In which of the following sequences are these three financial statements usually prepared?

(i) Income statement, (ii) balance sheet, and (iii) retained earnings statement
(i) Balance sheet, (ii) income statement and (iii) retained earnings statement
(i) Income statement, (ii) retained earnings statement, and (iii) balance sheet
(i) Retained earnings statement, (ii) income statement, and (iii) balance sheet
(i) Balance sheet, (ii) retained earnings statement, and (iii) income statement (i) Income
statement, (ii) retained earnings statement, and (iii) balance sheet.

Which of the following is an example of a financing activity?

Buying a delivery truck in exchange for cash

Selling goods on account
Issuing additional shares of common stock in exchange for cash
All of these
Buying inventory on account Issuing additional shares of common stock in exchange for cash

Which of the following is not one of the three primary business activities listed on the statement
of cash flows?

All of these are activities listed on the statement of cash flows

Investing activities
Financing activities
Merchandising activities
Operating activities Merchandising activities

Businesses have three primary activities, and they are listed in the statement of cash flows.
These include (i) operating activities, (2) investing activities, and (3) financing activities.
Merchandising suggests a company deals in merchandise (i.e., inventory), and buying and
selling merchandise is merely an example of an operating activity. Other operating activity
examples include collecting cash from customers, paying the company's suppliers, employees,
etc.

Net income will result during a time period when

expenses exceed revenues.

revenues exceed expenses.
assets exceed revenues.
assets exceed equity.
assets exceed liabilities. revenues exceed expenses.

A company paying cash to its suppliers for inventory to be sold to its customers is an example of
an operating activity.
an investing activity.
a financing activity.
an advertising activity.
None of these an operating activity.

Which of the following would appear on an income statement?

Accounts payable
Service revenue
All of these appear on income statements
Retained earnings
Cash Service revenue

The income statement reports revenues, expenses, and net income.

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

$5,000 decrease
$5,000 increase
$15,000 increase
$10,000 decrease
$15,000 decrease $5,000 increase

The accounting equation:

Assets = Liabilities + Stockholders' Equity
If liabilities decreased by $10,000 and assets decreased by $5,000 then stockholders' equity
must have increased by $5,000 to keep the accounting equation in balance [i.e., ($5,000) =
($10,000) + X].

The retained earnings statement

Reports the changes in assets, liabilities, and stockholders' equity over a period of time.
Presents the revenues and expenses for a specific period of time.
Summarizes the changes in total equity for a specific period of time such as a year.
Reports the assets, liabilities, and stockholders' equity at a specific date.
Summarizes the cash inflows and cash outflows for period of time partitioned into operating,
investing, and financing activities. Summarizes the changes in total equity for a specific
period of time such as a year.
The balance sheet reports the assets, liabilities, and stockholders' equity at a specific date. The
income statement reports revenues minus expenses (i.e., net income), and the retained
earnings statement summarizes the changes in retained earnings for a specific period of time

At the end of the year, Stoneland Corporation has assets of $6,500 and liabilities of $2,000.
How much is the company's equity at the end of the year?

$8,500
$1,000
$2,000
$4,500
$4,000 $4,500

Assets = Liabilities + Equity

Using the accounting equation, equity can be computed by subtracting liabilities from assets.
Equity = $6,500 - 2,000 = $4,500.

Which of the following is not one of the forms of business organization?

Creditorship
Corporation
These are all forms of business organization
Partnership
Sole proprietorship Creditorship

A company should report an issuance of common stock on its statement of cash flows as

a financing activity.
an operating activity.
an investing activity.
a marketing activity.
a budgeting activity. a financing activity.

What section of a cash flows statement shows the amount of cash received from shareholders
in exchange for issuing additional shares of its stock to its shareholders?

The property section

The financing section
This type of cash inflow would not be reported on the statement of cash flows.
The operating section
The investing section The financing section

This information relates to Harold Corporation:

Dividends, $15,000
Sales revenue, $90,000
Cash, $15,000
Salaries and wages expense, $25,000
Insurance expense, $10,000
How much was Allen Corporation's net income?

$80,000
$70,000
$45,000
$55,000
$65,000 $45,000

Net income equals the revenues earned during the year minus the expenses incurred during the
year. Use the year-end balances of the revenue and expense accounts to measure revenues
and expenses.
Net income = Revenue - expenses
Net income = $90,000 - 25,000 - 10,000 = $55,000

An annual report includes all of the following except

an auditor's report.
an income statement.
a listing of all of the stockholders.
notes to the financial statements.
a management discussion and analysis section. a listing of all of the stockholders.

The annual report does not include a listing of all of the stockholders. This information changes
daily when stock is trading on public exchanges.

Which of the following best describes stockholders' equity?

Stockholders' equity are the claims of owners.

Stockholders' equity is the cash collected from owners.
Stockholders' equity are the claims of creditors.
Stockholders' equity are the economic resources of the firm.
Stockholders' equity is the difference between revenues and expenses. Stockholders' equity
are the claims of owners.

Stockholders' equity represents claims of owners. Assets are the resources owned by the firm
and liabilities are the claims of creditors against the firm's assets.

To which of the following questions will internal users want answers?

Is cash sufficient to pay dividends to stockholders?
What selling price for our product will maximize the company's net income?
Which product line is most profitable?
None of these
All of these All of these

Jeremiah Company recorded the following cash transactions for the year:
Collected $460,000 from customers
Collected $50,000 from lenders
Paid $10,000 to purchase office equipment.
Paid $140,000 for salaries.
Paid $20,000 in dividends.
Paid $260,000 of goods and services
What was the company's net cash provided by operating activities for the year?

$60,000
$50,000
$40,000
$200,000
$300,000 $60,000

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 cas
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.).

Which of the following is required ever since the Sarbanes-Oxley Act (SOX) passed into law in
2002?

Companies that go bankrupt must repay shareholders for lost investments.

Public companies must prepare audited financial statements.
None of these
Top management must certify the financial statements for their company.
All shareholders now have an oversight role of the company's financial activities. Top
management must certify the financial statements for their company.

The payment of cash to purchase a truck to be used by a company as a delivery truck is an

example of

a delivery activity.
an investing activity.
All of these
a financing activity.
an operating activity. an investing activity.

Which of the following is the most appropriate definition of accounting information?

All of these
The interconnected network of subsystems necessary to operate a business
The information system that identifies, records, and communicates the economic events of an
organization to interested users
Electronic collection and organization of vast amounts of financial information
A means of collecting business information The information system that identifies, records, and
communicates the economic events of an organization to interested users

The ending balance of the Retained Earnings account appears on

Both the income statement and the retained earnings statement.

The retained earnings statement only.
Both the retained earnings statement and the balance sheet.
The balance sheet only.
The income statement, balance sheet, and retained earnings statement. Both the retained
earnings statement and the balance sheet.

The ending retained earnings balance is reported on both the retained earnings statement and
the balance sheet. It does not appear on the income statement.

The segment of the annual report that presents an opinion regarding the fairness of the
presentation of the financial position and results of operations is/are the

financial statements.
income statement.
auditor's opinion.
balance sheet.
management discussion and analysis. auditor's opinion.

Resources owned by a business are referred to as

assets.
revenues.
stockholders' equity.
expenses.
liabilities. assets.

Chris's Maid Service began the year with total assets of $100,000 and stockholders' equity of
$40,000. During the year the company earned $110,000 in net income and paid $5,000 in
dividends. Total assets at the end of the year were $240,000. How much are total liabilities at
the end of the year?

$100,000
$95,000
$105,000
$80,000
$110,000 $95,000

First, determine the ending balance of stockholders' equity.

Ending stockholders' equity = beginning stockholders' equity + net income - dividends.
Ending stockholders' equity = $40,000 + 110,000 - 5,000 = $145,000.
Second, determine total liabilities.
(i.e., Assets = Liabilities + Stockholders' equity)
Liabilities = $240,000 - 145,000 = $95,000.

Which of the following is an advantage of corporations relative to partnerships and sole

proprietorships?

Corporations receive more favorable tax treatment.

Corporations are more limited in their ability to raise funds.
It is generally easier to sell or transfer ownership of a corporation.
Owners of corporations are personally liable for the corporation's debts but owners of sole
proprietorships and partnerships are not liable for those entities' debts.
Corporations are the most simple type of business to set up. It is generally easier to sell or
transfer ownership of a corporation.

Which of the following is an expense?

Cost of goods sold
Wages payable
Accounts receivable
All of these
Dividends Cost of goods sold

Expenses are the cost of assets consumed or services used. Expenses occur when companies
generate (or attempt to generate) revenues. Common examples of expenses include wage
expenses, interest expenses, marketing expenses, etc. Most expenses have the word
"expense" in their title, but cost of goods sold is an exception. Cost of goods sold is an expense
that tracks the cost of inventory sold to customers.