Question 1

The income statement:
A) details the firm's assets and liabilities over a period of time.
B) is a financial statement that summarizes a firm's revenues and expenses over a period of time.
C) is a financial statement that shows the firm's financial position at a particular point in time.
D) is a financial statement that summarizes a firm's revenues and expenses at a particular point in time.

Accepted Answer

The income statement is a financial statement that summarizes a firm's revenues and expenses over a period of time, typically a fiscal quarter or year, to show the company's profitability during that time.

Question 2

All of the following items represent liabilities with the exception of:
A) prepaid expenses.
B) accrued expenses.
C) notes payable.
D) long- term debt.

Accepted Answer

Prepaid expenses are considered assets, not liabilities, because they represent payments made in advance for goods or services to be received in the future.

Question 3

Which of the following is a use of cash that would appear on the statement of cash flows?
A) purchase of marketable securities
B) decrease in accounts receivable
C) receipt of interest payments
D) accumulated depreciation

Accepted Answer

The purchase of marketable securities is a cash outflow and would appear as an investing activity on the statement of cash flows.

Question 4

Common equity includes all of the following except:
A) common stock.
B) preferred stock.
C) retained earnings.
D) capital in excess of par.

Accepted Answer

The answer of Common equity includes all of the following...

Question 5

Given the following information, calculate earnings per share: 
A) $3.35
B) $1.95
C) $3.60
D) $2.35

Accepted Answer

The answer of Given the following information, calculate earnings per...

Question 6

According to accounting principles:
A) operating expenses during the year are tied to revenues they helped to generate.
B) net working capital should equal zero.
C) current assets should equal current liabilities.
D) depreciation is a cash expense.

Accepted Answer

Operating expenses are matched with the revenues they help to generate according to the matching principle in accounting. This ensures that expenses are recognized in the same period as the revenues they are related to, providing a more accurate picture of a company's financial performance.

Question 7

Which is TRUE about the Canadian tax system?
A) businesses are taxed at the same rate in all of the provinces.
B) small businesses tend to pay less taxes per dollar earned than larger businesses.
C) corporations cannot claim contributions made to political parties even if they are registered political parties.
D) the Canadian government does not use tax incentives to encourage scientific research.

Accepted Answer

Small businesses in Canada benefit from a lower tax rate compared to larger businesses, as they are eligible for the small business deduction.

Question 8

The Canadian government encourages certain types of business activity by:
A) letting businesses in certain areas pay their taxes one year late with no penalties.
B) using moral suasion.
C) offering tax credits.
D) regularly lowering the general tax rate for all businesses.

Accepted Answer

Offering tax credits is a direct method used by the Canadian government to encourage certain types of business activities, such as research and development, by reducing the amount of tax that businesses owe.

Question 9

Which of the following equations best describes net working capital?
A) total assets - total liabilities
B) cash + inventory- accounts payables
C) fixed assets - long- term liabilities
D) current assets - current liabilities

Accepted Answer

Net working capital is calculated as current assets minus current liabilities, which is option D. This metric is used to assess a company's ability to meet its short-term obligations with its short-term assets.

Question 10

With respect to preferred stock:
A) it is an obligation and must be paid before debt.
B) it is similar to long- term debt.
C) shareholders are paid a dividend based on net income.
D) the dividends paid are tax deductible to the firm.

Accepted Answer

Preferred stock is similar to long-term debt in that it typically provides a fixed dividend payment, similar to the fixed interest payments of long-term debt. However, unlike debt, preferred dividends are not legally obligatory, and failure to pay them does not result in bankruptcy.

Question 11

Retained earnings are:
A) the value of the claim that all shareholders have against the assets of the company.
B) the sum of all the earnings available to common shareholders for the history of the company less any common dividends that have been paid out.
C) cash available to be paid out to common shareholders.
D) the equity capital of the corporation.

Accepted Answer

Retained earnings represent the sum of all net income earned by a company over its history, after subtracting any dividends paid to shareholders. This means it's essentially the portion of profits not distributed to shareholders and reinvested in the business or kept as a reserve for future use.

Question 12

Retained earnings were $1,500,000 at the beginning of the year and $1,800,000 at the end of the year. Net income for the year was $400,000.The company paid $60,000 in preferred dividends. What did they pay in common share dividends?
A) $60,000
B) $100,000
C) $300,000
D) $40,000

Accepted Answer

The answer of Retained earnings were $1,500,000 at the beginning...

Question 13

Net income is $1,000,000 for the year, EBT is $2,500,000, retained earnings in January were $5,000,000, preferred dividends paid for the year are $100,000, common stock dividends paid for the year are $300,000, and common shares outstanding are 1,000,000. What are end- of- year retained earnings?
A) $5,600,000
B) $5,900,000
C) $6,000,000
D) $7,100,000

Accepted Answer

End-of-year retained earnings are calculated by adding net income to the beginning retained earnings and then subtracting any dividends paid. Here, it's $5,000,000 + $1,000,000 - $100,000 - $300,000 = $5,600,000.

Question 14

Gross profit equal:
A) Revenues - cost of goods sold - interest expense
B) Revenues - cost of goods sold
C) Revenues - cost of goods sold - depreciation
D) Revenues - cost of goods sold - operating expenses

Accepted Answer

Gross profit is calculated by subtracting the cost of goods sold (COGS) from total revenues, without deducting any operating expenses, interest, or depreciation.

Question 15

Given the following information, calculate earnings per share. Round to the nearest cent. 
A) 1.20
B) 3.20
C) 1.79
D) 1.39

Accepted Answer

The answer of Given the following information, calculate earnings per...

Question 16

Use the following information to answer the question:  Calculate net income.
A) $459,000
B) $519,000
C) $ 99,000
D) $279,000

Accepted Answer

The answer of Use the following information to answer the...

Question 17

Retained earning:
A) belong to the debt holders.
B) are usually paid out within the year.
C) belong to the common shareholders.
D) belong to all shareholders.

Accepted Answer

Retained earnings are the portion of a company's profits that are kept or retained within the company instead of being paid out as dividends to shareholders. These earnings are reinvested in the company's business for growth and development or to pay off debt. They belong to the common shareholders because they represent a portion of the equity that is not distributed as dividends.

Question 18

Net income is $100,000 and preferred dividends paid are $100,000 and common stock dividends paid are $100,000. Beginning retained earnings were $500,000. The ending balance in retained earnings would b:
A) $500,000
B) $300,000
C) $600,000
D) $400,000

Accepted Answer

The ending balance in retained earnings is calculated by adding net income to the beginning retained earnings and then subtracting dividends paid. Here, the calculation is $500,000 (beginning retained earnings) + $100,000 (net income) - $100,000 (preferred dividends) - $100,000 (common stock dividends) = $400,000.

Question 19

Amortization:
A) is deducted from net income.
B) is a tax deductible non- cash expense.
C) represents a cash outflow on the cash flow statement.
D) is not a true expense.

Accepted Answer

Amortization is a non-cash expense that reduces taxable income, thus it is tax deductible.

Question 20

Selling expenses are subtracted:
A) before operating income.
B) after net income.
C) from depreciation expense.
D) before gross profit.

Accepted Answer

Selling expenses are considered part of operating expenses, which are subtracted from gross profit to calculate operating income. They are not subtracted after net income, from depreciation expense, or before calculating gross profit.

Quiz 2: Essential Concepts in Finance: Part A

The income statement:

All of the following items represent liabilities with the exception of:

Which of the following is a use of cash that would appear on the statement of cash flows?

Common equity includes all of the following except:

Given the following information, calculate earnings per share:

According to accounting principles:

Which is TRUE about the Canadian tax system?

The Canadian government encourages certain types of business activity by:

Which of the following equations best describes net working capital?

With respect to preferred stock:

Retained earnings are:

Retained earnings were $1,500,000 at the beginning of the year and $1,800,000 at the end of the year. Net income for the year was $400,000.The company paid $60,000 in preferred dividends. What did they pay in common share dividends?

Net income is $1,000,000 for the year, EBT is $2,500,000, retained earnings in January were $5,000,000, preferred dividends paid for the year are $100,000, common stock dividends paid for the year are $300,000, and common shares outstanding are 1,000,000. What are end- of- year retained earnings?

Gross profit equal:

Given the following information, calculate earnings per share. Round to the nearest cent.

Use the following information to answer the question: Calculate net income.

Retained earning:

Net income is $100,000 and preferred dividends paid are $100,000 and common stock dividends paid are $100,000. Beginning retained earnings were $500,000. The ending balance in retained earnings would b:

Amortization:

Selling expenses are subtracted: