Question 1

Match the term with its definition.
-Costs related to marketing and selling a firm's product or service, general and administrative expenses, and depreciation

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

Question 2

Assets that can be converted into cash relatively quickly are said to be liquid.

Accepted Answer

A) True 
 B)False

Question 3

Match the term with its definition.
-Sales less the cost of goods sold

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

Question 4

Candace purchased a car for her company's exclusive use. The value of this car

Accepted Answer

A)  is constant over time. 
B)  increases with each use of the asset. 
C)  decreases over time. 
D)  increases over time.

Question 5

Match the term with its definition.
-The cost of borrowed money

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

Question 6

Match the term with its definition.
-The cost of producing or acquiring goods to be sold by a firm

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

Question 7

Match the term with its definition.
-An accounting method of recording profits when earned and expenses when incurred, whether the profits have been received in cash or the expenses 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

Question 8

Horace is reviewing a document that shows the results of his firm's operations over a period of one year. Horace is looking at the

Accepted Answer

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

Question 9

The payment of dividends to owners of a business would _____ on the statement of cash flows.

Accepted Answer

A)  be recorded in the Operating Activities section 
B)  be recorded in the Investing Activities section 
C)  be recorded in the Financing Activities section 
D)  not be recorded

Question 10

Match the term with its definition.
-Financing provided by creditors

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

Question 11

Raul needed an expensive piece of equipment to expand his business. He borrowed the money from the bank and pledged the equipment as _____. If Raul does not repay the loan, the bank can take his equipment.

Accepted Answer

A)  a promissory note 
B)  collateral 
C)  a depreciable asset 
D)  long-term debt

Question 12

Net income is used to measure the return on the firm's total assets.

Accepted Answer

A) True 
 B)False

Question 13

Accounts receivable represent credit extended by suppliers to a firm when it purchases inventory.

Accepted Answer

A) True 
 B)False

Question 14

The income statement answers which of the following questions?

Accepted Answer

A)  How much cash did the firm generate? 
B)  How profitable was the business? 
C)  How much money does the company owe? 
D)  How much money did the owners invest?

Question 15

Which of the following is a reason why profits based on an accrual-basis accounting system will differ from the firm's cash flows?

Accepted Answer

A)  Sales reported in an income statement includes only cash sales rather than both cash and credit sales. 
B)  The depreciation expense shown in an income statement is an expense involving cash. 
C)  Cash spent for inventory doesn't represent all inventory purchases since some inventory is financed by credit. 
D)  On an income statement, profits are reported when cash is received, and expenses are recorded when they are paid.

Question 16

Profits reward owners for investing in a company, but they do little to promote future growth.

Accepted Answer

A) True 
 B)False

Question 17

Match the term with its definition.
-Physical assets that will be used in the business for more than one year, such as equipment, buildings, and land

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

Question 18

Jane has been asked by a group of investors to give an overall picture of her firm's financial situation. To do so, she should provide them with a copy of the firm's income statement and balance sheet.

Accepted Answer

A) True 
 B)False

Question 19

Match the term with its definition.
-Agreements to repay cash amounts borrowed from banks or other lending sources within 12 months or less

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

Question 20

To calculate his company's _____, Edgar will deduct operating expenses from gross profits.

Accepted Answer

A)  cost of goods sold 
B)  profits before taxes 
C)  operating profits 
D)  retained earnings

Exam 10: Understanding a Firms Financial Statements

Match the term with its definition. -Costs related to marketing and selling a firm's product or service, general and administrative expenses, and depreciation

Assets that can be converted into cash relatively quickly are said to be liquid.

Match the term with its definition. -Sales less the cost of goods sold

Candace purchased a car for her company's exclusive use. The value of this car

Match the term with its definition. -The cost of borrowed money

Match the term with its definition. -The cost of producing or acquiring goods to be sold by a firm

Match the term with its definition. -An accounting method of recording profits when earned and expenses when incurred, whether the profits have been received in cash or the expenses paid

Horace is reviewing a document that shows the results of his firm's operations over a period of one year. Horace is looking at the

The payment of dividends to owners of a business would _____ on the statement of cash flows.

Match the term with its definition. -Financing provided by creditors

Raul needed an expensive piece of equipment to expand his business. He borrowed the money from the bank and pledged the equipment as _____. If Raul does not repay the loan, the bank can take his equipment.

Net income is used to measure the return on the firm's total assets.

Accounts receivable represent credit extended by suppliers to a firm when it purchases inventory.

The income statement answers which of the following questions?

Which of the following is a reason why profits based on an accrual-basis accounting system will differ from the firm's cash flows?

Profits reward owners for investing in a company, but they do little to promote future growth.

Match the term with its definition. -Physical assets that will be used in the business for more than one year, such as equipment, buildings, and land

Jane has been asked by a group of investors to give an overall picture of her firm's financial situation. To do so, she should provide them with a copy of the firm's income statement and balance sheet.

Match the term with its definition. -Agreements to repay cash amounts borrowed from banks or other lending sources within 12 months or less

To calculate his company's _____, Edgar will deduct operating expenses from gross profits.