Question 1

Miko is preparing her homework for her accounting class.She is uncertain as to the proper handling of patents and copyrights on a firm's financial statements.Which of the following is correct?

Accepted Answer

Patents and copyrights are considered intangible assets and should be included in the same category on the balance sheet as other types of intangible assets, such as trademarks or goodwill. They should not be included as long-term liabilities, cost of goods sold, or fixed assets.

Question 2

The Balance Sheet for Renuvation LLC shows assets totaling $107,000 and liabilities totaling $75,000.Which of the following statements is correct?

Accepted Answer

The balance sheet equation is Assets = Liabilities + Owner's Equity. Therefore, Owner's Equity = Assets - Liabilities, which in this case is $107,000 - $75,000 = $32,000. Therefore, option D is correct. Option A is incorrect because it is not possible for Owner's Equity to be larger than the total assets. Option B is incorrect because it presents a specific figure for current assets, which cannot be determined from the information given. Option C is incorrect because there is no information provided about net income.

Question 3

At the time the Jepson Plumbing Supply prepared its financial statements,it had several customers who bought goods over the past three months on its "90 days same as cash" credit plan.These customers had not yet paid their bills,but they have good credit ratings and Jepson is confident that they will make their payments on time.The amount these credit customers owe would show up as part of the:

Accepted Answer

The amount owed by the credit customers would be part of Jepson's accounts receivable, which is a current asset and would be listed on the balance sheet.

Question 4

Green Living Construction Company installs solar panels in large newly constructed buildings.The company employs several expert installers who work on a full-time basis.Although the installers work everyday,the company pays them at the end of the month,for the previous month's work.Employee salaries are recorded as ___________ on Green Living's Balance Sheet.

Accepted Answer

Employee salaries that have been earned but not yet paid are recorded as current liabilities on the balance sheet. This is because they represent a debt that the company owes to its employees and are expected to be paid within a year.

Question 5

In the Making Ethical Decisions box titled,"Barking-Up the Wrong Financial Statement," the situation provides the student with an ethical dilemma that might present itself to an accounting professional.The story focuses on: Is it ethical to __________________________

Accepted Answer

The ethical dilemma focuses on the timing of accounting for sales and profits, which can mislead stakeholders about the company's financial performance.

Question 6

Which of the following would be classified as a general expense on an income statement?

Accepted Answer

The answer of Which of the following would be classified...

Question 7

Blast-off Airlines is a recent start-up commuter airline that flies between eight regional cities on the east coast.Although it has attracted numerous investors who see value in the company's service,it does not pay dividends.Last year,the firm claimed profits of $4,800,000,which will be used to purchase an additional commuter plane.The Balance Sheet accounts that will show this affect are:

Accepted Answer

The profits of $4,800,000 will be retained by the company to purchase an additional commuter plane. This will increase the company's fixed assets (planes), while the profits will be added to the retained earnings account on the Balance Sheet. Therefore, the correct accounts that will show this effect are retained earnings and fixed asset accounts.

Question 8

Rapidly growing companies often buy increasing amounts of merchandise from suppliers on credit,and then sell the goods to their customers on credit.These companies sometimes have difficulty repaying their suppliers when customers who buy on credit don't pay on time.Firms that experience this difficulty need to do a better job of:

Accepted Answer

The issue described in the scenario is a cash flow management problem, as the company is struggling to repay suppliers due to delays in receiving payment from customers. Therefore, the best choice is managing cash flows. While generating revenue and controlling inventory are important aspects of managing a growing company, in this scenario, they do not directly address the problem at hand. Additionally, balancing assets with liabilities is a broad concept that may not specifically address the cash flow problem.

Question 9

When creating the income statement,which of the following statements is accurate?

Accepted Answer

The correct formula for calculating gross profit is revenues minus cost of goods sold.

Question 10

Scott Drilling Contractors recently issued a corporate bond on which it expects to pay interest for the next twenty years.Scott would record this as a __________ on its balance sheet.

Accepted Answer

Scott Drilling Contractors would record the corporate bond as a long-term liability on its balance sheet. A liability is a debt owed by the company, and a long-term liability is a debt that will not be repaid within the next year. The bond represents a long-term debt obligation for the company, and the interest payments will be recorded as an expense.

Question 11

Bridget Cartier has privately invested $100,000 in Jacques and Jacqueline's Idaho Ski Resort.The business will use the money to purchase new ski lift chairs.$100,000 will be recorded on the balance sheet as part of the owners' equity account.In order to keep the accounts balanced,the balance sheet will also show:

Accepted Answer

Since the $100,000 is being used to purchase a fixed asset (the ski lift chairs), it should be recorded as such on the balance sheet. There is no increase in cash or liability, and accounts receivable does not apply in this situation.

Question 12

During a period of rising prices,using FIFO first in,first out)inventory valuation method will result in ________ net income figures than would LIFO last in,first out).

Accepted Answer

The answer of During a period of rising prices,using FIFO...

Question 13

Use the fundamental accounting equation to solve the following: Assets minus liabilities equals:

Accepted Answer

The fundamental accounting equation is Assets = Liabilities + Owners' Equity. Therefore, Assets minus liabilities would equal Owners' Equity.

Question 14

In the Spotlight on Small Business box titled,"What's Coming and Going at the College Bookstore?" the passage explained that accounting for profits may differ,depending upon___________________.

Accepted Answer

The passage explains that accounting for profits may differ depending on the accounting method used to calculate the cost of inventory, as different methods can lead to variations in reported profits.

Question 15

Meg Malloy is running an income statement on her QuickBooks™ computer accounting program.Which of the following accounts will be used to calculate gross profit?

Accepted Answer

Gross profit is calculated by subtracting cost of goods sold from revenues. Therefore, only revenues and cost of goods sold are needed to calculate gross profit. The other accounts listed in the answer choices are not used in calculating gross profit.

Question 16

Many business decisions are made in hopes of improving a firm's "bottom line." Which of the following financial statements will reveal a firm's "bottom line"?

Accepted Answer

The income statement is a financial statement that shows a company's revenues and expenses over a specified period of time, typically a quarter or a year. It calculates the "bottom line" or net income by subtracting expenses from revenues. Therefore, the income statement is the best financial statement to reveal a firm's "bottom line."

Question 17

When reviewing the Balance Sheet for Preferred Pet Care,Inc. ,a mobile small animal care business,Julian noted the following information: Company assets totaling $3.5 million,and liabilities totaling $1.3 million.On paper,the net worth owner's equity)for this business = ____________.

Accepted Answer

To find the net worth or owner's equity, we need to subtract the total liabilities from the total assets. 
Net worth = Assets - Liabilities 
Net worth = $3.5 million - $1.3 million 
Net worth = $2.2 million 
Therefore, the answer is choice A) $2.2 million.

Question 18

A company's income statement is important to accountants and other stakeholders.It reveals:

Accepted Answer

The income statement shows a company's revenue, expenses, and net income (or loss). This provides insight into a company's ability to generate and sustain profits over time.

Question 19

During a period of rising prices,if a firm desires to report a low gross profit figure in hopes of reducing their income tax liability,the firm will use the __________ inventory valuation method.

Accepted Answer

LIFO assumes that the most recent inventory items purchased are the first ones sold, which would result in a higher cost of goods sold and a lower gross profit figure during a period of rising prices. This lower gross profit figure would result in a lower taxable income and therefore, a lower income tax liability for the firm.

Question 20

Retailers attempt to sell older merchandise before more recently acquired merchandise is sold.The assumptions made by the __________ method of inventory valuation are most consistent with this approach.

Accepted Answer

The answer of Retailers attempt to sell older merchandise before...

Quiz 17: Understanding Accounting and Financial Information