Question 1

Risk is the uncertainty about the return we will earn.

Accepted Answer

Risk refers to the uncertainty or variability of returns that an investment may generate. Therefore, it is true that risk is the uncertainty about the return we will earn.

Question 2

Generally the lower the risk, the higher the return that can be expected.

Accepted Answer

Generally, the higher the risk, the higher the potential return that can be expected. This is because investors require an incentive to take on more risk. However, there are some exceptions to this rule, and lower-risk investments may still provide reasonable returns in certain situations.

Question 3

An income statement reports on investing and financing activities.

Accepted Answer

An income statement reports on a company's revenue, expenses, and net income or loss for a specific period of time. It does not report on investing and financing activities, which are generally reported on the cash flow statement and balance sheet, respectively.

Question 4

U. S. Government Treasury bonds provide low return and low risk to investors.

Accepted Answer

U.S. Government Treasury bonds are considered low risk investments because they are backed by the full faith and credit of the U.S. government. However, their return is also relatively low compared to other investment options.

Question 5

Ending retained earnings on the statement of retained earnings is calculated by adding stockholder investments and net losses and subtracting net income and dividends.

Accepted Answer

The ending retained earnings on the statement of retained earnings is calculated by adding the beginning retained earnings, net income, and any adjustments, and subtracting dividends. It does not involve adding stockholder investments and net losses.

Question 6

Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business.

Accepted Answer

Investing activities involve the acquisition and disposal of long-term assets, including property, plant, and equipment, as well as investments in other companies or ventures.

Question 7

The four basic financial statements include the balance sheet, income statement, statement of retained earnings, and statement of cash flows.

Accepted Answer

The four basic financial statements are indeed the balance sheet, income statement, statement of retained earnings, and statement of cash flows.

Question 8

The purchase of supplies appears on the statement of cash flows as an investing activity because it involves the purchase of assets.

Accepted Answer

The purchase of supplies is a part of operating activities because it is a regular expense for the business and is recorded in the income statement as an expense. Investing activities include the purchase or sale of long-term assets like property, plant, and equipment, or investments in other companies.

Question 9

Arrow's net income of $117 million and average assets of $1,400 million results in a return on assets of 8.36%.

Accepted Answer

Return on Assets = Net Income/Average Assets
Return on Assets = $117 million/$1,400 million = 8.36%

Question 10

The first section of the income statement reports cash flows from operating activities.

Accepted Answer

The first section of the cash flow statement reports cash flows from operating activities, not the income statement.

Question 11

Return on assets reflects a company's ability to generate profit through productive use of its assets.

Accepted Answer

Return on assets (ROA) is a financial ratio that measures a company's ability to generate profit relative to its total assets. It shows how efficiently a company is using its assets to generate earnings.

Question 12

Accounting is an information and measurement system that does all of the following except:

Accepted Answer

Accounting provides financial information and measurements to help businesses make informed decisions, but it does not eliminate the need for interpreting financial data. Interpretation is necessary to understand and apply the information provided by accounting.

Question 13

The income statement shows the financial position of a business on a specific date.

Accepted Answer

The income statement shows the financial performance of a business over a specific period of time (such as a month, quarter, or year), not its financial position on a specific date. The balance sheet is the financial statement that shows the financial position of a business on a specific date.

Question 14

The balance sheet is based on the accounting equation.

Accepted Answer

The balance sheet is a financial statement that presents a company's financial position at a specific point in time. It is based on the accounting equation, which states that assets equals liabilities plus equity. This equation must hold true for the balance sheet to be accurate.

Question 15

The income statement describes revenues earned and expenses incurred over a specified period of time due to earnings activities.

Accepted Answer

The income statement is a financial statement that presents a company's revenues and expenses over a specific period of time, usually a quarter or a year. It shows the company's net income or loss for the period, and serves as a key indicator of a company's financial performance.

Question 16

Operating activities include long-term borrowing and repaying cash from lenders, and cash investments or dividends to stockholders.

Accepted Answer

Operating activities involve day-to-day business activities that generate revenue and expenses, such as sales, purchasing inventory, and paying salaries. Long-term borrowing and repayment of cash from lenders, as well as cash investments or dividends to stockholders, fall under financing activities.

Question 17

The income statement reports on operating activities at a point in time.

Accepted Answer

The income statement reports on operating activities over a specific period of time, usually a month, quarter, or year. It shows revenues and expenses during that time period and the resulting net income or loss.

Question 18

The statement of cash flows shows the net effect of revenues and expenses for a reporting period.

Accepted Answer

The statement of cash flows shows the net effect of cash inflows and outflows for a reporting period, not revenues and expenses.

Question 19

A balance sheet covers activities over a period of time such as a month or year.

Accepted Answer

A balance sheet is a financial statement that shows a company's assets, liabilities, and equity at a given point in time, such as the end of a quarter or year. It does not cover activities over a period of time like a month or year.

Question 20

The statement of cash flows identifies cash flows separated into operating, investing, and financing activities over a period of time.

Accepted Answer

The statement of cash flows provides information on the cash inflows and outflows from operating activities, investing activities, and financing activities over a period of time.

Quiz 1: Accounting in Business