Question 1

Net income that is not paid to shareholders as dividends increases _____.

Accepted Answer

Net income that is not paid to shareholders as dividends is added to retained earnings, which is a component of stockholders' equity on the balance sheet. Therefore, the correct answer is choice B, retained earnings.

Question 2

A _____ year ends on a date that is determined by the firm, perhaps based on its business model (for example, many retailers choose the end of January).

Accepted Answer

A fiscal year is a financial year that does not necessarily coincide with the calendar year, and is determined by the company for accounting and budgeting purposes.

Question 3

Revenues are:

Accepted Answer

Revenues are inflows of assets resulting from the sale of goods or services to customers. It may not necessarily be cash, but it increases the company's assets (e.g. accounts receivable).

Question 4

An income statement connects two successive _____ through its effect on retained earnings.

Accepted Answer

An income statement shows a company's revenues, expenses, and net income (or loss) over a specific period of time. The net income is transferred to the retained earnings portion of the balance sheet, connecting two successive balance sheets through its effect on retained earnings.

Question 5

The balance sheet of Allhear, a communications firm, for the year ended December 31, 20x1, showed current assets of $20 million, current liabilities of $16 million, shareholders' equity of $17 million, and noncurrent assets of $29 million. Compute the amount of noncurrent liabilities on Allhear's balance sheet at the end of 20x1.

Accepted Answer

The answer of The balance sheet of Allhear, a communications...

Question 6

A _____ item is expected to result in a cash receipt or a cash payment within approximately one year or less.

Accepted Answer

Current items are expected to result in a cash receipt or payment within approximately one year or less.

Question 7

Most firms report the amounts in their financial statements using _____.

Accepted Answer

Most firms report the amounts in their financial statements using the currency of the country where they are incorporated and conduct most of their business activities. This is known as the functional currency. It provides a clear and consistent basis for measuring and reporting financial performance over time.

Question 8

The _____ report changes in assets and liabilities over a period of time, similar to a motion picture.

Accepted Answer

The income statement and statement of cash flows both report changes over a period of time, with the income statement showing revenue and expense changes and the statement of cash flows showing changes in cash from operating, investing, and financing activities. The balance sheet and statement of cash flows report a snapshot of assets, liabilities, and equity and changes in cash, respectively. The statement of cash receipts and disbursements is not a commonly used financial statement. The funds flow statement is an outdated financial statement that is no longer widely used.

Question 9

The _____ shows the relation between net income and cash flows from operations, and changes in assets and liabilities that involve cash flows.

Accepted Answer

The statement of cash flows shows the changes in cash and cash equivalents for a period and categorizes those changes as arising from operating, investing, and financing activities. It also reconciles the net income figure from the income statement with the cash flows from operations by adjusting for any non-cash items and changes in working capital accounts such as receivables, payables, and inventory. The balance sheet shows the financial position of a company at a point in time, while the income statement shows the financial performance over a period of time. The funds flow statement and the cash receipts and cash disbursement statement are not commonly used financial statements.

Question 10

Which of the following is/are not true regarding the operations of a charitable organization?

Accepted Answer

Charitable organizations' purpose is primarily to provide services to their constituents, not to seek profits. Option A is true as charities would prepare statements comparing inflows with outflows to measure their financial performance, and option B is false as charities do calculate net income.

Question 11

The number of days between when the employees and suppliers provide goods and services and when the firm pays cash to those employees and suppliers is called the _____ period.

Accepted Answer

The answer of The number of days between when the...

Question 12

_____ are the amounts at which items entered the firm's balance sheet and reflect economic conditions at the time the firm obtained assets or obtained financing.

Accepted Answer

Historical amounts are the original amounts at which items were recognized in the balance sheet, and they reflect the economic conditions at the time the firm obtained the assets or financing. This provides a baseline for calculating changes in value over time and helps to track the firm's financial performance.

Question 13

Expenses are:

Accepted Answer

Expenses are outflows of assets or incurrences of liabilities from generating revenues, representing the cost of doing business.

Question 14

The _____ shows assets, liabilities and shareholders' equity as of a specific date, similar to a snapshot.

Accepted Answer

The balance sheet is a financial statement that presents a company's financial position at a specific point in time, usually at the end of a reporting period. It shows the company's assets, liabilities, and shareholders' equity, providing a snapshot of its financial health.

Question 15

Investments in long-lived assets, with useful lives (or service lives) that can extend for several or many years such as land, buildings, and equipment represent _____ capital.

Accepted Answer

Physical capital refers to tangible assets that are used in the production of goods or services, such as land, buildings, and equipment, which have long useful lives.

Question 16

_____ reflect values at the balance sheet date, so they reflect that day's economic conditions.

Accepted Answer

Current amounts reflect values at the balance sheet date, capturing the economic conditions of that specific day.

Question 17

The balance sheet of Old Gold Mines, a gold mining company, for the year ended June 30, 20x1, showed current assets of $6 million, noncurrent assets of $49 million, noncurrent liabilities of $14 million, and current liabilities of $4 million. Compute the amount of shareholders' equity on Old Gold Mines' balance sheet at the end of 20x1.

Accepted Answer

Shareholders' equity can be calculated using the accounting equation: Assets = Liabilities + Shareholders' Equity. Here, Assets = Current Assets ($6 million) + Noncurrent Assets ($49 million) = $55 million. Liabilities = Current Liabilities ($4 million) + Noncurrent Liabilities ($14 million) = $18 million. Therefore, Shareholders' Equity = Assets - Liabilities = $55 million - $18 million = $37 million.

Question 18

A _____ connects two successive balance sheets because it explains the change in cash from operating, financing, and investing activities.

Accepted Answer

The statement of cash flows shows the changes in a company's cash and cash equivalents from operating, financing, and investing activities, and connects two successive balance sheets by explaining the change in cash.

Question 19

_____ represent amounts owed by customers for goods and services they have already received. The customer, therefore, has the benefit of the goods and services before it pays cash.

Accepted Answer

Accounts Receivable represent amounts that a company is owed by its customers for goods and services that have already been provided. This means that the customers have the benefit of the goods and services before they actually pay in cash. Accounts Payable, on the other hand, represent amounts that a company owes to its suppliers for goods and services received but not yet paid for. Notes Receivable and Notes Payable involve written promises to pay or receive a specified amount of money at a future date, while Uncollected Sales is not a commonly used term in accounting.

Question 20

A(n) _____ item is expected to generate cash over periods longer than a year or use cash over periods longer than a year.

Accepted Answer

Noncurrent items, also known as long-term assets or liabilities, are expected to generate or use cash over periods longer than a year. Examples include property, plant and equipment, long-term investments, and long-term loans.

Quiz 1: Introduction to Business Activities and Overview of Financial Statements and the Reporting Process