Question 1

Maurice, the supervising manager of a telecommunications company, requires detailed information about the expenses that the company incurred from its monthly operations in the last fiscal year. In this scenario, Maurice should refer to the _____.
A) profit and loss statement
B) statement of cash flow
C) owners' equity statement
D) statement of retained earnings

Accepted Answer

The profit and loss statement, also known as the income statement, provides detailed information about a company's revenues and expenses over a specific period, which is what Maurice needs to review the company's monthly operational expenses.

Question 2

Lossaire, a jewelry house, needs to increase the company's declining cash inflow through its financing activities. In this context, Lossaire is most likely to:
A) sell the goods and services that it produces.
B) sell its fixed assets and financial assets bought as long-term investments.
C) form partnerships and mergers with companies operating in the same industry.
D) issue additional shares of its own stock.

Accepted Answer

Issuing additional shares of its own stock is a financing activity that can increase cash inflow by raising capital from investors.

Question 3

Harold, a financial accountant at an automobile company, is asked to calculate the net income of the company for a given period. He deducts the cost of goods sold from the revenue earned during that period. Before deducting the company's operating expenses from the gross profit, he deducts the rent and the insurance premium paid by the company during that period. In the given scenario, Harold deducted the company's _____ from the company's operating expenses.
A) testamentary expenses
B) selling expenses
C) administrative expenses
D) accrued expenses

Accepted Answer

Rent and insurance premiums are typically considered administrative expenses, which are part of operating expenses.

Question 4

_____ is the profit or loss a firm earns in the time period covered by the financial statement that reports the revenues and expenses.
A) Shared debt
B) Owners' equity
C) Net income
D) Cash flow

Accepted Answer

Net income is the profit or loss a firm earns during the period covered by the financial statement, reflecting revenues minus expenses.

Question 5

_____ indicate the cash a firm spends, or other assets it uses up, to carry out the business activities necessary to generate its revenue.
A) Stockholders' equities
B) Remissions
C) Expenses
D) Accounts receivable

Accepted Answer

Expenses refer to the costs incurred by a business in the process of earning revenue, including cash spent or assets used up.

Question 6

Grydon Inc. has applied for a business loan in the United Bank. To best assess the loan case, the loan officer at the bank, Cerejo, decides to look at the company's net income. Cerejo will find this information in Grydon's _____.
A) profit and loss statement
B) statements of cash flow
C) stockholders' equity statement
D) statement of retained earnings

Accepted Answer

The profit and loss statement, also known as the income statement, shows a company's net income by detailing revenues and expenses.

Question 7

Fred, a financial accountant at a multinational company, is asked by his supervisor to find out the exact income the company earns from the sale of its products over the next five weeks. To do this, for the next five weeks, Fred matches the revenue earned from the sale of the company's products and matches the expenses incurred by the company to the revenue they help produce. In this scenario, which of the following has Fred used to get the required information?
A) Accrual-basis accounting
B) Horizontal analysis
C) Liquidity index
D) Static analysis

Accepted Answer

Fred is using accrual-basis accounting, which involves matching revenues with the expenses incurred to generate those revenues, providing a more accurate picture of a company's financial performance over a specific period.

Question 8

In the context of the statement of retained earnings, any change in retained earnings is found by subtracting:
A) cash flows from operating activities from cash flows from investing activities.
B) the value of capital expenditures, such as remodeling, from net income.
C) operating expenses from gross profit.
D) dividends paid to shareholders from net income.

Accepted Answer

The change in retained earnings is calculated by subtracting dividends paid to shareholders from net income, as retained earnings represent the portion of net income that is not distributed as dividends.

Question 9

In the context of financial statements of a company, cash flow statements commonly begin with _____.
A) net income
B) net debt
C) the shared profit amount
D) the shared expenses

Accepted Answer

Cash flow statements typically begin with net income, which is then adjusted for changes in working capital, non-cash expenses, and other factors to determine the cash flow from operating activities.

Question 10

In the context of statement of cash flows, cash flows from operating activities show the amount of cash that flowed into the company from:
A) dividends.
B) public grants.
C) executive compensations.
D) taxes on capital gains.

Accepted Answer

The answer of In the context of statement of cash...

Question 11

The _____ of a company is a simple statement that shows how the accumulated revenues that have been reinvested in the company have changed from one accounting period to the next.
A) profit and loss statement
B) pro forma statement
C) statement of operations
D) statement of retained earnings

Accepted Answer

The statement of retained earnings shows how the accumulated profits that have been reinvested in the company have changed over a period, reflecting changes in retained earnings from one accounting period to the next.

Question 12

Gerald wants to find out the net income of his business for the last quarter. He deducts the cost of goods sold from the revenue earned during that period and then deducts the operating expenses from the gross profit. If Gerald decides to subtract the salary of his employees from the operating expenses before deducting the operating expenses from the gross profit, which of the following expenses would he be deducting?
A) Testamentary expenses
B) Administrative expenses
C) Selling expenses
D) Accrued expenses

Accepted Answer

The answer of Gerald wants to find out the net...

Question 13

A steel manufacturing company is going through a financial crisis because of which it is unable to pay its employees and suppliers their dues. The management of the company sells some of the fixed assets of the company to cover these expenses. In the context of the statement of cash flows, the company gets the required capital by engaging in _____.
A) investing activities
B) financing activities
C) operating activities
D) budgeting activities

Accepted Answer

The sale of fixed assets is considered an investing activity in the statement of cash flows.

Question 14

The management of a fertilizer company decides to increase the company's cash flow by increasing its financing activities. In this context, the company is most likely to:
A) sell the goods and services that it produces.
B) sell its fixed assets and financial assets bought as long-term investments.
C) form partnerships and mergers with companies operating in the same industry.
D) take short-term and long-term loans.

Accepted Answer

Increasing financing activities typically involves raising funds through borrowing, such as taking short-term and long-term loans.

Question 15

Grubbies, a popular fast-food restaurant, spends $75,000 on redesigning its interiors and modifying its ambience. In this scenario, the expenses that the restaurant incurs from refurbishing its appearance exemplify cash flows from:
A) investing activities.
B) financing activities.
C) operating activities.
D) manufacturing activities.

Accepted Answer

Investing activities include cash flows related to the acquisition and disposal of long-term assets, such as property, plant, and equipment. The expenditure on redesigning interiors is an investment in the restaurant's physical assets.

Question 16

In the context of the calculation of the net income of a firm, the final step of the process comprises:
A) finding the firm's accounts receivable for goods sold on credit.
B) finding the difference between the firm's gross profit and its operating expenses.
C) deducting the firm's interest expenses and taxes from its net operating income.
D) deducting the firm's costs of goods sold from its revenue.

Accepted Answer

The final step in calculating net income involves deducting interest expenses and taxes from net operating income.

Question 17

Costs are deducted from revenue in several stages to show how net income is determined. The first step in this process is to deduct:
A) costs of damaged goods.
B) costs of purchased goods
C) costs of goods mortgaged.
D) costs of goods sold.

Accepted Answer

The first step in determining net income is to deduct the cost of goods sold (COGS) from revenue, which shows the gross profit.

Question 18

Poline Foods, a food processing company, needs to increase its declining cash inflow through its operating activities. In this context, Poline Foods is most likely to:
A) sell its goods or services.
B) sell its fixed assets and financial assets bought as long-term investments.
C) form partnerships and mergers with companies operating in the same industry.
D) issue additional shares of its own stock.

Accepted Answer

Selling goods or services is a direct way to increase cash inflow from operating activities, as it involves the core business operations.

Question 19

Tania, a management accountant in a cosmetics company, is asked by her manager to calculate the profit or loss earned by the company in a given time period. To get the required data, Tania is most likely to:
A) subtract the company's expenses from its revenues.
B) add the company's current liabilities to its accounts receivable.
C) subtract operating costs from the company's retained earnings.
D) multiply the revenue of the company with its retained earnings.

Accepted Answer

To calculate profit or loss, Tania should subtract the company's expenses from its revenues. This will give her the net income, which indicates profit if positive and loss if negative.

Question 20

In the context of the income statement of an organization, accountants use accrual-basis accounting when recognizing _____.
A) debts
B) investments
C) revenues
D) cost of shares

Accepted Answer

Accrual-basis accounting recognizes revenues when they are earned, regardless of when the cash is received.

Quiz 8: Accounting: Decision Making by the Numbers

Maurice, the supervising manager of a telecommunications company, requires detailed information about the expenses that the company incurred from its monthly operations in the last fiscal year. In this scenario, Maurice should refer to the _____.

Lossaire, a jewelry house, needs to increase the company's declining cash inflow through its financing activities. In this context, Lossaire is most likely to:

_____ is the profit or loss a firm earns in the time period covered by the financial statement that reports the revenues and expenses.

_____ indicate the cash a firm spends, or other assets it uses up, to carry out the business activities necessary to generate its revenue.

Grydon Inc. has applied for a business loan in the United Bank. To best assess the loan case, the loan officer at the bank, Cerejo, decides to look at the company's net income. Cerejo will find this information in Grydon's _____.

In the context of the statement of retained earnings, any change in retained earnings is found by subtracting:

In the context of financial statements of a company, cash flow statements commonly begin with _____.

In the context of statement of cash flows, cash flows from operating activities show the amount of cash that flowed into the company from:

The _____ of a company is a simple statement that shows how the accumulated revenues that have been reinvested in the company have changed from one accounting period to the next.

The management of a fertilizer company decides to increase the company's cash flow by increasing its financing activities. In this context, the company is most likely to:

Grubbies, a popular fast-food restaurant, spends $75,000 on redesigning its interiors and modifying its ambience. In this scenario, the expenses that the restaurant incurs from refurbishing its appearance exemplify cash flows from:

In the context of the calculation of the net income of a firm, the final step of the process comprises:

Costs are deducted from revenue in several stages to show how net income is determined. The first step in this process is to deduct:

Poline Foods, a food processing company, needs to increase its declining cash inflow through its operating activities. In this context, Poline Foods is most likely to:

Tania, a management accountant in a cosmetics company, is asked by her manager to calculate the profit or loss earned by the company in a given time period. To get the required data, Tania is most likely to:

In the context of the income statement of an organization, accountants use accrual-basis accounting when recognizing _____.