Deck 2: A Closer Look at the Financial Statements

Question 1

The major accounting difference between interest expense for creditors and dividends declared and paid to shareholders is that interest expense:

A)decreases retained earnings and dividends increase retained earnings.
B)impacts cash flows, while dividends do not.
C)is not on the income statement while dividends declared and paid are.
D)is on the income statement and dividends declared and paid are not.

Answer 1

D

Question 2

Which one of the following groups of accounts contains only assets?

A)Equipment, patents, accounts receivable.
B)Accounts receivable, building, retained earnings.
C)Accounts payable, notes payable, contributed capital.
D)Retained earnings, goodwill, and accounts payable.

Answer 2

A

Question 3

Which one of the following is a liability?

A)Interest receivable.
B)Contributed capital.
C)Retained earnings.
D)Wages payable.

Answer 3

D

Question 4

Which one of the following equations represents retained earnings activity for a year?

A)Beginning balance + expenses - dividends = ending balance.
B)Beginning balance + cash receipts - cash payments = ending balance.
C)Beginning balance + dividends - net income = ending balance.
D)Beginning balance + net income - dividends = ending balance.

Question 5

Which one of the following groups of accounts contains only assets?

A)Contributed capital, retained earnings, revenues.
B)Cash, contributed capital, retained earnings.
C)Prepaid expenses, land, accounts receivable.
D)Building, equipment, depreciation expense.

Question 6

Why are liabilities separated into current and long-term?

A)Users want to know which amounts will be paid using current assets.
B)Because current and long-term classifications are just common sense.
C)This format helps a company determine how much profit was made.
D)The SEC requires companies to do so.

Question 7

On which financial statements will you find a company's financial position at a specific point in time?

A)All financial statements combined.
B)Income statement and balance sheet.
C)Balance sheet and statement of shareholders' equity.
D)Balance sheet only.

Question 8

Which account is associated with borrowing money?

A)Interest expense.
B)Goodwill.
C)Cost of goods sold.
D)Depreciation.

Question 9

Which one of the following appears on the income statement?

A)Inventory.
B)Retained earnings.
C)Dividends.
D)Interest revenue.

Question 10

Which expense is associated with long-term assets?

A)Dividends.
B)Depreciation.
C)Cost of goods sold.
D)Interest.

Question 11

Which one of the following groups of accounts contains only liabilities?

A)Accounts payable, retained earnings, notes payable.
B)Supplies expense, cost of goods sold, interest expense.
C)Wages payable, mortgage payable, taxes payable.
D)Contributed capital, accounts payable, retained earnings.

Question 12

Smith Corp. earned $300,000 profit during 2018. On which financial statement(s) will the exact dollar amount of the profit be clearly stated?

A)Statement of shareholders' equity and income statement.
B)Income statement only.
C)Balance sheet and income statement.
D)Statement of shareholders' equity, income statement, and the balance sheet.

Question 13

Which account is associated with the sale of inventory?

A)Cost of goods sold.
B)Depreciation.
C)Inventory expense.
D)Equipment.

Question 14

Current assets are:

A)all assets except inventory.
B)all assets that provide benefits extending beyond one year.
C)cash, accounts receivable, and buildings.
D)all assets that are expected to be converted to cash in the near future.

Question 15

Which one of the following is an asset?

A)A patent of a company's secret formula for reverse osmosis.
B)Retained earnings.
C)Notes payable.
D)Accounts payable.

Question 16

Which one of the following groups of accounts contains only current assets?

A)Inventory, accounts receivable, equipment.
B)Cash, equipment, copyrights.
C)Cash, accounts receivable, merchandise inventory.
D)Patents, copyrights, and trademarks.

Question 17

Which expense is associated with the use of patents?

A)Interest.
B)Amortization.
C)Cost of goods sold.
D)Depreciation.

Question 18

Which one of the following creates a decrease in retained earnings?

A)Prepaid assets.
B)Equipment.
C)Dividends.
D)Merchandise inventory not sold.

Question 19

Long-term investments can include all of the following except:

A)notes receivable maturing in nine months.
B)equity securities of another company to be held for more than a year.
C)ten-year debt securities of another company.
D)land to be held beyond one year.

Question 20

Intangible assets are:

A)goodwill, patents, copyrights, and trademarks.
B)property, plant, and equipment.
C)all assets except current assets.
D)those assets that an owner can purchase with cash only.

Question 21

The amount reported on a company's balance sheet as retained earnings is the same as the amount reported on the company's:

A)income statement as net income.
B)statement of shareholders' equity as beginning retained earnings.
C)statement of cash flows as cash received from operating activities.
D)statement of shareholders' equity as ending retained earnings.

Question 22

Cash reported on a company's balance sheet represents

A)the profit a company made during the current year.
B)the amount the President of the Company has in his or her personal account.
C)the amount collected from customers during the current year less the amount paid for expenses.
D)the currency a company has access to at the balance sheet date.

Question 23

The information below was taken from the 2018 annual report of Jena Corp.
$\begin{array}{|l|c|c|c|} \hline& \mathbf{2 0 1 8} & \mathbf{2 0 1 7} & \mathbf{2 0 1 6} \\\hline \text { Beginning cash balance } & \$ 12,000 & ? & \$ 5,000 \\\hline \text { Net cash flow from operating activities } & 7,987 & ? & 9,100 \\\hline \text { Net cash flow from investing activities } & 2,450 & 4,330 & ? \\\hline \text { Net cash flow from financing activities } & ? & (9,612) & (7,500) \\\hline \text { Ending cash balance } & \$ 11,000 & ? & \$ 12,500\\\hline\end{array}$
Which of the following is the missing amount for the beginning cash balance for 2017?

A)$5,925
B)$8,741
C)$12,500
D)$5,282

Question 24

The information below was taken from the 2018 annual report of Jena Corporation.
$\begin{array}{|l|c|c|c|} \hline& \mathbf{2 0 1 8} & \mathbf{2 0 1 7} & \mathbf{2 0 1 6} \\\hline \text { Beginning cash balance } & \$ 12,000 & ? & \$ 5,000 \\\hline \text { Net cash flow from operating activities } & 7,987 & ? & 9,100 \\\hline \text { Net cash flow from investing activities } & 2,450 & 4,330 & ? \\\hline \text { Net cash flow from financing activities } & ? & (9,612) & (7,500) \\\hline \text { Ending cash balance } & \$ 11,000 & ? & \$ 12,500\\\hline\end{array}$
Which of the following is the missing amount for the net cash flow from investing activities for 2016?

A)$5,900
B)$10,900
C)$15,000
D)$4,450

Question 25

Which one of the following statements is true?

A)A company's own stock is its most liquid asset.
B)Profits are normally kept in a company's retained earnings until distributed as dividends.
C)Long-term investments will be used to pay current liabilities.
D)Current assets have no physical substance.

Question 26

The information below was taken from the 2018 annual report of Jena Corp.
$\begin{array}{|l|c|c|c|} \hline& \mathbf{2 0 1 8} & \mathbf{2 0 1 7} & \mathbf{2 0 1 6} \\\hline \text { Beginning cash balance } & \$ 12,000 & ? & \$ 5,000 \\\hline \text { Net cash flow from operating activities } & 7,987 & ? & 9,100 \\\hline \text { Net cash flow from investing activities } & 2,450 & 4,330 & ? \\\hline \text { Net cash flow from financing activities } & ? & (9,612) & (7,500) \\\hline \text { Ending cash balance } & \$ 11,000 & ? & \$ 12,500\\\hline\end{array}$
Which of the following is the missing amount for the net cash flow from operating activities for 2017?

A)$8,110
B)$4,782
C)$8,475
D)$3,874

Question 27

As used in accounting, "notes" may be reported:

A)only as company debt offerings.
B)only as assets on the balance sheet.
C)as either assets or liabilities.
D)on the income statement or the balance sheet.

Question 28

The most common revenue account is:

A)cash.
B)sales.
C)shareholders' equity.
D)liabilities.

Question 29

The information below was taken from the 2018 annual report of Jena Corp.
$\begin{array}{|l|c|c|c|} \hline& \mathbf{2 0 1 8} & \mathbf{2 0 1 7} & \mathbf{2 0 1 6} \\\hline \text { Beginning cash balance } & \$ 12,000 & ? & \$ 5,000 \\\hline \text { Net cash flow from operating activities } & 7,987 & ? & 9,100 \\\hline \text { Net cash flow from investing activities } & 2,450 & 4,330 & ? \\\hline \text { Net cash flow from financing activities } & ? & (9,612) & (7,500) \\\hline \text { Ending cash balance } & \$ 11,000 & ? & \$ 12,500\\\hline\end{array}$
Which of the following is the missing amount for the net cash flow from financing activities for 2018?

A)($22,437)
B)($11,437)
C)($563)
D)($14,450)

Question 30

Hsu Company has eight major section headings in its balance sheet, which include Current Assets, Long-Term Investments, Property, Plant, and Equipment, Intangible Assets, Current Liabilities, Long-Term Liabilities, and Shareholders' Equity. Below are some of the balance sheet accounts for Hsu:
1.
$\begin{array}{llll}\text { 1. Dividends Payable } & \text { 7. } \text { Wages Payable } \\\text { 2. } \text { Prepaid Rent } & 8 . \text { Deferred Revenues } \\\text { 3. } \text { Trademarks } & 9 . \text { Accumulated Depreciation - } \\\text { 4. } \text { Bonds Payable } & \text { Building } \\\text { 5. Investment Funds for Plant } & 10 . \text { Accounts Receivable } \\\text { Expansion } & 11 . \text { Accounts Payable } \\\text { 6. Inventories } & &\end{array}$
Which of these would be found under the heading "Property, Plant, and Equipment"?

A)5,9
B)5,6,9
C)3,5,6,9
D)9

Question 31

Property, plant and equipment may include which of the following?

A)Intangible assets and land.
B)Inventory and equipment.
C)Buildings and cash.
D)Land and office buildings.

Question 32

Hsu Company has eight major section headings in its balance sheet, which include Current Assets, Long-Term Investments, Property, Plant, and Equipment, Intangible Assets, Current Liabilities, Long-Term Liabilities, and Shareholders' Equity. Below are some of the balance sheet accounts for Hsu:
1.
$\begin{array}{llll}\text { 1. Dividends Payable } & \text { 7. } \text { Wages Payable } \\\text { 2. } \text { Prepaid Rent } & 8 . \text { Deferred Revenues } \\\text { 3. } \text { Trademarks } & 9 . \text { Accumulated Depreciation - } \\\text { 4. } \text { Bonds Payable } & \text { Building } \\\text { 5. Investment Funds for Plant } & 10 . \text { Accounts Receivable } \\\text { Expansion } & 11 . \text { Accounts Payable } \\\text { 6. Inventories } & &\end{array}$
Which of these would be found under the heading "Current Assets"?

A)2,10
B)2,6,8,10
C)2,6,10
D)2,5,10

Question 33

The information below was taken from the 2018 annual report of Jena Corp.
$\begin{array}{|l|c|c|c|} \hline& \mathbf{2 0 1 8} & \mathbf{2 0 1 7} & \mathbf{2 0 1 6} \\\hline \text { Beginning cash balance } & \$ 12,000 & ? & \$ 5,000 \\\hline \text { Net cash flow from operating activities } & 7,987 & ? & 9,100 \\\hline \text { Net cash flow from investing activities } & 2,450 & 4,330 & ? \\\hline \text { Net cash flow from financing activities } & ? & (9,612) & (7,500) \\\hline \text { Ending cash balance } & \$ 11,000 & ? & \$ 12,500\\\hline\end{array}$
Which of the following is the missing amount for the ending cash balance for 2017?

A)$2,759
B)$7,158
C)$12,703
D)$12,000

Question 34

The amount a company expects to collect from its customers is:

A)accounts receivable.
B)short-term equity securities.
C)inventory.
D)accounts payable.

Question 35

Most investors believe that the statement of cash flows is

A)a useful source of information regarding the cash flow of an entity.
B)the only statement in an annual report whose results correlates to stock price value.
C)too complicated.
D)a useful measure of a company's profit.

Question 36

Which of the above transaction(s) are examples of operating activities?
E)2,3,5
F)5,6,8
G)2,3,5,6,8 h.2,5,6

Question 37

Which one of the following is not an asset?

A)A company's equity in the common stock of another company.
B)A company's trademarked name for a process.
C)Retained earnings.
D)Notes receivable.

Question 38

Baron Company has six major headings in its income statement, which include Sales, Fees Earned, Other Revenues, Cost of Goods Sold, Operating Expenses, and Other Expenses. Below are some of the income statement accounts for Baron:

Which of these would be found under the heading "Operating Expenses"?

A)2,8,12
B)2,7,8,12
C)2,5,7,8,11
D)2,5,11

Question 39

On the balance sheet, a company should report the cost of intangible assets:

A)in the current assets section.
B)as an amount owed to shareholders.
C)as an amount that is estimated by the CFO.
D)at acquired cost less any accumulated amortization.

Question 40

Baron Company has six major headings in its income statement, which include Sales, Fees Earned, Other Revenues, Cost of Goods Sold, Operating Expenses, and Other Expenses. Below are some of the income statement accounts for Baron:

Which of these would be found under the heading "Other Revenues"?

A)1,10
B)1,3,4
C)3,4,10
D)3,4,9

Question 41

Sanchez Corporation has total assets, current liabilities, and long-term liabilities of $40,000, $2,000, and $13,000, respectively. If Sanchez purchases equipment for $5,000 for cash, how much would shareholders' equity be?

A)$25,000
B)$10,000
C)$29,000
D)$11,000

Question 42

Given below are several accounts from Caterpillar Company's accounting records.
$\begin{array}{lr}\text { Cash } & \$ 15,000 \\\text { Accumulated depreciation } & 7,000 \\\text { Retained earnings, beginning of year } & 22,000 \\\text { Contributed capital } & 25,000 \\\text { Patents } & 2,000 \\\text { Dividends } & 5,000\end{array}$
Net income for the year was $40,000. How much is total shareholders' equity at the end of the year?

A)$86,000.
B)$88,000.
C)$87,000.
D)$82,000.

Question 43

Below are several accounts from Norel Company's accounting records.
$\begin{array}{lr}\text { Total assets, end of year } & \$ 115,000 \\\text { Total liabilities, end of year } & 36,000 \\\text { Contributed capital, end of year } & 12,000 \\\text { Retained earnings, beginning of year } & 23,000 \\\text { Dividends for the period } & 31,000 \\\text { Net income } & 75,000\end{array}$
The amount of retained earnings at the end of the year is:

A)$39,000.
B)$45,000.
C)$67,000.
D)$69,000.

Question 44

Use the information that follows concerning Ulrich Computer for the year ending December 31, 2018 for problems
Several accounts and amounts from the financial statements of Ulrich Computer appear below for the year ending December 31, 2018.

What is the total amount owed to Ulrich by its customers at the end of 2018?

Question 45

The following information is shown on Morris Company's balance sheet. Answer the questions that follow.

A. How much did debt investors provide to Morris Company?
B. What is the amount of money provided by equity investors to Morris Company?
C. How much would be classified as property, plant, and equipment?

Question 46

Below is all of the account information from Chamber Company's balance sheet, with the exception of Retained Earnings.

Using this information, please calculate the following:
A. The total amount of retained earnings for Chamber Company.
B. The total amount of shareholders' equity for the company at the end in the year.

Question 47

Kelly Company has total assets, liabilities, and shareholders' equity of $32,000, $17,000, and $15,000, respectively at the beginning of 2018. If Kelly reports revenues of $130,000, expenses of $80,000, and pays dividends of $30,000, how much is shareholders' equity at the end of 2018?

A)$35,000
B)$53,000
C)$44,000
D)Not enough information to determine.

Question 48

At the end of 2017, Campbell Company has total assets and liabilities at $42,000 and $11,000, respectively. Campbell reported net income for 2018 in the amount of $12,000. How much is shareholders' equity at the end of 2018?

A)$30,000
B)$22,000
C)$31,000
D)$43,000

Question 49

Favre Company has current assets, shareholders' equity, current liabilities, and long-term liabilities of $20,000, $54,000, $8,000, and $16,000, respectively. How much are long-term assets?

A)$24,000
B)$58,000
C)$64,000
D)$92,000

Question 50

Seuss Company determined its total sales were $500,000, salaries expense was $210,000, dividends paid were $15,000, rent expense was $25,000, other operating expenses were $13,000, and customers still owed $4,000 at the end of the year. How much is net income for the year?

A)$267,000.
B)$252,000.
C)$263,000.
D)$530,000.

Question 51

Use the information that follows concerning Ulrich Computer for the year ending December 31, 2018 for problems
Several accounts and amounts from the financial statements of Ulrich Computer appear below for the year ending December 31, 2018.

How much must Ulrich pay out during its next accounting period for amounts owed?

Question 52

Use the information that follows concerning Ulrich Computer for the year ending December 31, 2018 for problems
Several accounts and amounts from the financial statements of Ulrich Computer appear below for the year ending December 31, 2018.

Calculate Ulrich's total current assets.

Question 53

If the beginning and ending balances in retained earnings are $15,000 and $10,000, respectively, and dividends during the year are $8,000, then net income for the year is:

A)$10,000.
B)$3,000.
C)$18,000.
D)$32,000.

Question 54

Desert Company has retained earnings of $11,000, total assets totaling $41,000, and total liabilities of $20,000. How much is total shareholders' equity?

A)$8,000
B)$19,000
C)$21,000
D)$27,000

Question 55

The following is the balance sheet of Able Corporation immediately prior to deciding how to finance the purchase of a $300 addition to its building.

The bonds payable contract agreement requires current assets to be twice as much as current liabilities. Assume the $300 addition to the building is to be paid in cash and financed by issuing more stock. Calculate and explain the maximum cash that Able can pay and still honor its debt agreement.

Question 56

If cash inflows from operating activities were $2,000, cash outflows for financing activities were $2,500, and the net increase in cash was $4,000, how much are cash flows from investing activities?

Question 57

Autry Company determined its total sales were $400,000, salaries expense was $110,000, dividends paid were $8,000, rent expense was $14,000, other operating expenses were $20,000, and customers still owed $2,000 at the end of the year. How much is net income for the year?

Question 58

Valley Company has cash, current liabilities, and long-term liabilities of $120,000, $30,000, and $31,000, respectively. Valley has no current assets other than cash. How much cash can Valley use to acquire equipment so that amount of current assets is double the amount of current liabilities?

A)$30,000
B)$60,000
C)$15,000
D)$90,000

Question 59

The following is the balance sheet of Columbus Corporation immediately prior to deciding how to finance the purchase of an additional $210,000 parcel of land. Answer the question that follows.

REQUIRED: Columbus will finance the $210,000 investment in land by issuing either $210,000 of common stock or using $210,000 of additional accounts payable that will be due in 90 days. Indicate which method of financing is preferable for Columbus. Consider the effects on short-term solvency positions.

Question 60

Use the information that follows concerning Ulrich Computer for the year ending December 31, 2018 for problems
Several accounts and amounts from the financial statements of Ulrich Computer appear below for the year ending December 31, 2018.

Calculate total expenses for Ulrich.

Question 61

What business aspect does the income statement measure?

Question 62

Describe how the amount of net income relates to the balance sheet.

Question 63

What business aspect does the statement of shareholders' equity measure?

Question 64

What is unique about the way plant and equipment appear on the balance sheet?

Question 65

What is the account, Accounts Payable, used for?

Question 66

Where in a company's financial statements would you locate the 'book value' of the company?

Question 67

Use the information provided from Haloid Company's accounting records to answer questions

How is it possible that Haloid reports "property" in two different places on its balance sheet?

Question 68

A company sold 10 widgets. How will the amounts the company reports as 'Sales' differ from amounts reported as 'Cost of Goods Sold'?

Question 69

Explain the difference between net income and cash flow from operations.

Question 70

Which group of financial statement users would be most concerned with the amount of a company's total current assets and current liabilities?

Question 71

Use the information provided from Haloid Company's accounting records to answer questions

Comment on the following statement: "On December 31, 2018, Haloid's accounts payable exceeds its cash by $5. If Haloid needs additional money to pay its accounts payable, it can use the $115 stashed in its retained earnings".

Question 72

Which asset is more liquid, inventory or accounts receivable? Why?

Question 73

Describe operating activities.

Question 74

What concerns might you have if you examined a company's balance sheet and found a negative amount in retained earnings?

Question 75

What type of assets are included in short-term investments?

Question 76

Give an example of a prepaid expense. Why would a company use this account?

Question 77

Why would a company use a notes receivable account?

Question 78

Which business activity occurs first for a business? Why does this business activity occur first?

Question 79

Explain the concept of liquidity.

Question 80

Which assets on a company's balance sheet have no physical substance? Explain.