Questions and Answers
Indicate in which financial statement each item would appear:
Service Revenue = Income Statement Equipment = Balance Sheet Advertising Expense = Income Statement Accounts Receivable = Balance Sheet Common Stock = Balance Sheet Interest Payable = Balance Sheet
What is the basic accounting equation?
assets = liabilities + stockholders' equity
Which one of the following are liabilities? Choose all that apply.
Indicate in which part of the statement of cash flows each item would appear:
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In each case, identify whether the item would appear on the balance sheet or income statement.
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Identify which statement you would examine to find each item:
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Which statement about users of accounting information is incorrect?
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Resources owned by a business are referred to as:
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Paying interest expense and receiving interest revenue are examples of:
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The payment of dividends is an example of a(n):
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Which of the following is not one of the three primary business activities?
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Which of the following is an example of a financing activity?
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What kind of classification is cost of goods sold?
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Which of the following would not appear on the income statement?
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Which of the following would not appear on the retained earnings statement?
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What is Harold's net income? Given: Accounts Receivable $5,000, Sales Revenue $75,000, Cash $15,000, Salaries and Wages Expense $20,000, Rent Expense $10,000.
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In which of the following sequences are the financial statements usually prepared?
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Which statement presents information as of a specific point in time?
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Which financial statement reports assets, liabilities, and stockholders' equity?
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The ending retained earnings balance appears on:
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How much are total liabilities at the end of the year? Given: Saira's Maid Service began with total assets of $120,000, stockholders' equity of $40,000, earned $90,000 in net income, paid $20,000 in dividends, and had total assets of $215,000.
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The balance sheet:
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Stockholders' equity represents:
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The most common description of IFRS as contrasted to GAAP is that:
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Indicate in which part of the statement of cash flows each item would appear:
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The full disclosure principle dictates that:
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If a company has excessive debt compared to its future earning prospects:
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A company has total assets of $650 million and $375 million in equity. Liabilities represent:
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In a classified balance sheet, how are assets usually classified?
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In what order are current assets listed?
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The correct order of presentation in a classified balance sheet for the following current assets is:
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A company purchased a tract of land on which it expects to build a production plant in approximately five years. During the five years before construction, the land will be idle. In what classification should the land be reported?
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Which of the following is not classified as a current asset?
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Which of the following is considered property, plant, and equipment on a classified balance sheet?
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Current liabilities are $10,000, long-term liabilities are $20,000, common stock is $50,000, and retained earnings totals $70,000. How much is total stockholders' equity?
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Which one of the following is not an alternate means of expressing a ratio?
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Earnings per share is computed by dividing net income:
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Which is an indicator of profitability?
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For 2017, Stoneland Corporation reported net income of $24,000; net sales of $400,000; and average shares outstanding of 6,000. There were no preferred stock dividends. How much was the 2017 earnings per share?
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Net income is $200,000, preferred dividends are $20,000, and average common shares outstanding are 50,000. How much is earnings per share?
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Study Notes
Financial Statements
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Financial Statements Types:
- Income Statement shows revenue and expenses.
- Balance Sheet displays assets, liabilities, and stockholders' equity.
- Statement of Cash Flows tracks cash inflows and outflows from operating, investing, and financing activities.
Key Financial Item Classifications
- Service revenue and advertising expense are reported on the income statement.
- Equipment, accounts receivable, common stock, and interest payable are included in the balance sheet.
Basic Accounting Principles
- Basic Accounting Equation: Assets = Liabilities + Stockholders' Equity.
- Resources owned by a business are termed assets.
Liabilities Identification
- Accounts payable and salaries and wages payable are classified as liabilities.
- Cash, dividends, accounts receivable, supplies, and equipment are not liabilities.
Cash Flow Activities
- Operating Activities: Cash received from customers, cash paid to suppliers.
- Financing Activities: Cash paid to stockholders (dividends), cash received from issuing new stock.
- Investing Activities: Cash paid for purchasing new office buildings.
Retained Earnings and Income Statement
- Retained Earnings Statement: Reflects dividends, beginning retained earnings, and net income.
- Income Statement: Prepares for revenues, expenses, and net income.
Financial Ratios & Indicators
- Earnings Per Share (EPS): Calculated by dividing net income less preferred dividends by the average common shares outstanding.
- Profitability indicator: Earnings per share is a key measure of a company's profitability.
Understanding Financial Health
- Excessive debt compared to future earnings can lead to financial distress.
- Stockholders' equity represents the claims of owners against the assets of a company.
Financial Statement Preparation Order
- Financial statements are typically prepared in the following order: Income statement, retained earnings statement, balance sheet, statement of cash flows.
Asset Classification in Balance Sheets
- In classified balance sheets, assets are categorized into current assets (e.g., cash, accounts receivable) and long-term investments.
- Current assets are listed by liquidity, from most liquid to least liquid.
Current vs. Long-term Liabilities
- Current liabilities are obligations due within one year, while long-term liabilities extend beyond that.
- Total liabilities at year-end are calculated by assessing total assets minus stockholders' equity.
International Financial Reporting Standards (IFRS)
- IFRS is described as principles-based, in contrast to GAAP, which is more rules-based.
Important Calculations
- To find net income: Sales Revenue - Expenses.
- The ending retained earnings balance appears on both the retained earnings statement and the balance sheet.
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Description
Test your knowledge of financial statements and the basic accounting equation with these flashcards covering Wiley Plus chapters 1 to 3. Perfect for accounting students looking to reinforce their understanding of key concepts. Get ready to match items to their respective financial statements and answer foundational accounting questions.