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Questions and Answers
Financial statements can be used by which of the following groups? (Select all that apply)
An organization's investors and creditors will primarily use information provided by:
Under the historical cost principle, Frost should record the building for:
To be useful, information must have which of the following fundamental qualitative characteristics?
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Which principle would be violated if a business is headed for bankruptcy, and its financial statements were prepared using standard U.S. GAAP?
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The accounting equation can be expressed as:
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How much are Sebastapol's total assets and liabilities?
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Net income for the year was:
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How would the issuance of common stock for cash affect the accounting equation?
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Which financial statement would show how well a company performed over the past year?
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What item flows from the income statement to the statement of retained earnings?
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How much retained earnings should White report at December 31, 2018?
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How much net income (or net loss) did Terry experience for the year?
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All of the following are current assets except:
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Amounts owed to a company by its customers would be:
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Identify the asset from the following list of accounts:
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Which of the following is an asset?
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The impact of purchasing a new delivery truck with a note payable on Thorpe Corporation is:
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Study Notes
Financial Statements and Users
- Financial statements are utilized by regulatory bodies, individuals, investors, and creditors.
- Investors and creditors primarily rely on an organization’s financial accounting system for information.
Historical Cost Principle
- Frost Enterprises purchased a warehouse for $570,000; it should record the building at this historical cost, not the appraised or previous purchase value.
Qualitative Characteristics of Information
- Useful information must possess relevance and faithful representation as fundamental qualitative characteristics.
Bankruptcy and GAAP Principles
- If a company is headed for bankruptcy with liabilities exceeding assets, the continuity assumption principle is violated under standard U.S. GAAP.
Accounting Equation
- The accounting equation is represented as Assets = Liabilities + Equity.
Total Assets and Liabilities Calculation
- Sebastapol Corporation has total assets of 115,000andliabilitiesof115,000 and liabilities of 115,000andliabilitiesof28,000, calculated as cash, accounts receivable, inventory, and land.
Net Income Calculation
- GreenWash Corporation's net income is calculated by subtracting expenses from revenues, totaling $125,000 when factoring in dividends.
Issuance of Common Stock
- Issuing common stock for cash increases both assets and stockholders' equity in the accounting equation.
Financial Statements Overview
- The income statement reflects a company’s performance over the past year, unlike the balance sheet or statement of cash flows.
Flow from Income Statement to Retained Earnings
- Net income flows from the income statement to the statement of retained earnings, influencing the overall retained earnings balance.
Retained Earnings Calculation
- White Instruments should report retained earnings of $515,000 at year-end, factoring in previous earnings, net income, and dividends declared.
Net Income Analysis
- Terry Corporation experienced a net loss of $32,000 for the year after accounting for all revenue and expenses along with the year-end cash balance.
Current Assets Identification
- Current assets include accounts receivable, prepaid expenses, and inventory; accounts payable is not categorized as a current asset.
Accounts Owed to Company
- Amounts owed to a company by its customers are classified as Accounts Receivable.
Asset Identification
- Inventory is an asset, while common stock and retained earnings are not classified as assets.
Impact of Purchases on Financials
- Thorpe Corporation’s purchase of a new delivery truck financed by a note payable results in an increase in both assets and liabilities.
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Description
This quiz covers essential concepts related to financial statements and their use by various stakeholders including regulatory bodies, individuals, and investors. It also examines how financial information is utilized by an organization's accounting systems. Prepare thoroughly to excel in your financial accounting exam!
