Question 1

To understand how his firm performed during the past year, Josh must know

Accepted Answer

A)  the firm's financial position at the beginning of the year. 
B)  the firm's financial position at the end of the year. 
C)  the firm's profits during the year. 
D)  All of these are correct. 
A)  the firm's financial position at the beginning of the year. 
B)  the firm's financial position at the end of the year. 
C)  the firm's profits during the year. 
D)  All of these are correct.

Question 2

Match the term with its definition.
-A measure of the rate of return that owners receive on their equity investment, calculated by dividing net profits by owners' equity

Accepted Answer

A) accrual-basis accounting 
B) cash 
C) cash-basis accounting 
D) depreciable assets 
E) depreciation expense
F)financial statements
G)inventory
H)liquidity
I)operating profit margin
J)return on assets
K)return on equity 
A) accrual-basis accounting 
B) cash 
C) cash-basis accounting 
D) depreciable assets 
E) depreciation expense
F)financial statements
G)inventory
H)liquidity
I)operating profit margin
J)return on assets
K)return on equity

Question 3

Irma's current ratio is 2.5. This means that

Accepted Answer

A)  for every dollar of current assets, Irma has $2.50 in current liabilities. 
B)  for every dollar of current liabilities, Irma has $2.50 in current assets. 
C)  Irma has enough cash to pay her debts for the next 2.5 years. 
D)  Irma can borrow 2.5 times her annual sales. 
A)  for every dollar of current assets, Irma has $2.50 in current liabilities. 
B)  for every dollar of current liabilities, Irma has $2.50 in current assets. 
C)  Irma has enough cash to pay her debts for the next 2.5 years. 
D)  Irma can borrow 2.5 times her annual sales.

Question 4

Match the term with its definition.
-Depreciable assets at their original cost, before any depreciation expense has been taken

Accepted Answer

A) accounts payable (trade credit) 
B) accounts receivable 
C) accumulated depreciation 
D) common stock 
E) current assets (working capital)
F)current debt (short-term liabilities)
G)current ratio
H)fixed assets (property, plant, and equipment [PPE])
I)gross fixed assets
J)net fixed assets
K)other assets 
A) accounts payable (trade credit) 
B) accounts receivable 
C) accumulated depreciation 
D) common stock 
E) current assets (working capital)
F)current debt (short-term liabilities)
G)current ratio
H)fixed assets (property, plant, and equipment [PPE])
I)gross fixed assets
J)net fixed assets
K)other assets

Question 5

Buildings and machinery are considered to be _____ assets.

Accepted Answer

A)  current 
B)  fixed 
C)  short-term 
D)  other 
A)  current 
B)  fixed 
C)  short-term 
D)  other

Question 6

Match the term with its definition.
-A measure of how well a firm is controlling its cost of goods sold and operating expenses relative to sales, determined by dividing operating profits by sales

Accepted Answer

A) accrual-basis accounting 
B) cash 
C) cash-basis accounting 
D) depreciable assets 
E) depreciation expense
F)financial statements
G)inventory
H)liquidity
I)operating profit margin
J)return on assets
K)return on equity 
A) accrual-basis accounting 
B) cash 
C) cash-basis accounting 
D) depreciable assets 
E) depreciation expense
F)financial statements
G)inventory
H)liquidity
I)operating profit margin
J)return on assets
K)return on equity

Question 7

Match the term with its definition.
-Outstanding credit that is owed to suppliers

Accepted Answer

A) accounts payable (trade credit) 
B) accounts receivable 
C) accumulated depreciation 
D) common stock 
E) current assets (working capital)
F)current debt (short-term liabilities)
G)current ratio
H)fixed assets (property, plant, and equipment [PPE])
I)gross fixed assets
J)net fixed assets
K)other assets 
A) accounts payable (trade credit) 
B) accounts receivable 
C) accumulated depreciation 
D) common stock 
E) current assets (working capital)
F)current debt (short-term liabilities)
G)current ratio
H)fixed assets (property, plant, and equipment [PPE])
I)gross fixed assets
J)net fixed assets
K)other assets

Question 8

On the income statement, profit margins are expressed as a percentage of

Accepted Answer

A)  debt. 
B)  expenses. 
C)  equity. 
D)  sales. 
A)  debt. 
B)  expenses. 
C)  equity. 
D)  sales.

Question 9

If a firm's current ratio _____, its liquidity _____.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  increases; remains the same 
A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  increases; remains the same

Question 10

If a business allows a customer to buy on credit, which of the following increases?

Accepted Answer

A)  Debt 
B)  Inventory 
C)  Accounts Payable 
D)  Accounts Receivable 
A)  Debt 
B)  Inventory 
C)  Accounts Payable 
D)  Accounts Receivable

Question 11

The major difference between cash-basis accounting and accrual-basis accounting is when the firm records expenses and profits.

Accepted Answer

A) True 
 B)False

Question 12

Astoria is using a software application to prepare the balance sheet. Which of the following should be included in the fixed assets category?

Accepted Answer

A)  Land 
B)  Copyrights 
C)  Contingency funds 
D)  Goodwill 
A)  Land 
B)  Copyrights 
C)  Contingency funds 
D)  Goodwill

Question 13

Marvin is preparing one of the annual financial statements. Which of the following should be included in operating expenses?

Accepted Answer

A)  Marketing-related expenses 
B)  The cost for independent dealers to prepare for the distribution of the product 
C)  Interest on all loans 
D)  Income taxes 
A)  Marketing-related expenses 
B)  The cost for independent dealers to prepare for the distribution of the product 
C)  Interest on all loans 
D)  Income taxes

Question 14

Walter knows the result of the equation "Sales - Expenses = Profits" can be found on the

Accepted Answer

A)  statement of cash flows. 
B)  income statement. 
C)  statement of financial position. 
D)  balance sheet. 
A)  statement of cash flows. 
B)  income statement. 
C)  statement of financial position. 
D)  balance sheet.

Question 15

A company's total assets will always equal total debt minus owners' equity.

Accepted Answer

A) True 
 B)False

Question 16

Match the term with its definition.
-Loans from banks or other sources with repayment terms of more than 12 months

Accepted Answer

A) accrued expenses 
B) cash flow activities 
C) cost of goods sold 
D) gross profits 
E) long-term debt
F)long-term note
G)net profits
H)operating profits
I)profit margins
J)profits before taxes (taxable income)
K)short-term notes
L)statement of cash flows 
A) accrued expenses 
B) cash flow activities 
C) cost of goods sold 
D) gross profits 
E) long-term debt
F)long-term note
G)net profits
H)operating profits
I)profit margins
J)profits before taxes (taxable income)
K)short-term notes
L)statement of cash flows

Question 17

Xavier wants to know how much his company owns and how much it owes. He should look at the

Accepted Answer

A)  balance sheet. 
B)  income statement. 
C)  statement of cash flows. 
D)  asset list. 
A)  balance sheet. 
B)  income statement. 
C)  statement of cash flows. 
D)  asset list.

Question 18

The statement of cash flows measures cash flows on a(n) _____ basis.

Accepted Answer

A)  annual 
B)  accrual 
C)  cash 
D)  normalized 
A)  annual 
B)  accrual 
C)  cash 
D)  normalized

Question 19

Liquidity represents the degree to which a firm has cash available to meet maturing debt obligations.

Accepted Answer

A) True 
 B)False

Question 20

Regina wants to open her own coffee stand. To do that she will need equipment and supplies. The two methods Regina can use to pay for these items are _____ and _____.

Accepted Answer

A)  cash flow; balance sheets 
B)  accounts receivable; accounts payable 
C)  assets; liabilities 
D)  debt; equity 
A)  cash flow; balance sheets 
B)  accounts receivable; accounts payable 
C)  assets; liabilities 
D)  debt; equity

Exam 10: Understanding a Firms Financial Statements

To understand how his firm performed during the past year, Josh must know

Match the term with its definition. -A measure of the rate of return that owners receive on their equity investment, calculated by dividing net profits by owners' equity

Irma's current ratio is 2.5. This means that

Match the term with its definition. -Depreciable assets at their original cost, before any depreciation expense has been taken

Buildings and machinery are considered to be _____ assets.

Match the term with its definition. -A measure of how well a firm is controlling its cost of goods sold and operating expenses relative to sales, determined by dividing operating profits by sales

Match the term with its definition. -Outstanding credit that is owed to suppliers

On the income statement, profit margins are expressed as a percentage of

If a firm's current ratio _____, its liquidity _____.

If a business allows a customer to buy on credit, which of the following increases?

The major difference between cash-basis accounting and accrual-basis accounting is when the firm records expenses and profits.

Astoria is using a software application to prepare the balance sheet. Which of the following should be included in the fixed assets category?

Marvin is preparing one of the annual financial statements. Which of the following should be included in operating expenses?

Walter knows the result of the equation "Sales - Expenses = Profits" can be found on the

A company's total assets will always equal total debt minus owners' equity.

Match the term with its definition. -Loans from banks or other sources with repayment terms of more than 12 months

Xavier wants to know how much his company owns and how much it owes. He should look at the

The statement of cash flows measures cash flows on a(n) _____ basis.

Liquidity represents the degree to which a firm has cash available to meet maturing debt obligations.

Regina wants to open her own coffee stand. To do that she will need equipment and supplies. The two methods Regina can use to pay for these items are _____ and _____.

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If a firm's current ratio _, its liquidity _.

Regina wants to open her own coffee stand. To do that she will need equipment and supplies. The two methods Regina can use to pay for these items are _ and _.