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