Question 1

The financial statement that provides information about a firm's operating, investing, and financing activities during an accounting period is the

Accepted Answer

The cash flow statement reports a company's cash inflows and outflows during a specified period, providing information on its operating, investing, and financing activities. The balance sheet reports a company's financial position at a specific point in time, the income statement reports a company's revenues and expenses over a given period, the retained earnings statement shows the changes in a company's retained earnings over time, and there is no widely recognized financial analysis statement.

Question 2

The cash at the end of the year reported on the statement of cash flows is the same as the

Accepted Answer

The cash at the end of the year reported on the statement of cash flows represents the cash balance of the firm at the end of the accounting period. This amount should be the same as the cash amount reported on the firm's balance sheet, as both reports reflect the same cash balance of the firm.

Question 3

The cash that Coca-Cola receives from providing customers with Coke and other soft drinks and juices would appear in the ____ section of the statement of cash flows.

Accepted Answer

The cash received from providing customers with Coke and other soft drinks and juices is a result of operating activities, which means it belongs to the operating section of the statement of cash flows. The operating section includes cash inflows and outflows that are related to the company's main business activities.

Question 4

Schluster Hardware, Inc., had a gross profit of $380,000, operating expenses of $210,000, and income taxes of $48,000. What is Schluster's net income after taxes?

Accepted Answer

Net income is calculated by subtracting operating expenses and income taxes from gross profit: $380,000 - $210,000 - $48,000 = $122,000.

Question 5

The current ratio is calculated by dividing

Accepted Answer

The current ratio is a measure of a company's ability to pay off its short-term liabilities with its current assets. It is calculated by dividing current assets by current liabilities. Therefore, the correct choice is B. Choices A, C, D, and E are incorrect as they do not involve the correct calculation for the current ratio.

Question 6

If you are taking a common sense approach to evaluating a firm's accounting information, which of the following would not be something that you would hope to see?

Accepted Answer

Paying great attention to current profit and not worrying about the future is not a sound approach to evaluating a firm's accounting information as it neglects the long-term sustainability and growth of the company. Instead, a common sense approach would involve evaluating the company's financial statements audited by an outside source, remembering that a balance sheet is only a snapshot in time, analyzing strategies to reduce operating expenses, and understanding how the company manages its cash flow.

Question 7

General Motors decides to close one of its manufacturing plants in the Midwest. GM sells the facility to a new foreign automobile manufacturer. The money GM receives from this sale would belong in the ____ section of the statement of cash flows.

Accepted Answer

The money received from the sale of a manufacturing plant would belong in the investing section of the statement of cash flows, as it represents a significant investment activity. The operating section deals with the company's day-to-day, routine operations, while the selling section would include revenues from the company's primary products or services. The financing section includes activities such as issuing or repurchasing stocks, bonds, and other forms of financing. Therefore, the investing section is the best choice for this scenario.

Question 8

Commonly used in accounting analysis, a ____ shows a relationship between two elements of a firm's financial statements.

Accepted Answer

Financial ratios are used in accounting analysis to show the relationships between different elements of a firm's financial statements, such as the relationship between a company's current assets and current liabilities (current ratio), or the relationship between a company's net income and the value of its common stock (price-to-earnings ratio). These ratios help analysts and investors evaluate a company's financial health and make informed decisions about investing in the company.

Question 9

Which of the following statements is false?

Accepted Answer

The statement D is false because while there may be minor differences in presentation, the format and information in financial statements are generally consistent across firms due to the adherence to accounting standards such as GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards). These standards ensure that financial statements are somewhat uniform and comparable across different firms.

Question 10

Intel decides to issue new stock in order to build a new facility and expand its operations. The receipt of cash from this stock issue would appear in the ____ section of the statement of cash flows.

Accepted Answer

The receipt of cash from issuing new stock represents a financing activity, and therefore would appear in the financing section of the statement of cash flows.

Question 11

What are the three activities according to which a statement of cash flows is organized?

Accepted Answer

The statement of cash flows is organized into three activities: operating, investing, and financing. The operating activities include cash transactions related to revenue and expense activities. The investing activities include cash transactions related to investments in long-term assets, such as property, plant, and equipment. The financing activities include cash transactions related to financing the business, such as issuing or repaying debt, paying dividends, and issuing or buying back stock. Option E includes the correct activities.

Question 12

For the previous year, Sambino's Italian Restaurant had a total of $320,000 in expenses and $295,000 in revenues. Sambino's

Accepted Answer

The difference between revenues and expenses is the net income (or net loss) for the year. In this case, subtracting $295,000 in revenues from $320,000 in expenses results in a net loss of $25,000 for the year.

Question 13

The statement of cash flows for a business offers information on all of the following except

Accepted Answer

The statement of cash flows provides information about the cash inflows and outflows from operating, investing, and financing activities, not about expenses during a particular accounting period, which are reported on the income statement.

Question 14

Which section of the statement of cash flows would show Wendy's payments for food ingredients and wages paid to employees?

Accepted Answer

Cash flows from operating activities show the cash inflows and outflows related to a company's primary business activities, such as payments for food ingredients and wages paid to employees.

Question 15

APSCO Lighting, Inc., had a gross profit of $234,000 for the last twelve-month period. Operating expenses were $185,000. What was APSCO's net income before taxes?

Accepted Answer

We can use the formula: Net Income = Gross Profit - Operating Expenses
Substituting given values, we get:
Net Income = $234,000 - $185,000
Net Income = $49,000
Therefore, the net income before taxes for APSCO Lighting, Inc. was $49,000. Option D is the correct answer.

Question 16

Wallace Plumbing Company had income from operations of $110,000. It paid federal income taxes of $26,000. What was the firm's net income after taxes?

Accepted Answer

The firm's net income after taxes is calculated by subtracting the federal income taxes from the income from operations: $110,000 - $26,000 = $84,000.

Question 17

The ratio obtained by dividing net income after taxes by net sales is the

Accepted Answer

The ratio obtained by dividing net income after taxes by net sales is commonly known as the return on sales ratio. It measures the overall profitability of a company's operations by indicating the amount of profit generated for each dollar of sales.

Question 18

Which of the following best describes the organization of a statement of cash flows?

Accepted Answer

The organization of a statement of cash flows typically involves categorizing cash flows into three main sections: operating, investing, and financing. This helps provide a clear overview of the sources and uses of cash for a business over a given period of time. Option A describes the accounting equation, B describes the formula for calculating net income, D and E oversimplify the concept of cash flows.

Question 19

As the accountant for Marston Retail Stores, you must calculate the current ratio for the firm's last accounting period. The firm's current assets were $120,000, its fixed assets were $240,000, its current liabilities were $80,000, and its long-term liabilities were $60,000. Given these facts, what is the firm's current ratio?

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. Therefore, the current ratio for Marston Retail Stores is $120,000 / $80,000 = 1.5.

Question 20

Since business has been rapidly expanding, A Shot of Sugar Bakery decides to purchase a second industrial oven. The cash paid for this oven would be listed in the ____ section of the statement of cash flows.

Accepted Answer

The purchase of an industrial oven is a capital expenditure and falls under the investing activities section of the statement of cash flows. This section shows cash flows related to the acquisition and disposal of long-term assets and investments that are not considered to be current assets or current liabilities.

Quiz 17: Using Management and Accounting Information