Question 1

Match the term with its definition.
-Assets whose value declines, or depreciates, over time

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 2

The statement of cash flows answers the questions "Where did the cash come from?" and "Where did the cash go?"

Accepted Answer

A) True 
 B)False

Question 3

Stephanie ordered merchandise from one of her vendors, but she doesn't have to pay for it right away. The amount of this purchase will increase Stephanie's

Accepted Answer

A)  accounts receivable. 
B)  assets. 
C)  balance sheet. 
D)  accounts payable. 
A)  accounts receivable. 
B)  assets. 
C)  balance sheet. 
D)  accounts payable.

Question 4

Match the term with its definition.
-An accounting method of recording profits when cash is received and recording expenses when they are paid

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 5

For investment purposes, Wilma needs a snapshot of the firm's financial position at a specific point in time. She should look at the

Accepted Answer

A)  marketing plan. 
B)  statement of cash flows. 
C)  balance sheet. 
D)  income statement. 
A)  marketing plan. 
B)  statement of cash flows. 
C)  balance sheet. 
D)  income statement.

Question 6

Match the term with its definition.
-Earnings that may be distributed to the owners or reinvested in the company

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 7

Match the term with its definition.
-Money in the bank as well as securities that can be sold very quickly, such as a government security

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 8

Owners' equity represents the owner's investment in the business, which can be either his or her cash invested in the business or money borrowed from a bank to purchase fixed assets.

Accepted Answer

A) True 
 B)False

Question 9

Match the term with its definition.
-A financial report showing the amount of profits or losses from a firm's operations over a given time period

Accepted Answer

A) balance sheet 
B) debt 
C) debt ratio 
D) dividends 
E) income statement (profit and loss statement)
F)interest expense
G)mortgage
H)operating expenses
I)owners' equity
J)retained earnings
K)total asset turnover 
A) balance sheet 
B) debt 
C) debt ratio 
D) dividends 
E) income statement (profit and loss statement)
F)interest expense
G)mortgage
H)operating expenses
I)owners' equity
J)retained earnings
K)total asset turnover

Question 10

Match the term with its definition.
-The amount of credit extended to customers

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 11

To increase her firm's return on equity, Latitia could _____ the amount of _____.

Accepted Answer

A)  increase; assets the company owns 
B)  increase; debt the company owes 
C)  decrease; liabilities the company has 
D)  decrease; inventory the company carries 
A)  increase; assets the company owns 
B)  increase; debt the company owes 
C)  decrease; liabilities the company has 
D)  decrease; inventory the company carries

Question 12

In order to determine cash flows from operations, the owner must add back the depreciation expense to the net profits and then

Accepted Answer

A)  subtract any decrease in accounts payable. 
B)  add any increase in accounts receivable. 
C)  add any increase in inventory. 
D)  subtract any decrease in inventory. 
A)  subtract any decrease in accounts payable. 
B)  add any increase in accounts receivable. 
C)  add any increase in inventory. 
D)  subtract any decrease in inventory.

Question 13

Match the term with its definition.
-Stock shares that represent ownership in a corporation

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 14

A two-year-old asset has a useful life of 10 years. Its initial purchase cost was $450,000, and it is depreciated by 10 percent annually. What is the remaining depreciable value of the asset?

Accepted Answer

A)  $0 
B)  $90,000 
C)  $200,000 
D)  $360,000 
A)  $0 
B)  $90,000 
C)  $200,000 
D)  $360,000

Question 15

Cameron and Ashley bought $40 of "premium pink lemonade mix" and paper cups for their lemonade stand. These items are considered

Accepted Answer

A)  equity. 
B)  fixed assets. 
C)  inventory. 
D)  cost of goods sold. 
A)  equity. 
B)  fixed assets. 
C)  inventory. 
D)  cost of goods sold.

Question 16

Natalya reports profits when cash is received and records expenses when they are paid. She is using

Accepted Answer

A)  a statement of cash flows. 
B)  accrual-basis accounting. 
C)  cash-basis accounting. 
D)  liquid assets. 
A)  a statement of cash flows. 
B)  accrual-basis accounting. 
C)  cash-basis accounting. 
D)  liquid assets.

Question 17

Match the term with its definition.
-A measure of a company's relative liquidity, determined by dividing current assets by current liabilities

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 18

Jasper bought some new equipment for his business. Six months later, he wants to know whether this was a good idea. To do that, he can calculate the

Accepted Answer

A)  current ratio. 
B)  debt ratio. 
C)  return on equity. 
D)  return on assets. 
A)  current ratio. 
B)  debt ratio. 
C)  return on equity. 
D)  return on assets.

Question 19

When Darla prepares her company's balance sheet, she should include _____ in the list of current assets.

Accepted Answer

A)  equipment 
B)  land 
C)  leased property 
D)  accounts receivable 
A)  equipment 
B)  land 
C)  leased property 
D)  accounts receivable

Question 20

The income statement answers the question "How profitable is the business?"

Accepted Answer

A) True 
 B)False

Exam 10: Understanding a Firms Financial Statements

Match the term with its definition. -Assets whose value declines, or depreciates, over time

The statement of cash flows answers the questions "Where did the cash come from?" and "Where did the cash go?"

Stephanie ordered merchandise from one of her vendors, but she doesn't have to pay for it right away. The amount of this purchase will increase Stephanie's

Match the term with its definition. -An accounting method of recording profits when cash is received and recording expenses when they are paid

For investment purposes, Wilma needs a snapshot of the firm's financial position at a specific point in time. She should look at the

Match the term with its definition. -Earnings that may be distributed to the owners or reinvested in the company

Match the term with its definition. -Money in the bank as well as securities that can be sold very quickly, such as a government security

Owners' equity represents the owner's investment in the business, which can be either his or her cash invested in the business or money borrowed from a bank to purchase fixed assets.

Match the term with its definition. -A financial report showing the amount of profits or losses from a firm's operations over a given time period

Match the term with its definition. -The amount of credit extended to customers

To increase her firm's return on equity, Latitia could _____ the amount of _____.

In order to determine cash flows from operations, the owner must add back the depreciation expense to the net profits and then

Match the term with its definition. -Stock shares that represent ownership in a corporation

A two-year-old asset has a useful life of 10 years. Its initial purchase cost was $450,000, and it is depreciated by 10 percent annually. What is the remaining depreciable value of the asset?

Cameron and Ashley bought $40 of "premium pink lemonade mix" and paper cups for their lemonade stand. These items are considered

Natalya reports profits when cash is received and records expenses when they are paid. She is using

Match the term with its definition. -A measure of a company's relative liquidity, determined by dividing current assets by current liabilities

Jasper bought some new equipment for his business. Six months later, he wants to know whether this was a good idea. To do that, he can calculate the

When Darla prepares her company's balance sheet, she should include _____ in the list of current assets.

The income statement answers the question "How profitable is the business?"

The Entrepreneurial Lifethe Entrepreneurial Life

Integrity, Ethics, and Social Entrepreneurship

Starting a Small Business

Franchises and Buyouts

The Family Business

The Business Plan: Visualizing the Dream

The Marketing Plan

The Organizational Plan: Teams, Legal Structures, Alliances, and Directors

The Location Plan

Forecasting Financial Requirements

A Firms Sources of Financing

Planning for the Harvest

Building Customer Relationships

Product Development and Supply Chain Management

Pricing and Credit Decisions

Promotional Planning

Global Opportunities for Small Businesses

Professional Management and the Small Business

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Managing Small Business Operations

Managing the Firms Assets

Managing Risk

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To increase her firm's return on equity, Latitia could _ the amount of _.