Question 1

An income statement

Accepted Answer

An income statement presents the revenues and expenses for a specific period of time, usually a month or a year. It does not report changes in assets, liabilities, or equity over a period of time, nor does it report the assets, liabilities, and equity at a specific date. It may impact retained earnings, but it does not directly summarize the changes in retained earnings.

Question 2

Net income will result during a time period when

Accepted Answer

Net income is the amount by which revenues exceed expenses during a period. Therefore, D is the correct option where revenues exceed expenses resulting in net income.

Question 3

The retained earnings statement would not show

Accepted Answer

The retained earnings statement shows the beginning balance of retained earnings, adds net income (revenues minus expenses), subtracts dividends, and ends with the ending balance of retained earnings. Therefore, options A, C, and D are all shown in a retained earnings statement, but revenues and expenses are shown on the income statement.

Question 4

Which of the following statements is true?

Accepted Answer

The answer of Which of the following statements is true?
...

Question 5

The financial statement that summarizes the changes in retained earnings for a specific period of time is the

Accepted Answer

The retained earnings statement shows the changes in retained earnings for a specific period of time, including net income or loss, dividends paid, and any adjustments made to prior period earnings. The balance sheet shows the financial position of a company at a specific point in time, while the income statement shows the company's revenue and expenses over a period of time. The statement of cash flows shows the inflows and outflows of cash during a specific period of time.

Question 6

If the retained earnings account increases from the beginning of the year to the end of the year, then

Accepted Answer

Retained earnings increase when net income is greater than dividends. Therefore, if the retained earnings account increases from the beginning of the year to the end of the year, it means that net income is greater than dividends.

Question 7

Which of the following financial statements is concerned with the company at a point in time?

Accepted Answer

The balance sheet is concerned with the company's financial position at a specific point in time by showing its assets, liabilities, and equity. The income statement, retained earnings statement, and statement of cash flows all show the company's financial performance over a period of time.

Question 8

Pinson Company began the year with retained earnings of $670,000. During the year, the company recorded revenues of $600,000, expenses of $380,000, and paid dividends of $140,000. What was Pinson's retained earnings at the end of the year?

Accepted Answer

Retained earnings at the end of the year is calculated as: Beginning retained earnings + Net income - Dividends. Net income is revenues minus expenses. So, $670,000 + ($600,000 - $380,000) - $140,000 = $750,000.

Question 9

In a study session, a classmate makes this statement "Dividends are listed as expenses on the income statement." What is your best response to this statement?

Accepted Answer

The answer of In a study session, a classmate makes...

Question 10

To show how successfully your business performed during a period of time, you would report its revenues and expenses in the

Accepted Answer

The income statement shows the revenues earned and expenses incurred by a business during a specific period of time, such as a month, a quarter or a year. It provides an overview of the company's financial performance and helps investors, creditors and other stakeholders to evaluate the profitability and viability of the business. The balance sheet shows the assets, liabilities and equity of a company at a specific point in time, while the statement of cash flows shows the cash inflows and outflows of a business during a specific period of time. The retained earnings statement shows the changes in the accumulated earnings of a company over time due to profits or losses, dividends and other factors.

Question 11

The company's policy toward dividends and growth could best be determined by examining the

Accepted Answer

The retained earnings statement shows the amount of earnings the company has retained for reinvestment in the business versus how much has been paid out as dividends. By examining this statement, it is possible to determine the company's policy toward dividends and growth.

Question 12

If the retained earnings account decreases from the beginning of the year to the end of the year, then

Accepted Answer

A decrease in retained earnings indicates that more money was paid out to shareholders (in the form of dividends) than was earned by the company (net income). Therefore, net income is less than dividends.

Question 13

Dividends paid

Accepted Answer

Dividends paid represent a distribution of the company's earnings to its shareholders, which reduces the company's retained earnings. Therefore, the correct choice is D, decrease retained earnings.

Question 14

An income statement shows

Accepted Answer

An income statement shows the revenue earned by a company during a period, the expenses incurred to generate that revenue, and the resulting net income (or loss) for the period. Therefore, the correct choice is C. Choices A, B, and D are incorrect because they do not accurately reflect the components of an income statement.

Question 15

Henson Company began the year with retained earnings of $380,000. During the year, the company recorded revenues of $500,000, expenses of $380,000, and paid dividends of $40,000. What was Henson's retained earnings at the end of the year?

Accepted Answer

Retained earnings at the end of the year can be calculated by adding net income (revenue - expenses) to the beginning balance of retained earnings and then subtracting any dividends paid. 
Net income = $500,000 - $380,000 = $120,000
Retained earnings at the end of the year = $380,000 + $120,000 - $40,000 = $460,000. Therefore, the best choice is B.

Question 16

Net income results when

Accepted Answer

Net income results when revenues (income) are greater than expenses. This means that the company has made a profit. If revenues are equal to expenses, there is no net income or net loss. If revenues are less than expenses, the company has incurred a net loss.

Question 17

Finney Company began the year by issuing $80,000 of common stock for cash. The company recorded revenues of $740,000, expenses of $640,000, and paid dividends of $40,000. What was Finney's net income for the year?

Accepted Answer

To find the net income, we use the formula:
Net Income = Revenue - Expenses - Dividends
Substituting the given values, we get:
Net Income = $740,000 - $640,000 - $40,000
Net Income = $60,000
Therefore, the net income for the year is $60,000. Option (C) is the correct answer.

Question 18

Which financial statement is prepared first?

Accepted Answer

The income statement is prepared first as it records the revenues and expenses of a company for a specific period of time (e.g. a month or a year). The other financial statements, such as the balance sheet, retained earnings statement, and statement of cash flows, all rely on information from the income statement.

Question 19

Dividends are reported on the

Accepted Answer

Dividends are reported on the retained earnings statement, which indicates the amount of retained earnings that were distributed to shareholders in the form of dividends. They are not reported on the income statement or balance sheet.

Question 20

Retained earnings at the end of the period is equal to

Accepted Answer

Retained earnings at the end of the period is calculated by adding the net income of the period to the beginning retained earnings and then subtracting any dividends paid during the period. Therefore, retained earnings at the end of the period is equal to retained earnings at the beginning of the period plus net income minus dividends.

Quiz 1: Introduction to Financial Statements