Question 1

Which of the basic financial statements is used to explain changes in the owner's equity that are not explained by the income statement?
A)Balance sheet
B)Statement of shareholders' equity
C)Income statement
D)Cash flow statement

Accepted Answer

The statement of shareholders' equity explains the changes in the owner's equity that are not explained by the income statement, such as changes due to stock issuances, dividends, and other transactions that impact equity. The balance sheet provides a snapshot of the company's assets, liabilities, and equity at a given point in time, while the income statement shows the company's revenues, expenses, and net income over a period of time. The cash flow statement demonstrates the inflows and outflows of cash during a given period, but does not provide information about changes in equity.

Question 2

Which of the following is best represents the income stream that is available to common stockholders?
A)Earnings before interest and taxes
B)Gross profit
C)Operating profit
D)Net profit after tax and after preferred dividend payments

Accepted Answer

Net profit after tax and after preferred dividend payments represents the income stream that is available to common stockholders, as they only receive dividends after preferred dividend payments have been made and taxes paid. Earnings before interest and taxes, gross profit, and operating profit all represent income before expenses such as taxes and dividend payments.

Question 3

Net value of property and equipment is calculated as:
A)total property and equipment minus long-term debt minus depreciation and amortization.
B)total property and equipment minus selling,general and administrative expenses minus depreciation and amortization.
C)total property and equipment minus depreciation and amortization.
D)None of the above.

Accepted Answer

Net value of property and equipment is calculated as total property and equipment minus depreciation and amortization. This is because depreciation and amortization represent the wear and tear and loss of value of the assets. Long-term debt and selling, general and administrative expenses are not relevant in calculating the net value of property and equipment.

Question 4

Stock that is repurchased by the issuing company is called:
A)paid in capital.
B)retained capital.
C)treasury stock.
D)par value stock.

Accepted Answer

Treasury stock is stock that has been issued and then repurchased by the issuing company. It is not considered outstanding stock and does not receive dividends or have voting rights.

Question 5

Which of the following would NOT be included as an asset on a corporate balance sheet?
A)Accounts receivable
B)Preferred stock
C)Inventory
D)Buildings

Accepted Answer

Preferred stock represents ownership in the company and is listed under shareholder's equity, not as an asset.

Question 6

Which of the following statements regarding the balance sheet is NOT correct?
A)The balance sheet provides a snapshot of the firm's financial position at a given point in time.
B)The balance sheet lists the firm's assets,liabilities,and equity.
C)The balance sheet reports liabilities on the left side.
D)The balance sheet reports stockholders' equity on the right side.

Accepted Answer

The balance sheet reports assets on the left side and liabilities and equity on the right side. Therefore, statement C is not correct.

Question 7

Which of the following will decrease total equity? An increase in:
A)common stock material.
B)net income.
C)dividends paid.
D)interest expense.

Accepted Answer

Dividends paid represents a distribution of earnings to shareholders and reduces the amount of retained earnings, which in turn decreases the total equity.

Question 8

Which of the following is the least liquid current asset?
A)Accruals
B)Accounts receivable
C)Marketable securities
D)Inventory

Accepted Answer

Inventory is considered the least liquid current asset because it may take time to sell and convert into cash. Accruals, accounts receivable, and marketable securities can generally be converted into cash more quickly.

Question 9

Who owns the retained earnings of a public firm?
A)Common stockholders
B)Bondholders
C)Management
D)The IRS

Accepted Answer

Retained earnings represent the portion of net income that a company decides to keep rather than distribute to its shareholders as dividends. These earnings are reinvested in the company, often for capital improvements, debt reduction, or to keep on hand for future financial needs. As such, retained earnings are owned by the common stockholders since they represent part of the equity of the company that is not distributed back to the shareholders but instead reinvested on their behalf.

Question 10

Which of the following is NOT be included as equity in a corporate balance sheet?
A)Paid in capital
B)Cash
C)Common stock
D)Retained earnings

Accepted Answer

Cash is not considered equity but rather an asset on the balance sheet. Equity includes items such as paid in capital, common stock, and retained earnings.

Question 11

A firm reports the following balance sheet items: total current liabilities of $535,000; total assets of $2,500,000; fixed and other assets of $1,850,000; and long-term debt of $200,000.What is the amount of the firm's net working capital?
A)$115,000
B)$450,000
C)$335,000
D)$1,315,000

Accepted Answer

Net working capital is calculated as current assets minus current liabilities. From the information given, total assets are $2,500,000, of which fixed and other assets are $1,850,000. Therefore, current assets are $2,500,000 - $1,850,000 = $650,000. Subtracting the current liabilities of $535,000 from the current assets of $650,000 gives a net working capital of $115,000.

Question 12

Which of the following would NOT be included as a liability in a corporate balance sheet?
A)Accruals
B)Notes payable
C)Accounts payable
D)Depreciation

Accepted Answer

Depreciation is not a liability on the balance sheet, as it is a non-cash expense related to the depreciation of assets. Liabilities are obligations that a company owes to others, such as creditors or suppliers, and typically involve the payment of cash or other assets in the future. Accruals, notes payable, and accounts payable are all examples of liabilities that would be included on a balance sheet.

Question 13

Which of the following is NOT considered a fixed asset?
A)Land
B)Equipment
C)Buildings
D)Patents

Accepted Answer

Patents are considered as an intangible asset as they are not a physical asset that can be seen or touched.

Question 14

Which is NOT an example of current assets?
A)Marketable securities
B)Intangible assets
C)Prepaid expenses
D)Trade receivables

Accepted Answer

Intangible assets are long-term assets and not current assets. The other options listed (marketable securities, prepaid expenses, and trade receivables) are all examples of current assets.

Question 15

A firm reports the following balance sheet items; total current liabilities of $535,000; total assets of $2,500,000; net working capital of $115,000; and long-term debt of $200,000.What is the amount of the firm's current assets?
A)$1,315,000
B)$1,965,000
C)$650,000
D)$735,00

Accepted Answer

Current Assets = Net Working Capital + Total Current Liabilities
Current Assets = $115,000 + $535,000
Current Assets = $650,000

Question 16

Which of the basic financial statements attempts to measure the earnings of the firm's operations over a given time period?
A)Balance sheet
B)Income statement
C)Cash flow statement
D)None of the above

Accepted Answer

The income statement (also known as the profit and loss statement) attempts to measure the earnings of the firm's operations over a given time period, typically a quarter or a year. It shows how much revenue was generated, the expenses incurred to generate that revenue, and the resulting net income or loss. The balance sheet, on the other hand, is a snapshot of the firm's financial position at a specific point in time, showing its assets, liabilities, and equity. The cash flow statement shows the sources of the firm's cash inflows and outflows over a given time period, but does not directly measure earnings.

Question 17

The statement of financial position is also known as the:
A)balance sheet
B)statement of stockholders' equity.
C)income statement.
D)statement of cash flows.

Accepted Answer

The statement of financial position is another term for the balance sheet, which shows a company's assets, liabilities, and equity at a specific point in time. The other options listed are different financial statements.

Question 18

Which of the following balance sheet equations is NOT CORRECT?
A)Assets - Current Liabilities = Long-Term Liabilities
B)Assets - liabilities = Shareholders' Equity
C)Assets = Liabilities + Shareholders' Equity
D)Assets - Current Liabilities = Long-Term Liabilities + Shareholders' Equity

Accepted Answer

The correct equation is Assets - Liabilities = Shareholders' Equity, which means that the total value of the company's assets must equal the sum of its liabilities and shareholders' equity. Option A is incorrect as it suggests that the difference between assets and current liabilities is equal to long-term liabilities, which is not accurate.

Question 19

A consolidated balance sheet refers to:
A)a balance sheet of a large firm that has numerous subsidiaries,each with its own balance sheet that have been combining into one all-encompassing balance sheet.
B)a balance sheet of a large firm that has combined the balance sheets fo all wholly owned and some partially owned subsidiaries into one separate balance sheet.
C)a balance sheet of a large firm that has combined the balance sheet of all partially owned subsidiaries into one separate balance sheet.
D)All of the above.

Accepted Answer

A consolidated balance sheet is a financial statement that shows the combined assets, liabilities, and equity of a parent company and its subsidiaries. Option B is the correct definition as it states that the balance sheets of all wholly owned and partially owned subsidiaries have been combined into one separate balance sheet. Option A refers to a consolidated financial statement, but not necessarily a balance sheet. Option C is incorrect as it only refers to partially owned subsidiaries. Option D is incorrect as it includes option A, which may not necessarily refer to a balance sheet.

Question 20

Which of the following describes a balance sheet?
A)Reports the amount and composition of assets and liabilities at a specified point in time?
B)Reports cash receipts and cash disbursements for a specific accounting period.
C)Reports the amount and composition of assets and liabilities at a specific accounting period.
D)Reports revenues and expenses for a specific accounting period.

Accepted Answer

A balance sheet is a financial statement that reports the amount and composition of assets and liabilities at a specific point in time, generally at the end of an accounting period. It provides a snapshot of a company's financial position and helps stakeholders understand its financial health.

Quiz 3: Understanding Financial Statements

Which of the basic financial statements is used to explain changes in the owner's equity that are not explained by the income statement?

Which of the following is best represents the income stream that is available to common stockholders?

Net value of property and equipment is calculated as:

Stock that is repurchased by the issuing company is called:

Which of the following would NOT be included as an asset on a corporate balance sheet?

Which of the following statements regarding the balance sheet is NOT correct?

Which of the following will decrease total equity? An increase in:

Which of the following is the least liquid current asset?

Who owns the retained earnings of a public firm?

Which of the following is NOT be included as equity in a corporate balance sheet?

A firm reports the following balance sheet items: total current liabilities of $535,000; total assets of $2,500,000; fixed and other assets of $1,850,000; and long-term debt of $200,000.What is the amount of the firm's net working capital?

Which of the following would NOT be included as a liability in a corporate balance sheet?

Which of the following is NOT considered a fixed asset?

Which is NOT an example of current assets?

A firm reports the following balance sheet items; total current liabilities of $535,000; total assets of $2,500,000; net working capital of $115,000; and long-term debt of $200,000.What is the amount of the firm's current assets?

Which of the basic financial statements attempts to measure the earnings of the firm's operations over a given time period?

The statement of financial position is also known as the:

Which of the following balance sheet equations is NOT CORRECT?

A consolidated balance sheet refers to:

Which of the following describes a balance sheet?