Question 1

The statement of changes in equity would not show

Accepted Answer

The statement of changes in equity shows changes in equity accounts such as common stock, additional paid-in capital, retained earnings, and dividends. It would not show revenues and expenses, which are reported on the income statement. However, it would show the beginning and ending retained earnings balances, as well as any dividends paid out during the period.

Question 2

Liabilities:

Accepted Answer

Liabilities represent debts and obligations that a business owes to others, such as loans, accounts payable, and salaries payable. They do not represent future economic benefits or things of value owned by the business itself. While some liabilities may possess service potential, this is not a defining characteristic of a liability.

Question 3

The financial statement that summarizes the changes in common shares and retained earnings for a specific period of time is the

Accepted Answer

The only financial statement that summarizes changes in common shares and retained earnings is the statement of changes in equity. The statement of financial position (A) summarizes a company's assets, liabilities and equity at a specific point in time, while the income statement (B) summarizes a company's revenues and expenses for a specific period of time. The statement of cash flows (C) summarizes a company's cash inflows and outflows for a specific period of time.

Question 4

If total liabilities increased by $15,000 and shareholders' equity increased by $15,000 during a period of time, then total assets must change by what amount and direction (increase or decrease) during that same period?

Accepted Answer

The accounting equation is Assets = Liabilities + Shareholders' Equity. If total liabilities increased by $15,000 and shareholders' equity increased by $15,000, this means that there was no change to the assets since both sides of the equation increased by the same amount. Therefore, there is no change to the total assets during that same period.

Question 5

Profit results when

Accepted Answer

Profit is the amount by which revenues exceed expenses. Therefore, the correct statement would be revenues (income) exceeded expenses.

Question 6

The cost of assets consumed or services used is also known as a(n)

Accepted Answer

The cost of assets consumed or services used is known as an expense. An expense is a cost that is incurred in order to generate revenue or maintain the operation of a business. Examples of expenses include salaries and wages, rent, utilities, and supplies.

Question 7

Debt and obligations of a business are referred to as

Accepted Answer

Debt and obligations of a business are referred to as liabilities. Assets refer to what the business owns, equities refer to ownership of the business, and expenses refer to costs incurred by the business in running its operations.

Question 8

A statement of financial position shows

Accepted Answer

A statement of financial position (also known as balance sheet) shows the assets (what the company owns), liabilities (what the company owes), and shareholders' equity (the difference between the assets and liabilities that belong to the owners/shareholders). Revenues, expenses, dividends are shown on the statement of comprehensive income (also known as income statement).

Question 9

Use the following information for questions 
Kareem's Rental Ltd.started the year with total assets of $70,000 and total liabilities of $40,000.During the year, the business recorded $100,000 in car repair revenues, $65,000 in expenses, and paid dividends of $5,000.
-Shareholders' equity at the end of the year was

Accepted Answer

Shareholders' equity = Total assets - Total liabilities= $70,000 - $40,000= $30,000Add net income to shareholders' equity= $30,000 + ($100,000 - $65,000 - $5,000)= $60,000

Question 10

Which financial statement is prepared first?

Accepted Answer

The income statement is prepared first as it provides information on a company's revenues and expenses over a specific period of time, usually a month or year. This information is crucial in determining a company's profitability and to provide a basis for making informed decisions. The statement of financial position, statement of changes in equity, and statement of cash flows are prepared after the income statement.

Question 11

Liabilities of a company are owed to

Accepted Answer

Liabilities are debts owed by a company to external parties, such as banks or suppliers. These external parties are known as creditors, as they have extended credit to the company. Debtors are individuals or entities who owe money to the company, while owners and shareholders have equity in the company and are not owed any liabilities.

Question 12

Use the following information for questions 
Kareem's Rental Ltd.started the year with total assets of $70,000 and total liabilities of $40,000.During the year, the business recorded $100,000 in car repair revenues, $65,000 in expenses, and paid dividends of $5,000.
-The profit reported for the year was

Accepted Answer

The answer of Use the following information for questions 
Kareem's...

Question 13

Dividends

Accepted Answer

Dividends represent a distribution of profits to the shareholders and reduce the retained earnings of the company. This reduction in retained earnings is reflected in the shareholders' equity section of the balance sheet and does not impact assets, expenses, or revenues. Therefore, the correct choice is D - decrease retained earnings.

Question 14

An income statement

Accepted Answer

An income statement reports the revenues and expenses for a specific period of time, typically a month or a year. It shows the profitability of a company during that time period. Option A is incorrect because changes in retained earnings can also occur due to transactions like dividends or stock issuances, which are not reflected in the income statement. Option B describes a statement of cash flows, which reports changes in cash over a period of time. Option C refers to a balance sheet, which reports the financial position of a company at a specific date.

Question 15

Resources owned by a corporation are referred to as

Accepted Answer

Resources owned by a corporation are referred to as assets. Assets are anything of value that a business owns or controls, such as cash, inventory, equipment, and property. Shareholders' equity represents the residual interest in the assets of the business after deducting liabilities, and revenues are the income earned by the business from its operating activities. Liabilities are the obligations of the business to pay debts or fulfill other financial obligations.

Question 16

If the retained earnings account increases from the beginning of the year to the end of the year, then

Accepted Answer

Retained earnings is the portion of a company's profits that is not distributed as dividends but is instead re-invested in the business or used to pay off debt. If retained earnings increases, it means that the company made a profit during the year that exceeded the amount of dividends paid out to shareholders. Therefore, choice A is the correct answer. The other choices do not accurately reflect the relationship between retained earnings and dividends.

Question 17

Dividends are reported on

Accepted Answer

Dividends are reported on the statement of changes in equity as they represent a distribution of earnings to shareholders, affecting retained earnings.

Question 18

A company's policy toward dividends and growth could best be determined by examining the

Accepted Answer

The statement of changes in equity provides information on the company's earnings, dividends, and any additional investments or withdrawals by shareholders. By analyzing this statement, it is possible to determine the company's policy towards dividends and growth. For example, if the company consistently retains earnings and reinvests them into the business, this indicates a focus on growth rather than paying dividends to shareholders. On the other hand, if the company pays out a significant portion of its earnings as dividends, it may prioritize shareholder return over growth.

Question 19

The accounting equation may be expressed as

Accepted Answer

The accounting equation is Assets = Liabilities + Shareholders' Equity. This equation represents the relationship between a company's assets, liabilities, and shareholders' equity. Assets are the resources owned by the company, liabilities are the company's debts, and shareholders' equity is the amount of money that shareholders have invested in the company. The equation must balance at all times.

Question 20

Retained earnings at the end of the period is equal to

Accepted Answer

Retained earnings at the end of the period is calculated by adding the retained earnings at the beginning of the period to the profit earned during the period and then subtracting any dividends paid out to shareholders. Therefore, option B is the correct answer. Option A includes liabilities which is not included in the calculation of retained earnings. Option C only includes the profit for the period and does not take into account the retained earnings at the beginning of the period. Option D is not relevant to the calculation of retained earnings.

Quiz 1: Introduction to Financial Statements