Question 1

Use the fundamental accounting equation to solve the following: Assets minus liabilities equals

Accepted Answer

The fundamental accounting equation states that Assets = Liabilities + Owners' Equity. Therefore, when we subtract liabilities from assets, we are left with the owners' equity. Therefore, the correct answer is C, owners' equity.

Question 2

A company's income statement is important to accountants and other stakeholders. It reveals a

Accepted Answer

The income statement reveals the company's revenue, expenses, and profit (or loss) over a specific period of time, indicating the company's ability to earn a profit over time. Choice A refers to the statement of cash flows, which shows a company's sources and uses of cash. Choice B refers to operational efficiency, which is not directly measured by the income statement. Choice D refers to the balance sheet, which shows the company's assets, liabilities, and equity at a specific point in time.

Question 3

During a period of rising prices, using FIFO (first-in, first-out) inventory valuation method will result in ________ net income figures than would LIFO (last-in, first-out).

Accepted Answer

The answer of During a period of rising prices, using...

Question 4

Which of the following would be classified as a general expense on an income statement?

Accepted Answer

Payments made for insurance are considered a general expense, as they are not directly related to the production or sale of goods and services. Salaries paid to salespeople and costs associated with an advertising campaign are examples of selling expenses, while dividends paid to stockholders are not considered an expense at all, but rather a distribution of profits.

Question 5

________ is the systematic write-off of the value of a tangible asset over its useful life.

Accepted Answer

Depreciation is the systematic write-off of the value of a tangible asset over its useful life. The other options do not describe this process accurately.  Expense structuring refers to the management of costs and expenses within a business. Capital budgeting is the process of allocating funds to projects or investments. Gross margin allocation is the distribution of a company's profits after deducting the cost of goods sold.

Question 6

Debts owed by a business are called

Accepted Answer

Debts are obligations that a business owes to others, such as loans, accounts payable, or taxes, and they are categorized as liabilities on the balance sheet. Revenues (A) are money that a business earns from selling products, services, or assets. Equities (C) represent the residual value of assets after accounting for liabilities. Assets (D) are economic resources that a business controls or owns, such as cash, inventory, buildings, or patents.

Question 7

When creating the income statement, which of the following statements is accurate?

Accepted Answer

The correct formula for calculating gross profit is: Revenues - Cost of Goods Sold = Gross Profit.

Question 8

Retailers attempt to sell older merchandise before more recently acquired merchandise is sold. The assumptions made by the ________ method of inventory valuation are most consistent with this approach.

Accepted Answer

FIFO assumes that the earliest acquired inventory items are sold first. This method aligns with the approach of selling older merchandise before newer items. Therefore, retailers attempting to sell older merchandise would most likely use the FIFO method of inventory valuation.

Question 9

As Jaime was packing to return to college after his summer vacation, he realized that he owned many valuable things such as a laptop computer, a speaker system, and a Blu-ray player. An accountant would list all of these as Jaime's

Accepted Answer

An asset is something of value that an individual or company owns. In this case, Jaime owns a laptop computer, a speaker system, and a Blu-ray player, which are all considered assets because of their value.

Question 10

Rapidly growing companies often buy increasing amounts of merchandise from suppliers on credit, and then sell the goods to their customers on credit. These companies sometimes have difficulty repaying their suppliers when customers who buy on credit don't pay on time. Firms that experience this difficulty need to do a better job of

Accepted Answer

The rapid growth of a company can often create cash flow challenges, especially when customers don't pay on time. Managing cash flows effectively can help the company ensure it has the cash on hand to repay suppliers on time, avoiding any potential supply chain disruptions. While generating revenue, controlling inventory, and balancing assets with liabilities are all important, none specifically address the issue of repaying suppliers when customers don't pay on time.

Question 11

Expenses a firm incurs for insurance, office salaries, and rent are classified as

Accepted Answer

Expenses for insurance, office salaries, and rent are considered general expenses on an income statement as they are not directly tied to the production or sale of goods or services. Current liabilities on a balance sheet represent debts or obligations that a company owes within the next 12 months, while general expenses on a cash flow statement refers to cash outflows that are not tied to operating, investing, or financing activities. Selling expenses, on the other hand, are costs directly related to the marketing and promotion of goods or services.

Question 12

Accounting recognizes that assets, such as machinery and buildings, lose value over time. Accountants will record a portion of the cost of an asset as an expense each year through the use of

Accepted Answer

Accounting recognizes the concept of depreciation, which involves recording a portion of the cost of an asset as an expense each year in recognition of the fact that the asset loses value over time. This allows for a more accurate representation of the asset's true worth on the balance sheet, and helps companies to plan for future expenditures necessary to replace or upgrade their assets. Asset valuation, asset audits, and appreciation are also important concepts in accounting, but they do not directly relate to the recognition of an asset's depreciation over time.

Question 13

Ivan will graduate from Great State University this year. He has accumulated $39,000 in student loans during his four years at college. An accountant would classify the loans as

Accepted Answer

Student loans are a form of debt that the student borrower owes to their lender, typically the government or a private financial institution. As such, they are classified as liabilities on the borrower's balance sheet. They represent an obligation to repay the borrowed amount, plus any interest or fees that have accrued.

Question 14

When reviewing the balance sheet for Portable Pet Care, Inc., a mobile small animal care business, Ricky noted the following information: Company assets totaling $3.5 million, and liabilities totaling $1.3 million. On paper, the net worth (owners' equity) for this business =

Accepted Answer

The answer of When reviewing the balance sheet for Portable...

Question 15

During a period of rising prices, if a firm desires to report a low gross profit figure in hopes of reducing their income tax liability, the firm will use the ________ inventory valuation method.

Accepted Answer

The LIFO (last-in, first-out) inventory valuation method assumes that the last items purchased are sold first. Therefore, during a period of rising prices, using LIFO will result in a lower gross profit figure because the cost of goods sold will be calculated using the higher prices of the most recent purchases, rather than the lower prices of earlier purchases. This lower gross profit figure will result in a lower reported income and therefore a lower income tax liability.

Question 16

The ________ shows how the capital is structured in the business, including the value of assets and the amount the firm owes at a specific point in time.

Accepted Answer

The balance sheet provides a snapshot of a company's financial position at a specific point in time, showing the assets, liabilities, and equity of the business. It provides information on how the capital is structured in the business, including the value of assets and the amount the firm owes. The income statement shows the company's revenue and expenses over a particular period, while the statement of cash flows shows the amount of cash coming in and going out of the business during a specific time frame. The trial balance is a list of all the accounts in the general ledger with their respective debit or credit balances, and it is used to ensure that the total debits and credits are equal.

Question 17

FIFO and LIFO are two common

Accepted Answer

FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) are two common inventory valuation methods. FIFO assumes that the first items purchased are the first items sold, whereas LIFO assumes that the last items purchased are the first items sold.

Question 18

The balance sheet for Greeley Contracting shows assets totaling $207,000 and liabilities totaling $95,000. Which of the following statements is correct?

Accepted Answer

The formula for the balance sheet is Assets = Liabilities + Owners' Equity. Therefore, Owners' Equity can be calculated by subtracting liabilities ($95,000) from assets ($207,000): $207,000 - $95,000 = $112,000. Current assets cannot be determined from the given information, and net income is not relevant to the balance sheet.

Question 19

Many business decisions are made in hopes of improving a firm's bottom line. Which of the following financial statements will reveal a firm's bottom line?

Accepted Answer

The income statement shows a firm's revenues earned and expenses incurred during a specific period, leading to the calculation of net income (or net loss), which is considered the bottom line of the statement. The balance sheet shows the firm's assets, liabilities, and equity at a specific point in time, while the statement of cash flows presents the sources and uses of cash during a particular period. The trial balance is a tool used by accountants to ensure that debits and credits in the accounting system are balanced but does not provide information on a firm's bottom line.

Question 20

The LIFO method of inventory valuation bases the cost of goods sold on the cost of

Accepted Answer

LIFO (last in, first out) assumes that the most recent inventory purchased is the first to be sold. Therefore, the cost of goods sold is based on the cost of the most recent merchandise purchased by the firm.

Quiz 17: Understanding Accounting and Financial Information