Question 1

Madrid Company has provided the following data (ignore income taxes):
2010 revenues were $77,500.
2010 net income was $33,900.
Dividends declared and paid during 2010 totaled $5,700.
Total assets on December 31,2010 were $217,000.
Total stockholders' equity on December 31,2010 was $123,000.
Retained earnings on December 31,2010 were $83,000.
Which of the following is correct?

Accepted Answer

Retained earnings increased $28,200 because net income ($33,900) was greater than dividends ($5,700).

Question 2

During 2011,Canton Company's assets increased $95,500 and their liabilities decreased $17,300.Canton Company's stockholders' equity on December 31,2011 was $211,500.How much was stockholders' equity on January 1,2011?

Accepted Answer

Stockholders' equity ($98,700) on January 1, 2010 = Stockholders equity ($211,500) on December 31, 2010 - the increase in stockholders' equity ($95,500 + 17,300) during 2010.

Question 3

Which of the following is the amount of revenue reported on the income statement of a retail company?

Accepted Answer

Revenue for a retail company includes all sales earned during the accounting period, both cash and credit.

Question 4

Within which of the following would you find the inventory method(s)being used by a business entity?

Accepted Answer

The notes provide information behind the numbers that allow the user to completely understand the financial statements.

Question 5

In what order would the items on the balance sheet appear?

Accepted Answer

The balance sheet order is assets, liabilities, and stockholders' equity. Stockholders' equity includes contributed capital and retained earnings.

Question 6

How are creditor and investor claims reported on a balance sheet?

Accepted Answer

Liabilities and Stockholders' Equity are the sources of financing for the firm's economic resources. Creditors' claims are reported as liabilities while investors' claims are reported as stockholders' equity.

Question 7

Madrid Company has provided the following data (ignore income taxes):
2010 revenues were $77,500.
2010 net income was $33,900.
Dividends declared and paid during 2010 totaled $5,700.
Total assets on December 31,2010 were $217,000.
Total stockholders' equity on December 31,2010 was $123,000.
Retained earnings on December 31,2010 were $83,000.
Which of the following is not correct?

Accepted Answer

Retained earnings increased $28,200 because net income ($33,900) was greater than dividends ($5,700).

Question 8

Lena Company has provided the following data (ignore income taxes):
2010 revenues were $99,000.
2010 expenses were $47,800.
Dividends declared and paid during 2010 totaled $9,500.
Total assets on December 31,2010 were $177,000.
Total liabilities on December 31,2010 were $89,000.
Contributed capital on December 31,2010 was $28,000.
Which of the following is not correct?

Accepted Answer

Stockholders' equity ($177,000 - $89,000) = Contributed capital ($28,000) + Retained earnings ($60,000).

Question 9

Which of the following equations best describes the income statement?

Accepted Answer

The income statement equation is revenues - expenses = net income

Question 10

Lena Company has provided the following data (ignore income taxes):
2010 revenues were $99,000.
2010 expenses were $47,800.
Dividends declared and paid during 2010 totaled $9,500.
Total assets on December 31,2010 were $177,000.
Total liabilities on December 31,2010 were $89,000.
Contributed capital on December 31,2010 was $28,000.
Which of the following is correct?

Accepted Answer

Stockholders' equity ($177,000 - $89,000) = Contributed capital ($28,000) + Retained earnings ($60,000).

Question 11

What are the categories of cash flows that appear on a statement of cash flows?

Accepted Answer

The statement of cash flows has three sections: cash flows from 1) Operations 2) Investing and 3) Financing.

Question 12

Which of the following items is reported as an expense on the income statement?

Accepted Answer

Income statements begin with sales less cost of goods sold. Cost of goods sold is an expense.

Question 13

A company's retained earnings increased $375,000 last year and its assets increased $973,000.The company declared a $79,000 cash dividend during the year.What was last year's net income?

Accepted Answer

The $375,000 increase in retained earnings = Net income ($454,000) - Dividends ($79,000).

Question 14

Which of the following describes the operations section of a cash flow statement?

Accepted Answer

Cash flows from operating activities are cash flows directly related to earning income.

Question 15

At the beginning of 2010,a corporation had assets of $270,000 and liabilities of $160,000.During 2010,assets increased $25,000 and liabilities increased $5,000.What was stockholders' equity on December 31,2010?

Accepted Answer

Stockholders' equity ($130,000) on December 31, 2010 = Beginning stockholders' equity ($270,000 - $160,000) + increase in stockholders' equity ($25,000 - $5,000) during 2010.

Question 16

Which of the following would immediately cause a change in a corporation's retained earnings?

Accepted Answer

Beginning retained earnings + net income - dividends = ending retained earnings

Question 17

On January 1,2010 Miller Corporation had retained earnings of $8,000,000.During 2010,Miller reported net income of $1,500,000,declared dividends of $500,000,and issued stock for $1,000,000.What were Miller's retained earnings on December 31,2010?

Accepted Answer

Ending retained earnings ($9,000,000) = Beginning retained earnings ($8,000,000) + Net income ($1,500,000) - Dividends ($500,000).

Question 18

When would a company report a net loss on the income statement?

Accepted Answer

Net income or loss is equal to revenues less expenses. If expenses exceed revenues, a business would report a net loss.

Question 19

Which of the following describes the amount of insurance expense reported on the income statement?

Accepted Answer

The income statement reports expenses as they are incurred for the accounting period.

Question 20

Which of the following would increase retained earnings?

Accepted Answer

Net income increases retained earnings. Increased revenue, given a fixed expense amount, would increase net income.

Quiz 1: Financial Statements and Business Decisions