Question 1

Calvin's Calendar Company has assets of $75,000 and liabilities of $15,000. How much is Calvin's owner equity

Accepted Answer

Owner equity can be calculated as Assets minus Liabilities. Thus, in this case, Owner equity would be:
$75,000 - $15,000 = $60,000. Therefore, the correct answer is (C).

Question 2

As a junior accountant for the Waterford Crystal Co. of New Bedford, Connecticut, you’ve just completed an intensive four-week initial training session. During your first week at Waterford, you’ll be applying many of the concepts that you worked so hard to understand over the course of four grueling years of college accounting classes: sales revenues, cost of goods sold, operating and administrative costs, taxes, interest expenses, and net profit. In week two, you’ll get some actual experience working with current and long-term assets, current and long-term liabilities, and owner’s equity. In your third week, you’ll be keeping track of all cash coming into and going out of the business.
-Your balance sheet will report Waterford's _____.

Accepted Answer

The balance sheet reports all of a company's assets, liabilities, and owner's equity.

Question 3

_____ analysis allows a business to determine the level of sales that it must reach to avoid losing money.

Accepted Answer

Breakeven analysis is a financial calculation that allows a company to determine its break-even point, which is the level of sales at which revenue equals expenses and the business does not make a profit or a loss. This analysis is important because it helps companies set prices for their products or services, determine the number of units they need to sell to cover their costs, and assess their profitability.

Question 4

As a junior accountant for the Waterford Crystal Co. of New Bedford, Connecticut, you’ve just completed an intensive four-week initial training session. During your first week at Waterford, you’ll be applying many of the concepts that you worked so hard to understand over the course of four grueling years of college accounting classes: sales revenues, cost of goods sold, operating and administrative costs, taxes, interest expenses, and net profit. In week two, you’ll get some actual experience working with current and long-term assets, current and long-term liabilities, and owner’s equity. In your third week, you’ll be keeping track of all cash coming into and going out of the business.
-During your third week at Waterford, you'll be working with _____.

Accepted Answer

During the third week, the junior accountant will be keeping track of all cash coming into and going out of the business, which pertains to the cash flow statement. Therefore, the best choice is C) cash flow statements.

Question 5

_____ is the selling price per unit minus the variable cost per unit.

Accepted Answer

Contribution margin per unit is the amount of money that each unit sold contributes to covering the fixed costs of a business. It is calculated by subtracting the variable cost per unit (the cost of producing one unit) from the selling price per unit.

Question 6

Your _____ shows the amount of cash that you have coming in and going out.

Accepted Answer

The statement of cash flows shows the cash inflows and outflows of a company, including operating activities, investing activities, and financing activities. It provides a clear picture of the cash position of a business, and is a crucial report for financial analysis. The balance sheet shows the assets, liabilities, and owner's equity of a company at a specific point in time, while the income report shows the revenue, expenses, and net income of a company over a period of time. The revenue summary is not a commonly used financial report.

Question 7

The difference between gross profit and operating expenses is _____.

Accepted Answer

Gross profit is the revenue earned minus the cost of goods sold, while operating expenses are the costs incurred to operate a business. The difference between the two is net income, which is the profit made after all expenses are deducted from revenue.

Question 8

Cash flows from _____ activities result from obtaining or paying back the funds with which you've financed your business.

Accepted Answer

Cash flows from financing activities are related to the funds obtained or paid back in order to finance a business. This includes activities such as issuing and repurchasing stock, taking out loans, and paying dividends to shareholders.

Question 9

The difference between your sales and your cost of goods sold is known as your _____.

Accepted Answer

The difference between sales and cost of goods sold is known as gross profit or gross margin. Net profit is the remaining profit after deducting all expenses, including cost of goods sold. Cost of doing business refers to all expenses incurred in operating the business, not just cost of goods sold. Owner's equity refers to the portion of the business assets that belong to the owner(s).

Question 10

This past year Donald's Duck Farm had revenues of $25,000. The company spent $1,000 per month on duck eggs and $700 per month on feed, rent, and utilities to keep incubators running. What was Donald's net income

Accepted Answer

Total expenses per month = $1,000 (duck eggs) + $700 (feed, rent, and utilities) = $1,700 
Total expenses for the year = $1,700 x 12 months = $20,400 
Net income = Revenues - Total expenses = $25,000 - $20,400 = $4,600. Therefore, the best choice is C.

Question 11

Your _____ shows organizational sales, expenses, and profit.

Accepted Answer

Organizational sales, expenses, and profit are typically reported on an income statement. A balance sheet shows assets, liabilities, and equity at a specific point in time. A statement of cash flows shows the inflows and outflows of cash during a specific period. A returns summary would only show information related to returns, not overall financial performance.

Question 12

Your _____ statement shows your revenues and expenses.

Accepted Answer

An income statement, also known as a profit and loss statement or P&L, shows a company's revenues and expenses over a specific period of time to determine net income or loss.

Question 13

Cash flows from _____ activities are derived from the day-to-day operations of your main line of business.

Accepted Answer

Cash flows from operating activities are derived from the day-to-day operations of a business. This includes cash inflows from sales, services, and other products as well as cash outflows from expenses such as salaries, rent, and utilities.

Question 14

_____ costs vary with quantity of goods sold but remain constant on a perunit basis.

Accepted Answer

Variable costs are costs that vary with the quantity of goods sold, but their per-unit cost stays constant. Fixed costs, on the other hand, remain the same regardless of the volume of goods sold. Therefore, option C can be ruled out. The terms "flat" and "breakeven" are not commonly used to describe costs in this manner, making option A and D incorrect.

Question 15

Rather than record sales and purchases made on credit, your statement of _____ tells you where your cash came from and where it went.

Accepted Answer

The statement of cash flows shows the inflows and outflows of cash for a specific period. It helps businesses understand how much they made in cash, where they spent their cash, and where their cash came from. This statement is particularly useful because it shows the liquidity of the business and helps with budgeting and forecasting future cash flow.

Question 16

Your balance sheet is based on the _____ equation: Assets = Liabilities + Owner's equity.

Accepted Answer

The correct equation is known as the accounting equation, which forms the foundation of double-entry bookkeeping in the accounting system.

Question 17

You're reading an article entitled _____, which explains how and why a business divides its fixed costs by its contribution margin per unit.

Accepted Answer

The correct answer is "Breakeven Point in Units" because this concept involves dividing fixed costs by the contribution margin per unit to determine the number of units a business needs to sell to cover all its costs, thus reaching its breakeven point.

Question 18

_____ costs don't vary with quantity of goods sold.

Accepted Answer

Fixed costs are costs that remain constant regardless of the quantity of goods sold. They are not affected by changes in production or sales.

Question 19

_____ shows when your total sales revenues exactly equal your expenses.

Accepted Answer

Breakeven analysis calculates at what point a business's revenues equal its expenses, resulting in zero profits or losses. This is useful for determining the minimum amount of sales needed to cover costs and can help in making decisions about pricing, production levels, and business strategy.

Question 20

Accounting can help your business in all of the following ways except:

Accepted Answer

Accounting cannot legalize your financial records. Legalizing financial records is the responsibility of the government (through regulations and laws). Accounting can only provide accurate and reliable financial information to help you make informed business decisions.

Quiz 12: The Role of Accounting in Business