Question 1

Which of the following accounts would not be reported on the balance sheet?

Accepted Answer

Dividends are not reported on the balance sheet as they are a distribution of earnings and not an asset or liability. They are reported on the statement of changes in equity.

Question 2

Which of the following is considered to be an expense on the income statement?

Accepted Answer

The cost of goods sold is the direct cost of producing the goods that a company sells. It includes the cost of materials, labor, and overhead used in the production process. This cost is subtracted from the company's sales revenue to calculate its gross profit, which is one of the key metrics used to evaluate a company's financial performance. Therefore, cost of goods sold is considered an expense on the income statement. Accounts payable, notes payable, and wages payable are all liabilities that represent amounts owed by the company, but they are not expenses in and of themselves.

Question 3

During the fiscal year ended 2014, a company had revenues of $400,000, cost of goods sold of $280,000, and an income tax rate of 30 percent on income before income taxes. What was the company's 2014 net income?

Accepted Answer

Net income can be calculated as: 
Revenue - Cost of Goods Sold - Income Tax = Net Income
Substituting the values for the given fiscal year: 
$400,000 - $280,000 - ($400,000 - $280,000)*30% = $120,000*30% = $36,000
Therefore, the correct answer is option B). $36,000.

Question 4

Which of the following are the components of stockholders' equity on the balance sheet?

Accepted Answer

Stockholders' equity represents the residual interest in the assets of a company after all liabilities are deducted. The two main components of stockholders' equity are common stock and retained earnings. Common stock represents the amount that has been invested by shareholders, while retained earnings represent the accumulated net income of the company that has not been paid out as dividends. Therefore, the correct answer is D, which includes both common stock and retained earnings as components of stockholders' equity on the balance sheet.

Question 5

Atlantic Corporation reported the following amounts at the end of the first year of operations: common stock $200,000; sales revenue $800,000; total assets $600,000; dividends declared $40,000; and total liabilities $320,000. What are Atlantics' retained earnings at the end of the year and what amount of expenses were incurred during the year?

Accepted Answer

Retained earnings = Net income - DividendsNet income = Sales revenue - ExpensesSales revenue = $800,000Dividends = $40,000Total assets = $600,000Total liabilities = $320,000Shareholders' equity = Total assets - Total liabilities = $600,000 - $320,000 = $280,000Common stock = $200,000Retained earnings = Shareholders' equity - Common stock = $280,000 - $200,000 = $80,000Expenses = Sales revenue - Net income = $800,000 - $80,000 = $720,000

Question 6

Which financial statement would you use to determine a company's earnings performance during an accounting period?

Accepted Answer

The income statement shows a company's revenue, expenses, and net income (or loss) during an accounting period, making it the best choice for determining a company's earnings performance. The balance sheet shows a company's assets, liabilities, and equity at a specific point in time, while the statement of stockholders' equity shows changes in equity during the accounting period. The statement of cash flows shows the sources and uses of cash during the accounting period.

Question 7

Which of the following statements is correct?

Accepted Answer

Net income and net cash flow from operations are two different concepts. Net income is the profit earned by the company during a specific period, whereas net cash flow from operations is the cash generated from the company's everyday business activities during a specific period. Therefore, it is possible for a corporation's net income to be different than its net cash flow from operations. Options A, B, and C are incorrect as assets on the balance sheet do not include retained earnings, retained earnings do not include common stock, and the balance sheet equation states that assets must equal liabilities and equity.

Question 8

Willie Company's retained earnings increased $20,000 during 2014. What was Willie's 2014 net income or loss given that Willie declared $25,000 of dividends during 2014?

Accepted Answer

Retained earnings = Net income - Dividends
$20,000 = Net income - $25,000
Net income = $45,000.

Question 9

Which of the following describes the primary objective of the balance sheet?

Accepted Answer

The primary objective of the balance sheet is to report the financial position of the reporting entity at a particular point in time. The balance sheet provides information about the entity's assets, liabilities, and stockholders' equity, which helps users assess its financial position and liquidity. Choices A, B, and D do not accurately describe the primary objective of the balance sheet.

Question 10

Which financial statement would you utilize to determine whether a company will be able to pay liabilities which are due in 30 days?

Accepted Answer

The balance sheet shows the current assets and liabilities of a company, including those due in the next 30 days. By looking at the current ratio (current assets divided by current liabilities), one can determine if a company has enough current assets to pay off its current liabilities, including those due in 30 days.

Question 11

Which of the following best describes liabilities and stockholders' equity?

Accepted Answer

Liabilities and stockholders' equity represent the sources of financing an entity's assets, meaning they are how a business entity funds its operations and purchases of assets.

Question 12

Which of the following statements describes the balance sheet?

Accepted Answer

The balance sheet reports a company's assets and liabilities at a specific point in time, and assets are generally reported at their cost.

Note: None of the other statements accurately describe the balance sheet.

Question 13

Which of the following accounts is not a liability on the balance sheet?

Accepted Answer

Retained earnings are not a liability on the balance sheet. Retained earnings represent the amount of the company's profits that have been kept or reinvested in the business instead of being paid out as dividends to shareholders. Liabilities, on the other hand, are obligations or debts that a company owes to others, such as notes payable, accounts payable, and interest payable.

Question 14

Which of the following equations is the balance sheet equation?

Accepted Answer

The balance sheet equation is Assets = Liabilities + Stockholders' Equity. This equation shows that the total assets of a company are always equal to the sum of its liabilities and stockholders' equity.

Question 15

Which of the following accounts would be reported as assets on the balance sheet?

Accepted Answer

Cash, accounts receivable, and inventories are all assets that can be reported on the balance sheet. Accounts payable and notes payable are liabilities, while retained earnings and common stock are equity. Property and equipment can also be reported as assets, but they are not listed in any of the answer choices.

Question 16

Which of the following best describes the balance sheet?

Accepted Answer

The answer of Which of the following best describes the...

Question 17

What financial statement would you look at to determine the dividends declared by a business?

Accepted Answer

The statement of stockholders' equity shows the changes in the company's equity over a period of time, including dividends declared and paid to shareholders. Therefore, it is the best financial statement to look at to determine the dividends declared by a business.

Question 18

Which of the following would not be found on the statement of cash flows?

Accepted Answer

Cost flow from manufacturing activities is a component of the income statement and not the statement of cash flows. The statement of cash flows reports the cash inflows and outflows from operating, investing, and financing activities.

Question 19

Which of the following best describes assets?

Accepted Answer

Assets are considered to be the economic resources of the business. They are tangible or intangible items owned by the company that have value and can be used to generate future economic benefit. Examples of assets include cash, accounts receivable, inventory, property, plant and equipment, and goodwill.

Question 20

Which of the following correctly describes the various financial statements?

Accepted Answer

The income statement reports a company's financial performance over a specific accounting period, detailing revenues, expenses, and profits or losses, unlike the balance sheet and cash flow statement, which provide financial positions at a specific point in time.

Quiz 1: Financial Statements and Business Decisions