Question 1

The company's annual report is contained within the company's 10-K filing with the Securities Exchange Commission.

Accepted Answer

The annual report is a part of the company's 10-K filing with the Securities Exchange Commission (SEC).

Question 2

Current assets include all of the following: cash,inventory,equipment,supplies,and accounts receivable.

Accepted Answer

Equipment is not considered a current asset; it is classified as a long-term asset because it is expected to be used for more than one year. Current assets typically include cash, inventory, supplies, and accounts receivable, which are expected to be converted into cash within a year.

Question 3

One primary purpose of a classified balance sheet is to help users evaluate the working capital of a company.

Accepted Answer

A classified balance sheet separates a company's assets, liabilities, and equity into current and non-current categories, thereby allowing users to easily evaluate the company's working capital, which is the amount of current assets minus current liabilities.

Question 4

Three common categories of long-term assets are: 1)property,plant,and equipment,2)long-term investments,and 3)intangibles.

Accepted Answer

This statement is true.

Question 5

A Classified balance sheet is to help users determine how a company obtained its resources.

Accepted Answer

A classified balance sheet provides information about a company's assets, liabilities, and equity, which helps users understand how the company obtained its resources and how it is using them. The balance sheet is classified by current vs. non-current assets and liabilities, which gives more detail and insight into a company's financial position.

Question 6

A company with healthy cash flows from operating activities is in a good position to repay its debts.

Accepted Answer

Cash flows from operating activities provide a company with the necessary funds to pay off its debts. Therefore, if a company has a healthy cash flow from operating activities, it is more likely to be able to repay its debts.

Question 7

The purpose of financial reporting is to provide economic information to investors,creditors,and other financial statement users.

Accepted Answer

Financial reporting provides information about the financial performance and position of a company, which is important to investors, creditors, and other stakeholders in making decisions about investing, lending, or providing credit to the company.

Question 8

The Statement of Cash Flows,like the Income Statement,reports only operating activities and other activities of a company.

Accepted Answer

The Statement of Cash Flows reports the operating, investing, and financing activities of a company.

Question 9

The ending cash balance is shown on the Balance Sheet and the Statement of Retained Earnings.

Accepted Answer

The ending cash balance is shown on the Balance Sheet, but the Statement of Retained Earnings primarily reports changes in retained earnings over a period, not cash balances.

Question 10

Creditors use accounting information to evaluate whether to loan money to a company.

Accepted Answer

Creditors review a company's financial statements to determine its profitability, liquidity, and ability to pay back loans. This information helps them make a decision about whether to lend money to the company.

Question 11

The owners of a sole proprietorship,partnership and corporations have limited liability.

Accepted Answer

In a sole proprietorship and partnership, the owners have unlimited liability, meaning they are personally responsible for the debts and obligations of the business. Only in a corporation do the owners (shareholders) have limited liability, protecting their personal assets from business liabilities.

Question 12

In the independent auditors' report included with the annual report,management discusses the financial statements and provides the shareholders with explanations for certain amounts reported in the statements.

Accepted Answer

In the independent auditors' report, management does not provide explanations for certain amounts reported in the financial statements. It is the responsibility of the auditors to express their opinion on the fairness of the financial statements and provide any necessary disclosure of accounting policies and practices.

Question 13

The current ratio is useful in determining a company's ability to pay obligations when they become due.

Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to pay off its short-term liabilities with its current assets. A higher current ratio indicates a better ability to meet short-term obligations. Therefore, it is useful in determining a company's ability to pay obligations when they become due.

Question 14

Net loss reduces a company's retained earnings balance.

Accepted Answer

Retained earnings is a portion of a company's profit that is kept by the company instead of being paid out as dividends to shareholders. A net loss means that the company's expenses exceeded its revenues, resulting in a decrease in retained earnings.

Question 15

In the stockholders' equity section of a classified balance sheet,a distinction is made between amounts invested by owners and amounts financed by creditors.

Accepted Answer

The stockholders' equity section of a classified balance sheet distinguishes between amounts invested by owners (equity) and amounts retained from earnings, not amounts financed by creditors, which are shown under liabilities.

Question 16

Income from operations includes interest revenue and interest expense because these items are considered to be operating in nature.

Accepted Answer

Income from operations pertains to revenues and expenses that are directly related to the primary activities of a business entity. Interest revenue and interest expense are considered to be non-operating items since they are related to financing activities and not the core operations of the business. Therefore, they are excluded from the calculation of income from operations.

Question 17

Current liabilities are typically listed in the order in which they will be paid.

Accepted Answer

Current liabilities are usually listed in order of maturity or the order in which they will be paid. The liability that is due first would be listed first, followed by the liability that is due second, and so on.

Question 18

Independent auditors (CPAs)render an opinion that the financial statements do or do not fairly present a company's financial position,operating results,and cash flows.

Accepted Answer

This is the main function of independent auditors. They provide an opinion on the fairness of the financial statements.

Question 19

Dividend payments appear on the Statement of Retained Earnings.

Accepted Answer

Dividend payments to shareholders reduce the amount of retained earnings, which is reflected in the Statement of Retained Earnings.

Question 20

An independent auditor's (CPA's)report is a guarantee that the financial statements are free from fraud or material error.

Accepted Answer

An independent auditor's report does not provide a guarantee that financial statements are free from fraud or material error. It provides reasonable assurance that the statements are fairly presented and in accordance with accounting standards, but it does not eliminate all risks of fraud or error.

Quiz 1: Accounting and the Financial Statements