Question 1

How is the balance sheet linked to the other financial statements?

Accepted Answer

The balance sheet and the statement of retained earnings are linked through retained earnings. Net income, reported on the income statement, increases retained earnings on the statement of retained earnings. This ultimately increases retained earnings on the balance sheet. Therefore, C is the correct answer. Choices A, B, and D are incorrect as they do not accurately describe the link between the balance sheet and other financial statements.

Question 2

Clip Joint Company is ready to sell its bonds.Which one of the following financial questions is most relevant to the issue of the bonds and that investors will most likely want answered before they purchase the bonds?

Accepted Answer

Investors will most likely want to know how much debt the company already has before purchasing its bonds as it will give them an idea of the company's ability to pay back its debts and the level of risk associated with investing in the bonds. The other options are not directly related to the bonds or the company's ability to repay them.

Question 3

Which of the following best describes the term "retained earnings"?

Accepted Answer

Retained earnings refer to the portion of a company's profits that are kept by the company instead of being paid out as dividends to shareholders. It is calculated by subtracting the cumulative dividends paid out from the cumulative profits earned by the company. Therefore, option D is the correct answer as it accurately describes retained earnings. Option A describes total profits earned, option B describes the owners' interest in assets, and option C describes future economic resources which are not directly related to retained earnings.

Question 4

Which financial statement would you analyze to determine if a company distributed any of its profits to its shareholders?

Accepted Answer

The statement of retained earnings shows how a company's net income has been allocated between dividends paid to shareholders and retained earnings. Therefore, analyzing this statement would provide information on whether a company has distributed any of its profits to its shareholders.

Question 5

What is the name of the branch of accounting concerned with providing managers and administrators with information to facilitate the planning and control of business operations?

Accepted Answer

Management accounting is the branch of accounting concerned with providing managers and administrators with information to facilitate the planning and control of business operations. Financial accounting involves reporting financial information to external parties. Auditing involves verifying and examining financial records. Bookkeeping involves recording and maintaining financial transactions.

Question 6

Which one of the following is not one of the three activities included in the definition of accounting?

Accepted Answer

The three activities included in the definition of accounting are communicating financial information, identifying economic transactions, and measuring and summarizing financial data. Operating is not one of these activities.

Question 7

Which one of the following is not an external user of financial statements?

Accepted Answer

The company's controller is an internal user of financial statements who is responsible for preparing and analyzing the financial information to provide insights to management for decision-making. Therefore, option C is not an external user of financial statements.

Question 8

Which of the following is the correct date format for the financial statement heading?

Accepted Answer

The correct date format for financial statement headings is to use the end date of the period being reported. So, "Balance sheet at December 31, 2017" is the correct option. Option A should be "Balance sheet as at June 30, 2017," and option B should be "Income statement for the year ended December 31, 2017." Option D is correct, but not for this question, as it pertains to the date format specifically.

Question 9

Which one of the following items is correct concerning the time element of financial statements?

Accepted Answer

The statement of retained earnings explains changes during a particular period, whereas the balance sheet reflects a specific point in time and the income statement covers a period of time. Therefore, option B is the correct choice.

Question 10

You are a potential stockholder and are concerned that a particular company you are ready to invest in might have too much debt.Which financial statement would provide you with information needed in order to evaluate your concern?

Accepted Answer

The balance sheet provides detailed information about a company's assets, liabilities, and shareholders' equity, allowing investors to assess the company's debt levels and overall financial health.

Question 11

Which one of the following is least likely to be a user of financial information of a grocery store?

Accepted Answer

A customer at the grocery store is least likely to use the financial information of the store as their primary interest is in purchasing goods, not in the financial performance or investment opportunities of the store.

Question 12

Which financial statement would you refer to in order to determine whether a company owed funds to creditors?

Accepted Answer

The balance sheet is the financial statement that provides information on a company's assets, liabilities, and equity, making it the best choice to determine whether a company owes funds to creditors. Liabilities represent debts owed by the company to third parties, including creditors.

Question 13

Which of the following represents the proper order of the financial decision framework?

Accepted Answer

The correct order starts with formulating the question to understand what needs to be decided. Next, gathering information from financial statements provides the necessary data. Analyzing this information helps in evaluating options. Making the decision comes after analysis, and finally, monitoring the decision ensures it achieves the desired outcome.

Question 14

Which one of the following items appears on a balance sheet?

Accepted Answer

Accounts payable is a liability that appears on the balance sheet, representing the amount owed by a company to its suppliers or creditors at a given point in time. Sales revenue, utilities expense, and cost of goods sold are all items that appear on an income statement, which shows a company's financial performance over a period of time, but not on the balance sheet.

Question 15

Which one of the following business decisions will least likely require financial information?

Accepted Answer

None of the other options can be decided without considering financial information. However, deciding when to wash catering vans is purely an operational decision that does not require financial information.

Question 16

Which of the following best describes the term "equity"?

Accepted Answer

Equity refers to the interest or claim that the owners have in a business. It represents the residual value of assets after all liabilities have been satisfied. This means that if the business were to sell all its assets and pay off all its debts, equity would be what remains for the owners.

Question 17

Which one of the following is a correct expression of the accounting equation?

Accepted Answer

The accounting equation is Assets = Liabilities + Owners' Equity, which means that the value of assets is equal to the sum of the values of liabilities and owners' equity.

Question 18

Which one of the following groups is considered an internal user of financial statements?

Accepted Answer

Factory managers who supervise production line workers are internal users of financial statements as they make decisions based on financial information for the company's operations. The other options are external users of financial statements.

Question 19

Which one of the following is an economic obligation for a business entity?

Accepted Answer

Economic obligations refer to the liabilities or debts that a business entity owes to its creditors. Amounts owed to creditors are a prime example of economic obligations. Salaries, materials, and rent are expenses or costs incurred by the business entity but they do not necessarily represent economic obligations.

Question 20

Which one of the following financial statements reports an entity's financial position at a specific date?

Accepted Answer

The balance sheet reports an entity's financial position, including assets, liabilities, and equity, at a specific date. The statement of retained earnings reports changes in retained earnings over a period of time, while the income statement reports an entity's financial performance over a period of time.

Quiz 1: Accounting As a Form of Communication