Deck 1: The Financial Statements

Question 1

The SEC Edgar file contains information on all:

A)US companies traded on the American Stock Exchange.
B)publicly traded companies in the US.
C)companies on the SEC "watch list."
D)US companies traded on the New York Stock Exchange.

Answer 1

B

Question 2

Gains and losses appear on which of the financial statements listed below?

A)Statement of cash flows
B)Statement of retained earnings
C)Balance sheet
D)Income statement

Answer 2

D

Question 3

All of the following are forms of business organizations EXCEPT:

A)limited liability company.
B)proprietorship.
C)limited partnership.
D)limited proprietorship.

Answer 3

D

Question 4

The statement of cash flows is divided into which three categories?

A)Planning, executing, and evaluating activities
B)Increasing, decreasing, and non- cash activities
C)Operating, investing, and financing activities
D)Developing, producing, and marketing activities

Question 5

Net income is:

A)deducted from beginning retained earnings on the retained earnings statement.
B)added to assets on the balance sheet.
C)added to beginning retained earnings on the retained earnings statement.
D)deducted from ending retained earnings on the retained earnings statement.

Question 6

Accounts receivable would appear on the:

A)balance sheet with the current assets.
B)retained earnings statement with the net income.
C)income statement with the revenues.
D)balance sheet with the current liabilities.

Question 7

Expenses are:

A)increases in retained earnings resulting from operations.
B)increases in assets resulting from operations.
C)decreases in retained earnings resulting from operations.
D)increases in liabilities resulting from purchasing assets.

Question 8

The CEO of a business owns a residence in Flagstaff. The company the CEO works for owns a residence in Chandler used for strategic planning meetings by its executives. Which of these properties is considered an assets)of the business?

A)The Flagstaff residence only
B)The Chandler residence only
C)Both the Flagstaff and Chandler residences
D)Neither the Flagstaff nor Chandler residences

Question 9

Net income is computed as:

A)revenues - expenses.
B)revenues - expenses - dividends.
C)revenues - expenses + dividends.
D)revenues + expenses.

Question 10

Which financial statement provides a "snapshot photo" of one moment in time?

A)Statement of retained earnings and income statement
B)Balance sheet only
C)Statement of cash flows only
D)Income statement only

Question 11

Which financial statement must be prepared before the others?

A)Retained earnings statement
B)Statement of cash flows
C)Balance sheet
D)Income statement

Question 12

The acronym GAAP stands for:

A)Generally Acceptable Authorized Pronouncements.
B)Government Audited Accounting Pronouncements.
C)Government Authorized Accountant Principles.
D)Generally Accepted Accounting Principles.

Question 13

Who ultimately controls a corporation?

A)Board of Directors
B)The stockholders
C)The Chief Executive Officer CEO)
D)The President

Question 14

Revenues were $170,000, expenses were $90,000, and cash dividends were $30,000. What was the net income and the change in retained earnings for the period?

A)Net income was $250,000; change in retained earnings was $250,000
B)Net income was $80,000; change in retained earnings was $80,000
C)Net income was $80,000; change in retained earnings was $50,000
D)Net income was $50,000; change in retained earnings was $50,000

Question 15

Assets are generally classified as:

A)producing assets and consumable assets.
B)current assets and long- term assets.
C)long- term assets and consumable assets.
D)current assets and producing assets.

Question 16

Stockholders' equity decreases as a result of:

A)owner investments.
B)a net loss during the period.
C)a net income during the period.
D)Both A and C are correct.

Question 17

A net loss occurs when:

A)total revenues exceed total expenses.
B)total revenues and dividends exceed total expenses.
C)not enough cash exists.
D)total expenses exceed total revenues.

Question 18

Assets appear on the:

A)statement of retained earnings.
B)income statement.
C)both balance sheet and the statement of retained earnings.
D)balance sheet.

Question 19

Cost of goods sold appears on the:

A)balance sheet as a deduction from sales.
B)statement of retained earnings as an addition to beginning retained earnings.
C)income statement as a deduction from gross profit.
D)income statement as a deduction from sales.

Question 20

For which form of business ownership are the owners of a business legally distinct from the business?

A)Partnership
B)Proprietorship
C)Corporation
D)All of the above

Question 21

The main source of cash for a business comes from:

A)operating activities on the statement of cash flows.
B)financing activities on the statement of cash flows.
C)investing activities on the statement of cash flows.
D)current assets on the balance sheet.

Question 22

The balance sheet contains the:

A)amount of cash dividends paid to stockholders.
B)beginning balance in retained earnings.
C)ending balance in retained earnings.
D)amount of net income or net loss.

Question 23

Equipment would appear on the:

A)income statement with the revenues.
B)balance sheet with the current assets.
C)income statement with the operating expenses.
D)balance sheet with the long- term assets.

Question 24

A company's gross profit for the period is reported on the:

A)statement of retained earnings.
B)income statement.
C)balance sheet.
D)statement of cash flows.

Question 25

The balance sheet is also known as the:

A)assets statement.
B)statement of profit and loss.
C)statement of financial position.
D)operating statement.

Question 26

On January 1, 2009, total assets for Liftoff Technologies were $125,000; on December 31, 2009, total assets were $145,000. On January 1, 2009, total liabilities were $110,000; on December 31, 2009, total liabilities were $115,000. What is the amount of the change and the direction of the change in Liftoff Technologies' stockholders' equity for 2009?

A)Decrease of $30,000
B)Increase of $15,000
C)Decrease of $15,000
D)Increase of $30,000

Question 27

Which statements)summarizes the revenues and expenses of an entity?

A)Statement of cash flows and income statement
B)Balance sheet only
C)Statement of operations only
D)Statement of retained earnings and statement of operations

Question 28

Claims held by the stockholders of a corporation are also known as:

A)paid- in capital plus retained earnings.
B)retained earnings.
C)paid- in capital.
D)net income.

Question 29

The ending balance in Retained Earnings appears on the:

A)statement of retained earnings only.
B)balance sheet only.
C)income statement and statement of cash flows.
D)balance sheet and statement of retained earnings.

Question 30

When treasury stock is purchased by a company, this transaction:

A)decreases the amount of total liabilities.
B)increases the amount of owners' equity.
C)increases the amount of total liabilities.
D)decreases the amount of owners' equity.

Question 31

The owners' interest in the assets of a corporation is known as:

A)long- term assets.
B)common stock.
C)stockholders' equity.
D)operating expenses.

Question 32

Which of the following best describes a liability? Liabilities are:

A)a form of paid- in capital.
B)payables of the corporation.
C)economic obligations to owners to be paid at some future date by the corporation.
D)future economic benefits to which a company is entitled.

Question 33

Revenues are:

A)decreases in assets resulting from delivering goods or services to customers.
B)increases in liabilities resulting from delivering goods or services to customers.
C)decreases in retained earnings resulting from delivering goods or services to customers.
D)increases in retained earnings resulting from delivering goods or services to customers.

Question 34

Where would the payment of salaries appear on the statement of cash flows?

A)Not on statement of cash flows, but on the statement of earnings with the revenues
B)Not on statement of cash flows, but on the statement of operations as part of cost of goods sold
C)With the current liabilities
D)With the operating activities

Question 35

Which of the following is a component of stockholders' equity?

A)Retained earnings
B)Cash
C)Notes payable
D)Fixed assets

Question 36

The income statement presents a summary of the:

A)changes that occurred in the stockholders' equity of an entity.
B)revenues and expenses of an entity for a specific time period.
C)assets and liabilities of an entity.
D)cash inflows and outflows of an entity.

Question 37

Operating expenses appear on the income statement:

A)Operating expenses do not appear on the income statement.
B)directly after cost of goods sold.
C)directly after revenue.
D)directly after gross profit.

Question 38

All of the following are characteristics of useful accounting information EXCEPT:

A)relevant.
B)reliable.
C)consistent.
D)informative.

Question 39

Financial statements are:

A)standard documents that tell us how well a business is performing and where it stands in financial terms.
B)reports issued by outside consultants who are hired to analyze key operations of the business.
C)standard documents issued by outside consultants who are hired to analyze key operations of the business in financial terms.
D)reports created by management that states it is responsible for the acts of the corporation.

Question 40

The relevant measure of the value of the assets of a company that is going out of business is the:

A)book value.
B)historical cost.
C)recorded value.
D)current market value.

Question 41

How would cash collected from customers appear on the statement of cash flows?

A)Under the indirect method
B)As an investing activity
C)As an operating activity
D)As a financing activity

Question 42

A potential investor interested in evaluating a company's financial performance for the current period would probably examine which of the following financial statements?

A)Balance sheet only
B)Statement of retained earnings and balance sheet
C)Income statement only
D)Statement of cash flows and income statement

Question 43

At the beginning of the period, assets were $490,000 and stockholders' equity was $240,000. During the year, assets increased by $60,000, liabilities increased by $40,000, and stockholders' equity increased by $20,000. Beginning liabilities must have been:

A)$300,000.
B)$280,000.
C)$230,000.
D)$250,000.

Question 44

The principle which states that assets acquired by the business should be recorded at their actual price is the:

A)reliability principle.
B)stable dollar principle.
C)objectivity principle.
D)cost principle.

Question 45

Which of the following statements is FALSE?

A)An independent appraisal, conducted by a licensed professional, is usually considered reliable.
B)Reliable data are verifiable.
C)Reliable data may be supported by objective evidence.
D)The informed opinion of owners is an important source of objective evidence.

Question 46

The change in cash, as shown on the statement of cash flows, can be found on the:

A)statement of financial position.
B)income statement, as seen as earnings before interest and taxes.
C)balance sheet, as the difference between the cash figures for the different years.
D)statement of retained earnings, as the difference between net income and dividends paid.

Question 47

Depreciation is normally associated with which asset on the balance sheet?

A)Land
B)Equipment
C)Accounts receivable
D)Inventory

Question 48

If assets increase $210,000 during a given period and liabilities increase $65,000 during the same period, stockholders' equity must:

A)increase $145,000.
B)increase $275,000.
C)decrease $275,000.
D)decrease $145,000.

Question 49

In relation to the cash flow statement, purchases and sales of long- term assets are examples of:

A)accrual activities.
B)operating activities.
C)investing activities.
D)financing activities.

Question 50

Current assets are assets expected to be converted to cash, sold, or consumed:

A)within the next 12 months or within the business's normal operating cycle if less than a year.
B)within the next 24 months.
C)within the next 6 months.
D)within the next 12 months or within the business's normal operating cycle if longer than a year.

Question 51

According to the author, potential investors need information that is:

A)fair and future- oriented.
B)relevant and reliable.
C)accurate and truthful.
D)audited and complete.

Question 52

The two types of accounting are:

A)bookkeeping and decision- oriented.
B)profit and nonprofit.
C)internal and external.
D)financial and managerial.

Question 53

At the end of the current accounting period, account balances were as follows: Cash, $180,000; Accounts Receivable, $75,000; Common Stock, $20,000; Retained Earnings, $65,000. Liabilities for the period were:

A)$210,000.
B)$ 70,000.
C)$190,000.
D)$170,000.

Question 54

The accounting equation can be stated as:

A)Assets - Liabilities = Stockholders' Equity
B)Assets + Stockholders' Equity = Liabilities
C)Assets = Liabilities - Stockholders' Equity
D)Assets - Stockholders' Equity + Liabilities = Zero

Question 55

An investor who wished to answer the question, "Can the company sell its products?" should investigate the:

A)sales revenue trend.
B)net income for the current period and projected net income for the next period.
C)operating activities section of the cash flow statement.
D)current and projected inventory levels.

Question 56

Which of the following financial statements shows the net increase or decrease in cash during the period?

A)Statement of retained earnings and balance sheet
B)Statement of cash flows
C)Statement of operations
D)Balance sheet only

Question 57

Stockholders' equity for Commerce- GA Corporation on 01/01/2008 and 12/31/2008 were $60,000 and $75,000, respectively. Assets on 01/01/2008 and 12/31/2008 were $115,000 and $105,000, respectively. Liabilities on 01/01/2008 were $55,000. What is the amount of liabilities on 12/31/2008?

A)$30,000
B)$15,000
C)$40,000
D)The amount is indeterminable from the given information.

Question 58

Notes payable due in 60 days)would appear as a:

A)current liability on the balance sheet.
B)long- term asset on the balance sheet.
C)current asset on the balance sheet.
D)long- term liability on the balance sheet.

Question 59

The Financial Accounting Standards Board is responsible for establishing:

A)the American Institute of Certified Public Accountants.
B)the code of professional conduct for accountants.
C)generally accepted accounting principles.
D)the Securities and Exchange Commission.

Question 60

Cash dividends:

A)decrease revenue on the income statement.
B)decrease retained earnings on the statement of retained earnings.
C)decrease operating activities on the statement of cash flows.
D)increase expenses on the income statement.

Question 61

Dividends appear on the:

A)statement of retained earnings.
B)income statement.
C)both the statement of retained earnings and the income statement.
D)balance sheet.

Question 62

The sum of "outsider claims" plus "insider claims" equals:

A)net income.
B)total stockholders' equity.
C)total liabilities.
D)total assets.

Question 63

Which of the following statements should be prepared before the balance sheet is prepared?

A)Statement of cash flows
B)Both the statements of retained earnings and cash flows
C)Statement of retained earnings and statement of financial position
D)Income statement and statement of retained earnings

Question 64

The income statement:

A)covers a defined period of time.
B)is not dated.
C)may cover a period of time or only one day in time, like a snapshot photograph.
D)reports the results of operations since the inception of the business.

Question 65

Which of the following must be added to beginning Retained Earnings to compute ending Retained Earnings?

A)Expenses
B)Dividends
C)Net income
D)All of these answers are correct.

Question 66

Common stock appears on the:

A)statement of cash flows and the statement of retained earnings.
B)balance sheet.
C)income statement.
D)None of the above are correct.

Question 67

Payables are classified as:

A)increases in earnings.
B)decreases in earnings.
C)assets.
D)liabilities.

Question 68

Receivables are classified as:

A)increases in earnings.
B)liabilities.
C)decreases in earnings.
D)assets.

Question 69

An Oklahoma City business paid $15,000 cash for equipment used in the business. At the time of purchase, the equipment had a list price of $20,000. When the balance sheet was prepared, the value of the equipment later rose to $22,000. What is the relevant measure of the value of the equipment?

A)Fair market cost, $20,000
B)$15,000 on the day of purchase, $22,000 on balance sheet date
C)Current market cost, $22,000
D)Historical cost, $15,000

Question 70

Where would cash received from the sale of stock appear on the statement of cash flows?

A)In the financing activity section
B)In the operating activity section
C)In the investing activity section
D)In the non- cash financing activity section

Question 71

The reliability principle is also called the:

A)full and fair principle.
B)objectivity principle.
C)truthfulness concept.
D)relevance concept.

Question 72

The stable- monetary- unit concept of accounting:

A)maintains that each organization or section of an organization stands apart from other organizations and individuals.
B)enables accountants to ignore the effect of inflation in the accounting records.
C)ensures that accounting records and statements are based on the most reliable data available.
D)holds that the entity will remain in operation for the foreseeable future.

Question 73

The balance sheet reports information about:

A)assets, revenues, and liabilities.
B)assets, liabilities, and equity.
C)liabilities, equity, and expenses.
D)revenues, expenses, and equity.

Question 74

If liabilities increase $120,000 during a given period and stockholders' equity decreases $25,000 during the same period, assets must:

A)increase $95,000.
B)increase $145,000.
C)decrease $145,000.
D)decrease $95,000.

Question 75

A corporation's paid- in capital consists of

A)assets and liabilities.
B)net income.
C)revenues and expenses.
D)common stock.

Question 76

What is the proper order for the categories of the statement of cash flows?

A)Operating activities, investing activities, and financing activities
B)Investing activities, financing activities, and operating activities
C)Financing activities, investing activities, and operating activities
D)Operating activities, financing activities, and investing activities

Question 77

How do revenues for a period relate to the beginning and ending balances in retained earnings?

A)Revenues less expenses will either increase or decrease the beginning balance of retained earnings for the period.
B)Revenues will increase the beginning balance of retained earnings for the period.
C)Revenues will increase the ending balance of retained earnings for the period.
D)None of these answers are correct.

Question 78

The going- concern concept of accounting:

A)holds that the entity will remain in operation for the foreseeable future.
B)enables accountants to ignore the effect of inflation in the accounting records.
C)ensures that accounting records and statements are based on the most reliable data available.
D)maintains that each organization or section of an organization stands apart from other organizations and individuals.

Question 79

A retail store sells t- shirts for $85 and purchases them for $60. The store's cost of goods sold would be:

A)$85.
B)$25.
C)$60.
D)None of these answers are correct.

Question 80

Income taxes owed to the federal government would be classified as an):

A)expense on the income statement.
B)current asset on the balance sheet.
C)current liability on the balance sheet.
D)financing activity on the statement of cash flows.