Chapter 1 Questions
Which of the following is an investing activity? a - borrowing from the bank b - paying cash to buy equipment c - paying cash dividends to stockholders d - receiving cash from customers
b - paying cash to buy equipment
Mauricio invested $30,000 in Pizza Aroma in exchange for its stock. Pizza Aroma now has ______ under shareholders' equity.
common stock
Which financial statement is a company's primary measure of profit?
income statement
Notes payable are ______
liabilities and a formal written debt contract
Net income ______.
on the income statement causes retained earnings to increase on the statement of stockholders' equity
How is Cash paid to employees classified on the statement of cash flows?
operating activity
borrow from a bank =
positive cash flow - financing activity
Which of the following classifications is not used to categorize cash inflows and cash outflows on the statement of cash flows? - operating - investing - financing - spending
SPENDING
Why would a banker want a copy of a company's financial statements?
To decide if a company is doing well enough to repay the amounts it has borrowed
Profits earned by a company that have not been paid to stockholders are called
retained earnings
Cash is reported on the ______.
statement of cash flows balance sheet
Which of the following is true?' A. Land purchased 20 years ago is reported on the balance sheet at the original price paid for it B. Land purchased 20 years ago is not reported on the balance sheet because it was paid for too many years ago C. Land purchased 20 years ago is reported on the balance sheet at its current value
A. Land purchased 20 years ago is reported on the balance sheet at the original price paid for it
Which of the following line items appear on an income statement? COGS Cash Sales Revenue Inventory Income Tax Expense
COGS Sales Income Tax Expense
Quartz Instruments had retained earnings of $145,000 at December 31, 2018. Net income for 2019 was $90,000, and dividends for 2019 were $30,000. What amount of retained earnings should be reported at December 31, 2019?
$205,000
During 2019, Revitup, Inc., an exercise video retailer, sold $24,000 of videos to its customers. Revitup collected $22,000 and expects to receive the remaining $2,000 in January 2020. Revitup's income statement for the year ended December 31, 2019 will report revenue of $
$24,000
During 2019, Revitup, Inc.'s employees earned $4,500 for the work they performed. Revitup paid $4,000, but still owes its employees $500. How much expense should be reported on the income statement for the year ended December 31, 2019?
$4,500 The entire amount the employees earned, $4,500, must be reported as an expense, even though $500 will be paid later. The $500 will be reported as a liability, Wages Payable, on the balance sheet.
Ace Electronics had the following increases in Cash during the month: $20,000 from owner contributions; $5,000 from sales to customers; and $15,000 borrowed from River Bank. Ace's revenue for the month was ______.
$5,000
Over Armour, Inc. sold 5 shirts that cost $6 each to its customers for $10 each. Total sales revenue equals
$50
Which of the following are users of financial statements? - Supply Chain managers - Creditors - GAAP - Stockholders - Investors
- Supply Chain Managers - Creditors - Stockholders - Investors
Which of these line items appears on both the statement of stockholders' equity and the balance sheet?
Retained earnings
Financial statements can be prepared ______
annually monthly quarterly
The amount of cash reported on the balance sheet is ______ the ending cash balance reported on the statement of cash flows.
as the same as
A balance sheet shows ______.
assets, liabilities, and stockholders' equity at a single point in time
Careful consideration is taken when making changes in GAAP _____
because they may affect selling prices of public companies' stock and is actively debated before the changes are required
The main goal of an accounting system is to ______.
capture information about a business so that it can be reported to decision makers
The statement of stockholders' equity reports the ______
changes in earnings and dividends for a specified period of time
If a company were to go out of business _____________would have first claims to a company's assets before the company's stockholders receive any money
creditors
Which groups have claims to a business's assets?
creditors and stockholders
During an accounting period, net income normally ______ equal the cash generated from operations because ______
does not; revenues are earned even if the cash has not been collected
Shareholders' equity arises primarily from amounts invested by shareholders and amounts ______.
earned and retained by the corporation
A net loss is reported when ______.
expenses are greater than revenues
Net income appears as a line item on the ______.
income statement statement of stockholders equity
When a company earns net income, its retained earnings _____
increase
Which of the following increase the common stock balance?
investments by owners financing provided by owners
purchase of equipment =
negaetive cash flow - investing
paid dividends =
negative cash flow - financing activity
purchase inventory =
negative cash flow - investing activity
Net income on the income statement equals the ______ during the accounting period
net amount earned, which often does not equal the cash received and paid to operate the business revenue minus the expenses
Which of these line items appears on both the income statement and the statement of stockholders' equity?
net income
The statement of stockholders' equity provides information about ______
net income as a source of financing dividends amounts reinvested for future growth
Which of the following are not found in the heading of a balance sheet?
period covered name of owner
sale of equipment =
positive cash flow - investing activity
cash collected from customers
positive cash flow - operating activity
Financial statements that are prepared for external uses every three months are referred to as ______ reports.
quarterly
Net income equals ______
revenues minus expenses net earnings cash and promises received from delivery of goods and services minus resources used to earn revenues
The income statement reports ______
the profitability of the company for the accounting period the revenues minus the expenses for the accounting period how well the company performed during the accounting period
Investing activities include
cash activities related to noncurrent assets
Financing activities include
cash activities related to noncurrent liabilities and owners' equity
Which headings and accounts would be found on a company's balance sheet?
Assets Liabilities Stockholders Equity Retained Earnings
Keepers, Inc.'s balance sheet reported Retained earnings as $10,000 at December 31, 2019 and $12,000 at the December 31, 2020. The income statement reported Net income of $3,000 for the year ended December 31, 2020. Dividends declared for the year ended December 31, 2020 must equal $
$1000
Axis Company just bought a piece of land for $25,000. What a deal! The land next door was sold last month for $27,000. Axis immediately put the land back on the market for $29,000, but so far hasn't had any offers. This land would appear on Axis Company's balance sheet at a value of ______.
25,000
During 2019, Revitup, Inc., an exercise video retailer, purchased $10,000 of videos for which it paid $7,000 and owes $3,000. Of the $10,000 of videos purchased, Revitup sold $8,000 worth of videos for $12,000 to its customers. How much should Revitup report as an expense on its income statement for the year ended December 31, 2019?
8,000 Only the cost of the amount sold, $8,000, should be reported as an expense on the income statement. The remaining $2,000 of videos are reported on the balance sheet as inventory until they are sold.
Notes payable appear on the ______.
Balance sheet as a liability
The ending cash balance on the balance sheet equals the sum of which of the following items? - Beginning of the year cash balance - Net income on the income statement - Retained earnings on the statement of stockholders' equity - Change in cash on the statement of cash flows for the year ended
Beginning of the year cash balance The change in cash on the statement of cash flows for the year ended
Which of these would be reported as an investing activity?
Cash paid to buy equipment Cash paid to build a new corporate headquarters
What information appears in the statement of stockholders' equity?
Dividends' Beginning Balance of retained earnings Ending Balance of retained earnings Net Income
True or false: Stockholders and creditors are internal decision makers that use accounting information to manage the operating, investing and financing activities of the firm. True false question.
FALSE
True or false: Revenues earned are equal to the total cash collected during the accounting period
FALSE Revenues are earned when goods or services are delivered to customers. Cash can increase from other activities, such as borrowing or owner contributions.
____________activities involve purchasing goods from suppliers, designing and manufacturing products, and selling products to customers
Operating
Examples of operating activities?
Purchasing materials to produce products selling products to customers
4 significant items in the headings of balance sheets
Specific Date Name of entity Title of Statement Unit of Measure
Which of these line items appear on a balance sheet?
Stockholders Equity Assets Liabilities
expenses represent the resources
USED!!!!! to earn revenue regardless of whether the expenses have been paid during the accounting period
When a company sells goods to customers on credit, ______.
accounts receivable will be reported on the seller's balance sheet
On the balance sheet, accounts receivable represents ______.
amounts not yet collected from customers
Ending retained earnings appears on the ______
balance sheet and retained earnings statement
Operating activities include
cash activities related to net income
The main goal of US GAAP is to ______.
ensure that companies produce useful information for users of financial statements
__________ represent the amount of resources during the period and are found on ________ ________
expenses income statement
Which of the following are alternative titles for the income statement?
statement of income, statement of earnings, statement of operations, statement of comprehensive income
Which financial statement should investors examine to determine whether the company is reinvesting a sufficient portion of the current year's earnings to support future growth?
statement of stockholders' equity retained earnings in the statement of stockholders' equity will report how much of its earnings it is reinvesting rather than declaring as dividends
A business's assets are financed by ______
stockholders and creditors