ch1 quiz

If total liabilities decreased by $10,000 and total assets increased by $5,000 during a period of time, then total stockholders' equity must have changed by what amount and direction during that same period?

$15,000 increase

A company recorded the following cash transactions for the year: Paid $140,000 for salaries. Paid $45,000 to purchase office equipment. Borrowed $25,000 from a bank. Collected $320,000 from customers. What is the company's net cash from operating activities for the year?

$180,000 Solution: Business activities include financing activities, investing activities, and operating activities. After a company obtains financing from owners and creditors and after the company has invested in property, plant, and equipment, the company is ready for day-to-day operating activities. Examples of operating activities include buying and selling inventory, paying employees' wages, and other activities (e.g., paying for marketing).This company's net cash from its operating activities equals cash collected from customers minus payments for employee salaries (i.e., 320,000 - 140,000 = 180,000). Buying equipment is an investment activity. Paying a dividend is a financing activity.

A company began the year with retained earnings of $620,000. During the year, the company did the following: Issued common stock, $840,000 Declared and paid dividends, $160,000 Incurred expenses, $2,400,000 The company's ending retained earnings is $660,000. What was the company's revenue for the year?

$2,600,000 Solution: Beginning retained earnings + Net income - Dividends = Ending retained earningsReplace net income with revenue - expensesBeginning retained earnings + Revenue - Expenses - Dividends = Ending retained earningsRe-arranging this equation to solve for revenues:Revenue = Ending retained earnings - Beginning retained earnings + Expenses + DividendsRevenue = 660,000 - 620,000 + 2,400,000 + 160,000Revenue = 2,600,000

A corporation had the following accounts and balances: Accounts payable $18,000 Accounts receivable 3,000 Cash 9,000 Common stock 10,000 Equipment 52,000 Prepaid insurance 4,000 Retained earnings Not given Unearned service revenue 6,000 What is the balance of the company's retained earnings account?

$34,000 Solution: Assets = Accounts receivable + cash + equipment + prepaid insurance = 3,000 + 9,000 + 52,000 + 4,000 = 68,000 Liabilities = accounts payable + unearned revenue = 18,000 + 6,000 = 24,000 Assets = liabilities + stockholders' equity Stockholders' equity = assets - liabilities = 68,000 - 24,000 = 44,000 Stockholder's equity = common stock + retained earningsRetained earnings = stockholders' equity - common stock = 44,000 - 10,000 = 34,000

A corporation began the year with total liabilities of $120,000 and stockholders' equity of $40,000. During the year, the company reported the following: Net income, $120,000 Dividends, $15,000 Total liabilities at the end of the year were $225,000. How much were total assets at the end of the year?

$370,000 Solution:First, determine the ending balance of stockholders' equity.Ending stockholders' equity = beginning stockholders' equity + net income - dividends. Ending stockholders' equity = $40,000 + 120,000 - 15,000 = $145,000. Second, determine total liabilities. Assets = Liabilities + Stockholders' equity Assets = $225,000 + 145,000 Assets = $370,000

During the year, a company did the following: Recognized revenues of $800,000 Incurred expenses of $620,000 Issued common stock for $90,000 Paid dividends of $60,000 Its ending retained earnings is $500,000. What was the company beginning retained earnings?

$380,000 Solution: Ending retained earnings = Beginning retained earnings + Net income - Dividends Replace net income with revenue - expenses Ending retained earnings = Beginning retained earnings + Revenue - Expenses - Dividends Re-arranging to solve for beginning retained earnings:Beginning retained earnings = Ending retained earnings - Revenue + Expenses + Dividends Beginning retained earnings = 500,000 - 800,000 + 620,000 + 60,000 Beginning retained earnings = 380,000

The financial records for a corporation included the following information: Accounts receivable, $55,000 Accounts payable, $20,000 Cash, $25,000 Common stock, $25,000 Dividends, $15,000 Sales revenue, $90,000 Salaries and wages expense, $30,000 Supplies expense, $10,000 Retained earnings is not given. Based on this information, how much is its net income?

$50,000 Solution:Net income equals the revenues earned during the year minus the expenses incurred during the year. Use the balances of the revenue and expense accounts to measure revenues and expenses.Net income = Revenue - expensesNet income = $90,000 - 30,000 - 10,000 = $50,000

A company recorded the following cash transactions for the year: Collected $460,000 from customers. Collected $50,000 from issuing a note to a bank. Paid $10,000 to purchase office equipment. Paid $140,000 for salaries. Paid $20,000 in dividends. Paid $260,000 for inventory. What was the company's net cash provided by operating activities for the year?

$60,000 olution: A company's activities are divided into three categories: (1) operating activities, (2) investing activities, and (3) financing activities. Operating activities include selling products and/or services, paying suppliers (e.g., buying inventory), employees workers, etc. Cash flows from operating activities are increases by collecting cash for operating activities (e.g., collecting cash from customers) and decreased by paying cash for operating activities (e.g., paying cash to employees for hours worked, paying cash to suppliers for inventory, etc.). This company's net cash provided by operating activities include (i) cash collected from customers, (ii) salaries paid for salaries, and (iii) cash paid for goods and services Net cash flow provided by operating activities = $460,000 - 140,000 - 260,000 = $60,000 Note: Not all cash collections and/or cash payments are operating activities. Some are investing activity cash flows (e.g., paying for property, plant, and equipment, etc.) and others are financing activity cash flows (e.g., paying dividends to shareholders, collecting cash from lenders [e.g., borrowing from banks], etc.).

The financial records for a corporation included the following information: Accounts receivable, $60,000 Accounts payable, $20,000 Cash, $25,000 Common stock, $10,000 Dividends, $10,000 Insurance expense, $5,000 Salaries and wages expense, $50,000 Sales revenue, $120,000 Retained earnings is not given. Based on this information, how much is its net income?

$65,000 Solution: Net income equals the revenues earned during the year minus the expenses incurred during the year. Use the balances of the revenue and expense accounts to measure revenues and expenses. Net income = Revenue - expenses Net income = $120,000 - 50,000 - 5,000 = $65,000

Which of the following would appear on a balance sheet? Net income Accounts receivable Dividends Interest expense Service revenue

Accounts receivable

In the annual report, where would a financial statement reader find out if the company's financial statements give a fair depiction of its financial position and operating results?

Auditor's report

In what order should financial statement be prepared?

First, the income statement. Second, the retained earnings statement. Third, the balance sheet.

Publicly traded U.S. companies must provide shareholders with an annual report. Which of the following is not part of the annual report provided to shareholders? Notes to the financial statements Management discussion and analysis Auditor's report Statement of cash flows Internal and external users report

Internal and external users report

Which of the following would appear on a balance sheet? Dividends Service revenue Salaries and wages expense Retained earnings Net cash flows from operating activities

Retained earnings

Retained earnings at the end of the period is equal to which of the following? Retained earnings at the beginning of the period plus net income minus liabilities Assets minus liabilities Net income since the business began operating Retained earnings at the beginning of the period plus net income minus dividends Assets plus liabilities

Retained earnings at the beginning of the period plus net income minus dividends

Which of the following best describes stockholders' equity? Stockholders' equity is the cash collected from owners. Stockholders' equity are the claims of owners. Stockholders' equity are the economic resources of the firm. Stockholders' equity are the claims of creditors. Stockholders' equity is the difference between revenues and expenses.

Stockholders' equity are the claims of owners.

Which of the following best describes stockholders' equity? stockholders' equity are the economic resources of the firm. Stockholders' equity is the cash collected from owners. Stockholders' equity are the claims of owners. Stockholders' equity are the claims of creditors. Stockholders' equity is the difference between revenues and expenses.

Stockholders' equity are the claims of owners.

If a company sells goods to a customer and does not receive cash immediately, then the company has a right to expect payment from that customer in the near future. The right to receive money in the future is called

an account receivable.

Retained earnings is

an equity account.

If the auditor issuing the auditor's report is satisfied that the financial statements provide a fair representation of the company's financial position and results of operation, the auditor expresses

an unqualified opinion.

Dividends paid by a company to its shareholders are reported on the company's

statement of stockholders' equity and statement of cash flows.