Chapter 1 Terms

Which of these line items appears on both the income statement and the statement of stockholders' equity?

Net income

Which groups have claims to a business's assets?

stockholders creditors > The amount of creditors' claim to the business's assets is represented by liabilities and the stockholders' claims is represented by total stockholders' equity. "Management" consists of employees; they do not have a claim on the business for anything other than their paychecks.

Ace Electronics bought equipment for $4,000. Normally the equipment would have cost $4,500, but the supplier gave Ace a special discount. Ace's balance sheet should report equipment of ______.

$4,000

The notes to financial statements ______. (Check all that apply.)

- are an integral part because the financial statements do not contain all the necessary details - provide supplemental information about the financial condition of a company - along with the financial statements provide a more complete picture of a company's financial health

The income statement is used by many to indicate whether the company ______.

- sold goods and services for more than the cost to produce and deliver - has the ability to earn more in the future, so that the stock price will improve

Companies typically prepare ______ financial statements each accounting period.

4: The four financial statements are the balance sheet, income statement, statement of of stockholders' equity, and the statement of cash flows.

Which of the following are sections found in a statement of cash flows.

Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities

---- financial statements report financial statement values for the current period and one or more other prior periods.

Comparative

If a company were to go out of business, who has first claim to the company's assets?

Creditors

------ represent the amount of resources used during the period and are found on the ------ -------

Expenses Income Statement

Which of these line items appears on both the statement of stockholders' equity and the balance sheet?

Retained Earnings - Net income does not appear on the balance sheet. Net income is on the income statement and the statement of stockholders' equity. The ending retained earnings balance is reported on the balance sheet.

Which of the following classifications is not used to categorize cash inflows and cash outflows on the statement of cash flows?

Spending

Creditors want to see that a company that owes them money has ______.

assets that are greater than its liabilities

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

A net loss ______ retained earnings.

decreases

Which financial statement best indicates whether a company will be able to sell goods and services for more than they cost to produce and deliver in the future?

income statement

A financial statement heading notes that it was prepared: "For the Year Ended December 31, 2019." This could be the ______.

income statement statement of cash flows statement of stockholders' equity > The balance sheet reports the balances at a point in time. Thus, the heading on a balance sheet would read "at December 31, 2019" instead of "for the year ended December 31, 2019". Unlike the balance sheet, the other statements report activity for the year.

Z Company bought land 20 years ago for $30,000. Over the last 20 years, the value of the land has doubled. The increase in the land's value ______.

will not be reported in Z Company's financial statements - Land is reported on the balance sheet at its original cost. The increase in the value of the land will only be recorded in the accounting records when the land is sold, not before then.

Accumulated amortization is ______.

- similar to depreciation except it is netted against intangible assets instead of tangible assets - a contra-asset account similar to accumulated depreciation

______ are earned by selling goods or services to customers.

Revenues

Which of these line items appears on both the income statement and the statement of stockholders' equity?

net income

Which groups have claims to a business's assets? (Check all that apply.)

stockholders creditors >The amount of creditors' claim to the business's assets is represented by liabilities and the stockholders' claims is represented by total stockholders' equity. "Management" consists of employees; they do not have a claim on the business for anything other than their paychecks.

The notes to financial statements may include ______.

accounting policies applied relevant information, not disclosed on the statements revenues broken out by geographic region segment information

The asset, ------- ------- , represents the amount customers owe for goods or services.

accounts receivable

The statement of stockholders' equity provides information about ______.

dividends net income as a source of financing amounts reinvested for future growth

A(n) ______ is a cost of doing business that is necessary to earn ______.

expense; revenue

The purpose of a balance sheet is to report the ______.

financial position of a business at a particular point in time

If a company reports Amortization Expense for the period, it must have ______.

intangible assets on its balance sheet

Expenses reported in one accounting period ______ accounting period.

may be paid for in a prior may be paid in a later may be paid in the same

The ---- to the financial statements are an integral part of the financial statements and provide a more complete understanding of the company.

notes

Net income ______.

on the income statement causes retained earnings to increase on the statement of stockholders' equity

The balance sheet of a corporation reports ______.

only the results of the business' activities

The notes to financial statements may include ______.

segment information accounting policies applied relevant information, not disclosed on the statements revenues broken out by geographic region

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

The statement of stockholders' equity provides information about ______.

net income as a source of financing amounts reinvested for future growth dividends

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 $

$1,000

The two sources of stockholders' equity are amounts ______.

- earned and retained by the corporation - paid in from shareholders

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.

The income statement reports ______.

- how well the company performed during the accounting period - the revenues minus the expenses for the accounting period - the profitability of the company for the accounting period

True or false: The statement of stockholders' equity indicates the changes in the various equity accounts.

True

Net income appears as a line item on the ______.

income statement statement of stockholders' equityq

The --- in the annual report should be reviewed to determine the significant accounting rules used.

notes

Identify which of the various terms may be used to describe revenue on the income statement.

Sales revenue Provision of services Service revenue Sale of goods

Which of the following are financial statements? (Check all that apply.)

Statement of stockholders' equity Income statement Statement of cash flows Balance sheet

Which of these headings and accounts would be found on a company's balance sheet? (Check all that apply.)

Stockholders' equity Cash Retained earnings Assets Liabilities

The four financial statements include the:

balance sheet income statement shareholders' equity cash flows

A company may list more than one type of revenue if it ______.

comes from different sources such as services versus sales of goods

An owner gives $5,000 cash to his company in exchange for stock. This will increase the company's ______. (Check all that apply.)

common stock cash total stockholders' equity

The sum of which two elements equals stockholders' equity?

common stock retained earnings

Profits earned by a company that have not been paid to stockholders are called ------ earnings.

retained earnings

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. The income statement reports the earnings (net income) but does not show how much of the earnings were retained.

A business's assets are financed by ______. (Check all that apply.)

stockholders creditors

Expenses are ______.

the amount of resources used to earn revenue

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: $145,000 + $90,000 - $30,000 = $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

Match each balance sheet element with the information it provides creditors and stockholders.

Assets: Whether the company has sufficient resources to operate Liabilities: Whether there are excessive creditors' claims to the company's resources Stockholders' equity: Whether there is sufficient investment and cushion should the company close the doors of its business

True or false: The common stock section of stockholders' equity is increased when the company has net income.

False - Common stock is increased when the company receives investments by owners. Retained earnings increases when the company has net income.

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.

Dividend payments would be found under Cash Flows from ______ Activities on the ______.

Financing; statement of cash flows

True or false: The corporation, and not the owners, are viewed as owning the resources and as owing the debts of the business.

True - The owners are considered separate from the business entity. It is the business entity that owns the assets and owes the liabilities.

True or false: Comparative financial statements include separate columns for more than one period's results.

True - Two or more years of results are reported in comparative financial statements so that comparisons can be made.

True or false: Comparative financial statements include separate columns for more than one period's results.

True: Two or more years of results are reported in comparative financial statements so that comparisons can be made.

A balance sheet shows ______.

assets, liabilities, and stockholders' equity at a single point in time - A balance sheet shows balances at a point in time; it does not show the changes in the balances during the period. The income statement, statement of stockholders' equity and statement of cash flows explain the changes in the balance sheet during the period.

At December 31, Aloe, Inc.'s assets equal $8,000 and stockholders' equity equals $5,000. Liabilities must equal

$3,000

The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue?

$360,000 Net sales revenue - Cost of goods sold = Gross profit. To solve for sales, rearrange the equation as Gross profit + Cost of goods sold = Net sales revenue (= $144,000 + 216,000 = $360,000).

Seesaws, Inc. has assets of $900 and liabilities of $400. Its stockholders' equity equals

$500

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.

A classified income statement is useful to financial statement users because it ______.

- separates cost of goods sold from other operating expenses, which allows the calculation of gross profit - presents income statement items in meaningful categories

Which financial statement is a company's primary measure of profit?

Income Statement - The balance sheet reports the company's financial position at a point in time. The income statement reports the profit (net income) earned during the accounting period.

Which of the following would be found under Cash Flows from Investing Activities? (Check all that apply.)

Investments in other companies Sales of productive assets Purchases of productive assets

Which of the following statements are true? (Check all that apply.)

Retained earnings increases when a company earns and keeps its profit. Common stock increases when the company gets cash in exchange for stock.

An income statement includes which of the following items. (Check all that apply.)

Revenues Expenses Net income