Question 1

Buildings and machinery are considered to be

Accepted Answer

Buildings and machinery are considered fixed assets because they are long-term resources used in the production of goods or services and have a useful life of more than one year. Current assets are those that are easily convertible to cash within a year, while short-term assets are also current assets but have a shorter useful life. Other assets can include intangible assets such as patents or trademarks.

Question 2

Denver wants to make sure he puts his company's assets in the correct categories.Which of the following is an example of a current asset?

Accepted Answer

Inventories are examples of current assets, as they are expected to be sold, used, or consumed within one year. Land, equipment, and buildings are examples of long-term assets.

Question 3

The income statement answers which question?

Accepted Answer

The income statement shows the revenue and expenses of a business over a period of time, and calculates the net profit or loss. Therefore, it provides information about the profitability of the business.

Question 4

A two year-old asset has a depreciable life of 10 years.Its initial purchase cost was $450,000 and it is depreciated by 10 percent annually.What is the remaining depreciable value of the asset?

Accepted Answer

To find the remaining depreciable value of the asset, we need to first calculate the total accumulated depreciation. 
Each year, the asset depreciates by 10% of its initial cost, which is $45,000 ($450,000 x 0.10). So after two years, the total accumulated depreciation is:
$45,000 + $45,000 = $90,000.

The remaining depreciable value is simply the difference between the initial cost and the accumulated depreciation:
$450,000 - $90,000 = $360,000.

Therefore, the answer is D, $360,000.

Question 5

Ignatio applied for a loan for his business that he will repay in 9 months.The best way to describe this loan is as a(n):

Accepted Answer

A loan that will be repaid within 12 months is considered a short-term note.

Question 6

When Darla prepares her company's balance sheet,she should include ___________ in the list of current assets.

Accepted Answer

Accounts receivable should be included in the list of current assets as they represent money owed to the company from customers or clients for goods or services provided. Equipment, land, and leased property are all long-term assets and should be listed separately as non-current assets.

Question 7

The debts that Rhonda's company will repay within the next ______________ are considered to be current debt.

Accepted Answer

Current debt refers to debts that are expected to be fully repaid within the next 12 months. Therefore, option D (12 months) is the best choice as it matches the definition of current debt. Options A (2 years), B (6 months), and C (1 quarter) do not match the definition of current debt.

Question 8

Some assets don't seem to fit neatly into any category so accountants created a category called "other." Which asset would considered an other asset?

Accepted Answer

Goodwill is considered an "other asset" because it is an intangible asset that does not fit into the typical categories of physical or financial assets.

Question 9

Richard has in his warehouse some raw materials and finished goods that he has ready to fill customer orders.These are two types of _____.

Accepted Answer

Raw materials and finished goods held by Richard in his warehouse are considered inventory. Accounts payable is money that Richard owes to his suppliers, accounts receivable is money that Richard's customers owe to him, and cost of goods is the expense incurred to produce or purchase the inventory.

Question 10

For Webster to understand how his company performed during calendar year 2012,he must begin with firm's financial position on:

Accepted Answer

To assess the company's performance during 2012, Webster should start with the financial position at the beginning of that year, which is January 1, 2012.

Question 11

Xavier wants to know how much his company owns and how much it owes.He should look at the:

Accepted Answer

The balance sheet provides a snapshot of a company's financial position by showing its assets, liabilities, and equity at a specific point in time. This will allow Xavier to see how much his company owns (assets) and how much it owes (liabilities). The income statement shows a company's revenues and expenses over a period of time, the cash flow statement shows the inflows and outflows of cash, and the asset list simply lists the company's assets without showing any liabilities or equity.

Question 12

The items on the income statement are expressed in dollars but the corresponding margins are expressed as:

Accepted Answer

The margins on the income statement are expressed as percentages, not in dollars. This allows for easier comparison between different periods or between different companies, regardless of their size or revenue.

Question 13

XYC Corporation pays its taxes quarterly but withholds payroll taxes from its employees' paychecks each week.Until the taxes are actually paid to the IRS,they appear on the balance sheet as:

Accepted Answer

The taxes withheld from employees' paychecks but not yet paid to the IRS represent a liability for XYC Corporation, as they owe this money to the government and it is not yet paid.

Question 14

Martina invested her savings into her business when she started it.Later she added more capital and she has kept some of her profits.Together these are known as:

Accepted Answer

Debt capital refers to borrowed funds, accrued expenses are expenses incurred but not yet paid, and owners' long-term debt specifically refers to debt held by owners. Owners' equity includes the initial investment, additional capital contributions, and retained earnings.

Question 15

Stephanie ordered merchandise from one of her vendors but she doesn't have to pay for it right away.The amount of this purchase will increase Stephanie's:

Accepted Answer

Since Stephanie doesn't have to pay for the merchandise right away, it means she owes the vendor money, which is known as accounts payable. This liability will increase her accounts payable balance, and not her assets or accounts receivable. The balance sheet will also be affected by this increase in liability.

Question 16

Raul needed an expensive piece of equipment to expand his business.He borrowed the money from the bank and pledged the equipment as ___________.If Raul does not repay the loan,the bank can take his equipment.

Accepted Answer

Collateral is something pledged as security for repayment of a loan. In this case, Raul pledged the equipment as collateral for the loan he borrowed from the bank. If he fails to repay the loan, the bank can take possession of the equipment. Promissory note is a written promise to pay a debt, while asset in escrow refers to funds or property held by a third party until conditions are met. Long term debt refers to debt that is not due for payment within a year. None of these are the appropriate term for Raul pledging his equipment as security for his loan.

Question 17

Eugenia's company bought a delivery truck to deliver merchandise to customers.This truck should appear as ___________ on the balance sheet.

Accepted Answer

The delivery truck is a long-term asset and will be used for more than one accounting period. It should be classified as a fixed asset on the balance sheet.

Question 18

Candace purchased a car for her company's exclusive use.The value of this car:

Accepted Answer

The value of a car decreases over time due to wear and tear, depreciation, and aging. Factors such as mileage, maintenance, and market demand can also affect the car's value, but in general, cars are not assets that appreciate in value over time.

Question 19

For investment purposes,Wilma needs a snapshot of the firm's financial position at a specific point in time.She should look at the

Accepted Answer

The balance sheet provides a snapshot of the firm's financial position at a specific point in time, showing its assets, liabilities, and equity. This information is critical for making investment decisions, as it gives investors insight into the company's financial health and stability. The income statement and statement of cash flows, on the other hand, show the company's financial performance over a period of time, and may not provide a complete picture of its financial position at a given point in time. The marketing plan, while important for understanding the company's strategy and potential growth, does not provide the financial data that is necessary for making investment decisions.

Question 20

Astoria is using a software application to prepare the balance sheet.She wasn't sure which of the following should be included in the fixed asset category.What would you tell her?

Accepted Answer

Land should be included in the fixed asset category as it is a tangible asset that has a long-term use in the business. Copyrights should be included in the intangible asset category. Contingency funds are not assets and should not be included in either category. Goodwill is an intangible asset and should be included in the intangible asset category.

Quiz 10: Understanding a Firms Financial Statements