Question 1

Another name for the statement of financial position is the

Accepted Answer

The statement of financial position is another name for the balance sheet. The balance sheet shows the assets, liabilities, and equity of a company at a specific point in time. It is called a statement of financial position because it reflects the financial position of the company at that specific point in time. The other options such as income statement, statement of owners' equity, and earnings statement are different financial statements that show different aspects of a company's financial performance.

Question 2

The term ____ describes assets that can be quickly converted into cash or consumed in one year or less.

Accepted Answer

Current assets are assets that can be easily converted into cash or consumed within one year or less. Examples include cash, accounts receivable, inventory, and prepaid expenses. Expenses (A) are costs incurred to generate revenue, and do not relate to assets. Overhead costs (B) are indirect costs associated with running a business, such as utilities and rent. Acid-test assets (D) are a subset of current assets that excludes inventory, as inventory may not be easily convertible to cash. Fixed assets (E) are long-term assets like equipment and property that are not easily converted to cash.

Question 3

Television sets that Best Buy owns for selling to its customers are classified as

Accepted Answer

The television sets that Best Buy owns for selling to its customers are considered as merchandise inventory because they are intended for resale and represent the primary source of revenue for the company.

Question 4

Cash, marketable securities, notes receivable, and merchandise inventory are examples of

Accepted Answer

Cash, marketable securities, notes receivable, and merchandise inventory are examples of current assets, which are assets that are expected to be converted into cash or used up within one year or the operating cycle of the business (whichever is longer).

Question 5

Dr. Ted Walker runs a chiropractic clinic. He typically bills his customers for services he performs and gives them about 30 days to make the payments. These amounts of money that his customers owe are called

Accepted Answer

The amounts of money that Dr. Ted Walker's customers owe him are called accounts receivable because they represent the money owed to him for services already performed but not yet paid for. Option A (allowances for doubtful accounts) relates to an estimation of the portion of accounts receivable that are not collectible, while options B (prepaid expenses), C (unearned revenue), and D (intangible assets) do not relate to the situation described in the question.

Question 6

The Cheese Shoppe's liabilities total $59,000 and its owners' equity is $124,000. Which of the following is true?

Accepted Answer

The total assets equal the sum of liabilities and owners' equity, therefore Total assets = Liabilities + Owners' equity = $59,000 + $124,000 = $183,000.

Question 7

The most liquid asset is

Accepted Answer

Cash is considered to be the most liquid asset because it can be readily used to make purchases or payments without any delay or additional conversion steps. Other assets may require additional processing or time to convert to cash, making them less liquid.

Question 8

Which of the following presents assets in the correct balance sheet order?

Accepted Answer

Assets on a balance sheet are typically listed in order of liquidity, starting with the most liquid assets. Cash is the most liquid asset, followed by inventory and equipment, which are less liquid. This makes option C the correct order.

Question 9

The value of goods on hand for sale to customers is called

Accepted Answer

Merchandise inventory refers to the value of goods that a company has on hand and available for sale to customers. Option A, C, D, and E are all other important financial terms but do not specifically refer to the value of goods on hand for sale.

Question 10

For John Deere, a tractor and farm equipment manufacturer, spark plugs to be installed in its equipment would be classified on the balance sheet as

Accepted Answer

Spark plugs would be considered as inventory because they are a type of product that John Deere sells and intends to sell in the normal course of business. They have not yet been used or consumed, so they are not considered a prepaid expense or supplies. They are also not considered equipment or subject to depreciation until they have been installed in a piece of equipment.

Question 11

Jack Stanley graduated from college and obtained a full-time job in accounting. At the end of his first year of employment, his assets totaled $9,000. His liabilities totaled $3,000. His ____ was $6,000.

Accepted Answer

Net worth is calculated by subtracting liabilities from assets. In this case, $9,000 - $3,000 = $6,000.

Question 12

Kim's Copy Shop is in the process of organizing its assets in the appropriate order. The manager asks you for help in arranging the following assets: equipment, accounts receivable, cash, merchandise inventory, and notes receivable. You list ____ first and ____ last.

Accepted Answer

Cash is listed first because it is the most liquid asset, and equipment is listed last because it is the least liquid among the options provided.

Question 13

Assets = liabilities + owners' equity is the equation for information reported on the

Accepted Answer

The equation Assets = Liabilities + Owners' equity is the fundamental equation underlying the balance sheet, which is a financial statement that reports a company's assets, liabilities, and owners' equity at a particular point in time. Therefore, the correct answer is option B. The other options are incorrect because:

A) The checking balance only reports the current balance of a checking account and not the assets, liabilities, and owners' equity of a company.

C) The income statement reports a company's revenues and expenses over a period of time but does not report its assets, liabilities, and owners' equity.

D) The earnings statement is not a commonly used financial statement in accounting or finance.

E) The statement of owners' equity reports the changes in owners' equity over a period of time, but it does not report a company's assets and liabilities.

Question 14

All of the following are acceptable ways of stating the accounting equation except

Accepted Answer

The correct accounting equation is Assets = Liabilities + Owners' Equity. Option C incorrectly rearranges the equation, suggesting Owners' Equity minus Liabilities equals Assets, which misrepresents the relationship between these components.

Question 15

The ease with which an asset can be converted into cash is referred to as its

Accepted Answer

Liquidity refers to the ability of an asset to be easily and quickly converted into cash without losing value. Higher liquidity assets are preferred as they provide ready cash for emergencies or investment opportunities. Profitability refers to the ability of an asset to generate returns. Solvency refers to the ability of an individual or organization to meet its financial obligations. Convertibility refers to the ability of a currency to be exchanged into another currency or asset. Capitalization capacity refers to the ability of an asset to raise capital.

Question 16

All of the following are current assets except

Accepted Answer

Office equipment is a fixed asset, not a current asset. The other choices listed are all current assets as they are expected to be converted into cash or used up within a year.

Question 17

The balance sheet is composed of

Accepted Answer

The balance sheet is a financial statement that shows a company's assets, liabilities, and owners' equity at a specific point in time. Therefore, the correct answer is A as it includes all three components of the balance sheet. B, C, D, and E are incorrect as they either leave out one or more components of the balance sheet or include items that are not part of it.

Question 18

If a company has $50,000 of assets, which of the following could be true?

Accepted Answer

The accounting equation states that Assets = Liabilities + Owners' Equity. With $50,000 in assets, having $23,000 in owners' equity and $27,000 in liabilities satisfies this equation: $23,000 + $27,000 = $50,000.

Question 19

If the liabilities of a business are $85,000 and the owners' equity is $110,000, which of the following is a true statement?

Accepted Answer

The equation for the balance sheet is Assets = Liabilities + Owners' Equity. Therefore, Assets = $85,000 + $110,000 = $195,000.

Question 20

What is the correct order for the balance sheet?

Accepted Answer

The correct order for the balance sheet is assets, liabilities, and owners' equity. This is because assets represent what the company owns, liabilities represent what the company owes to others, and owners' equity represents the amount that the stakeholders have invested in the company. This order is important because it helps to show how the company's assets are being used to pay off its liabilities, and how much equity is left over for the owners.

Quiz 17: Using Management and Accounting Information