Question 1

The statement of changes in equity is dependent on the results from
A)the statement of cash flows.
B)the statement of financial position.
C)the income statement.
D)a company's share capital.

Accepted Answer

The statement of changes in equity shows the changes in a company's equity during a specific period, and is derived from the net income (or loss) reported on the income statement. Therefore, the statement of changes in equity is dependent on the income statement. The statement of cash flows and the statement of financial position provide important information about a company's financial position, but they are not directly used in the preparation of the statement of changes in equity. The amount of share capital may be shown on the statement of changes in equity, but it is not a determining factor in the preparation of the statement.

Question 2

Shareholders' equity can be described as claims of
A)creditors on total assets.
B)owners on total assets.
C)customers on total assets.
D)debtors on total assets.

Accepted Answer

Shareholders' equity represents the claims of the owners (shareholders) on the total assets of the company. It is the residual interest in the assets of the company after deducting liabilities. It is also known as net assets or book value of the company. Therefore, option B is the best choice. The other options are incorrect as they represent the claims of creditors, customers, and debtors on the total assets, respectively.

Question 3

The statement of financial position and statement of changes in equity are related because
A)the total assets on the statement of financial position is reported on the statement of changes in equity.
B)the ending amount on the statement of changes in equity is reported on the statement of financial position.
C)the ending amount on each statement is transferred to the statement of cash flows.
D)both contain information for the corporation.

Accepted Answer

The ending amount on the statement of changes in equity is reported on the statement of financial position because the total equity of the company is reported as a component of the company's total assets. Therefore, the ending amount of equity reported on the statement of changes in equity must be included in the statement of financial position.

Question 4

The primary purpose of the statement of cash flows is to report
A)a company's investing transactions.
B)a company's financing transactions.
C)information about cash receipts and cash payments of a company.
D)the net increase or decrease in cash.

Accepted Answer

The statement of cash flows provides information about the cash receipts and cash payments of a company, which includes operating, investing, and financing activities. Its main purpose is to show the sources and uses of cash during a given period and to explain the changes in cash and cash equivalents on the balance sheet. While it does report investing and financing transactions, its primary focus is on the cash flows related to these activities. The net increase or decrease in cash is also shown in the statement of cash flows as the ending cash balance.

Question 5

The statement of financial position
A)summarizes the changes in shareholders' equity for a specific period of time.
B)reports the changes in assets, liabilities, and shareholders' equity over a period of time.
C)reports the assets, liabilities, and shareholders' equity at a specific date.
D)presents the revenues and expenses for a specific period of time.

Accepted Answer

The statement of financial position, also known as the balance sheet, reports the assets, liabilities, and shareholders' equity at a specific date. It provides a snapshot of the company's financial position at that moment in time. It does not summarize changes in shareholders' equity over a period of time (option A), report changes in assets, liabilities, and shareholders' equity over a period of time (option B), or present revenues and expenses for a specific period of time (option D).

Question 6

Retained earnings are
A)the shareholders' claim on total assets.
B)equal to cash.
C)equal to revenues.
D)the amount of profit kept in the corporation for future use.

Accepted Answer

Retained earnings are the amount of profit that a corporation chooses to keep in the company for future use or to reinvest in the business. It is not the shareholders' claim on total assets, equal to cash, or equal to revenues.

Question 7

Shareholders' equity is usually comprised of
A)common shares and dividends.
B)common shares and retained earnings.
C)dividends and retained earnings.
D)profit and retained earnings.

Accepted Answer

Shareholders' equity represents the owners' claim on the assets of the company. It is usually comprised of common shares, which represent the owners' investment in the company, and retained earnings, which are the profits that have been kept in the company rather than paid out as dividends to shareholders. Therefore, the best choice for the composition of shareholders' equity is common shares and retained earnings (choice B). Dividends are payments made to shareholders out of the profits of the company, so they are not typically included in the shareholders' equity calculation. Profit is a component of retained earnings, so it is not a separate component of shareholders' equity.

Question 8

Which financial statement would indicate whether the company relies more on debt or on shareholders' equity to finance its assets?
A)Statement of cash flows
B)Statement of changes in equity
C)Income statement
D)Statement of financial position

Accepted Answer

The statement of financial position (also known as the balance sheet) shows the company's assets and how they are financed, either through liabilities (debt) or shareholders' equity. The liabilities and equity sections of the statement indicate the amounts owed to creditors and investors, respectively, and thus provide insight into the company's reliance on debt versus equity financing.

Question 9

Which of the following financial statements is concerned with the company at a point in time?
A)Statement of financial position
B)Income statement
C)Statement of changes in equity
D)Statement of cash flows

Accepted Answer

The statement of financial position, also known as the balance sheet, provides a snapshot of the company's assets, liabilities, and equity at a specific point in time. It does not show the performance of the company over a period of time, which is the focus of the income statement, statement of changes in equity, and statement of cash flows.

Question 10

Payments to shareholders are called
A)expenses.
B)liabilities.
C)dividends.
D)shares.

Accepted Answer

Payments to shareholders are commonly known as dividends.

Question 11

If total liabilities decreased by $45,000 during a period of time and shareholders' equity increased by $27,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total assets is a(n)
A)$45,000 increase.
B)$27,000 increase.
C)$18,000 decrease.
D)$18,000 increase.

Accepted Answer

The accounting equation is Assets = Liabilities + Shareholders' Equity. If liabilities decreased by $45,000 and shareholders' equity increased by $27,000, then there must have been a decrease in assets of $18,000 ($45,000 - $27,000 = $18,000) to balance the equation. Therefore, the answer is C, an $18,000 decrease.

Question 12

Common shares are reported on
A)the statement of financial position.
B)the statement of changes in equity.
C)both the statement of financial position and the income statement.
D)both the statement of changes in equity and the statement of financial position.

Accepted Answer

Common shares are reported both on the statement of changes in equity and the statement of financial position as they represent ownership interest in the company and have an impact on equity.

Question 13

The statement of cash flows and the statement of financial position are interrelated because
A)the ending amount of cash on the statement of cash flows must agree with the amount on the income statement.
B)the ending amount of cash on the statement of cash flows must agree with the amount in the statement of changes in equity.
C)the ending amount of cash on the statement of cash flows must agree with the amount in the statement of financial position.
D)both disclose the corporation's profit.

Accepted Answer

The statement of cash flows and the statement of financial position are interrelated because the ending amount of cash on the statement of cash flows must agree with the amount in the statement of financial position. The statement of financial position shows the assets, liabilities, and equity of a company at a specific point in time, including the amount of cash the company has on hand. The statement of cash flows shows how cash has been generated and used during a specific period, resulting in the ending amount of cash on hand, which should match the amount on the statement of financial position.

Question 14

Common shares represent
A)the creditors' claims on the company.
B)the total profit of the company to date.
C)the amount paid by investors for ownership in the company.
D)the owners' claims on the company.

Accepted Answer

The answer of Common shares represent
A)the creditors' claims on the...

Quiz 1: Introduction to Financial Statements

The statement of changes in equity is dependent on the results from

Shareholders' equity can be described as claims of

The statement of financial position and statement of changes in equity are related because

The primary purpose of the statement of cash flows is to report

The statement of financial position

Retained earnings are

Shareholders' equity is usually comprised of

Which financial statement would indicate whether the company relies more on debt or on shareholders' equity to finance its assets?

Which of the following financial statements is concerned with the company at a point in time?

Payments to shareholders are called

If total liabilities decreased by $45,000 during a period of time and shareholders' equity increased by $27,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total assets is a(n)

Common shares are reported on

The statement of cash flows and the statement of financial position are interrelated because

Common shares represent