as

Accepted Answer

Income taxes and payroll taxes withheld from employees' paychecks are considered liabilities until they are paid to the IRS. Therefore, the correct answer is C) a liability.

Question 20

Astoria is using a software application to prepare the balance sheet. Which of the following should be included in the fixed assets category?

Accepted Answer

Fixed assets are assets that have a long useful life and are not intended for sale in the normal course of business operations. Land is a long-term asset and is not expected to be sold in the normal course of business operations, therefore it should be included in the fixed assets category. Copyrights, contingency funds, and goodwill, on the other hand, are not fixed assets. Copyrights are intangible assets, contingency funds are cash reserves, and goodwill is a type of intangible asset that represents the value of a business over and above its identifiable assets and liabilities.

Quiz 10: Understanding a Firms Financial Statements