Question 1

Which of the following best describes a company's operating activities?
A)Operating activities focus on the sale of products and services.
B)Operating activities are necessary to provide the money to start a business.
C)Operating activities are needed to provide the valuable assets required to run a business.
D)Operating activities represent the right to receive a benefit in the future.

Accepted Answer

Operating activities refer to the day-to-day activities involved in producing and selling a company's products or services, such as inventory management, marketing, and customer service. These activities generate the primary revenue for the company and are essential to its ongoing operations. Therefore, option A, which specifically mentions the sale of products and services, is the best description of a company's operating activities.

Question 2

Business entities generally carry on:
A)Operating, investing, and financing activities
B)Operating activities, but only corporations engage in financing and investing activities
C)Investing and operating activities, but only corporations engage in financing activities
D)Either investing or financing activities, but not both

Accepted Answer

Business entities generally engage in operating activities, such as selling goods or services, investing activities, such as acquiring and disposing of assets for investment purposes, and financing activities, such as borrowing money or issuing stocks to fund operations. All types of business entities, including sole proprietors, partnerships, and corporations, can engage in these activities.

Question 3

During its fifth year of operations, Bright Creations Company reports a beginning cash balance of $132,000, cash inflows from investing activities of $210,000, cash outflows for financing activities of $79,000, and cash outflows for operating activities of $13,000.What was Bright Creations' cash balance at the end of the fifth year?
A)$ 250,000
B)$ 434,000
C)$ 276,000
D)$ 132,000

Accepted Answer

The answer of During its fifth year of operations, Bright...

Question 4

An investor found the following in an annual report: "The financial statements, in our opinion, present fairly the financial position, operating results, and cash flows, in conformity with accounting principles generally accepted in the United States." In which section of the annual report did the investor find this?
A)Balance Sheet
B)Notes to the Financial Statements
C)Management's Discussion and Analysis
D)Report of the Independent Accountants

Accepted Answer

The statement is the opinion of the independent accountants who audited the financial statements, therefore, it can be found in the Report of the Independent Accountants section.

Question 5

Accountants are the main reason financial statements are prepared.

Accepted Answer

While accountants may play a role in preparing financial statements, the primary reason for preparing them is to provide information to various stakeholders, including investors, creditors, and government agencies. Financial statements are prepared to give insight into a company's financial performance and position, as well as to ensure transparency and compliance with accounting standards and regulations.

Question 6

Which financial statement reports the sources and uses of an entity's cash resources?
A)Income statement
B)Statement of retained earnings
C)Balance sheet
D)Statement of cash flows

Accepted Answer

The statement of cash flows reports the sources and uses of an entity's cash resources, showing how cash has been generated and used during the reporting period. The income statement reports revenue and expenses, the balance sheet reports assets, liabilities, and equity, and the statement of retained earnings reports changes in retained earnings.

Question 7

Supplementary disclosures required by GAAP that help explain detail behind the accounting treatment of certain items in the financial statements is most likely found in which of the following sections of a corporate annual report?
A)Report of the Independent Accountants
B)Notes to the Financial Statements
C)Management's Discussion and Analysis
D)Balance Sheet

Accepted Answer

Notes to the Financial Statements typically contain detailed information about the accounting treatment of various items in the financial statements, including additional disclosures required by GAAP. The other sections may contain some relevant information, but are less likely to have the level of detail provided in the Notes.

Question 8

Which of the following represents the correct sequence of the three business activities on the Statement of Cash Flows?
A)Financing - Operating - Investing
B)Investing - Operating - Financing
C)Operating - Investing - Financing
D)Financing - Investing - Operating

Accepted Answer

The correct sequence of the three business activities on the Statement of Cash Flows starts with Operating activities (such as transactions related to day-to-day operations), followed by Investing activities (such as purchase or sale of long-term assets), and finally, Financing activities (such as funds raised or paid back to investors or creditors). Therefore, option C, Operating-Investing-Financing, represents the correct sequence.

Question 9

Which one of the following is a financing activity of a business?
A)Paying for purchases of inventory
B)Issuing stock for cash
C)Paying salaries
D)Purchasing a manufacturing plant

Accepted Answer

Issuing stock for cash is a financing activity as it involves raising funds from external sources. Paying for purchases of inventory (A) and paying salaries (C) are operating activities, while purchasing a manufacturing plant (D) is an investing activity.

Question 10

Which of the following represents one of the purposes of the notes to financial statements?
A)To provide a place for management to justify questionable items in the statements
B)To provide comparative ratios for the company's financial data
C)To provide the CPA's opinion of the fairness of the financial statements
D)To satisfy the need for full disclosure of all the facts relevant to a company's results and financial position

Accepted Answer

The notes to financial statements serve the purpose of full disclosure of all the relevant facts related to a company's financial position and performance. It provides additional information that is not given in the financial statements itself. Options A, B, and C do not represent the purpose of the notes to financial statements.

Question 11

Which of the following items will be found in a corporate annual report?
A)Company budgets
B)Notes to the financial statements
C)Selected financial data from competitor companies
D)Management's statement that the auditors are responsible for the financial statements

Accepted Answer

Notes to the financial statements are a standard component of a corporate annual report, providing additional context and detail to the figures presented in the financial statements.

Question 12

Marvel Shoes
Marvel Shoes reported the following items on its statement of cash flows for the current year: 
-Read the information about Marvel Shoes.What was the cash balance for Marvel Shoes at the end of the current year?
A)$ 10,000
B)$ 30,000
C)$ 40,000
D)$ 70,000

Accepted Answer

The cash balance at the beginning of the year was $30,000, and cash generated from operating activities was $80,000. Cash used for investing activities was $20,000, and cash used for financing activities was $50,000. Therefore, the cash balance at the end of the year is $40,000 (beginning balance + operating cash flow - investing cash flow - financing cash flow = $30,000 + $80,000 - $20,000 - $50,000 = $40,000).

Question 13

Although businesses engage in a wide variety of activities, all of these activities can be categorized into three types.Which of the following choices best reflects these three types of business activities?
A)Operating, financing, reporting
B)Investing, reporting, financing
C)Operating, financing, investing
D)Investing, reporting, operating

Accepted Answer

The three types of business activities are operating, financing, and investing. Operating activities involve the day-to-day operations of the business such as producing and selling goods or services. Financing activities involve obtaining funding for the business such as issuing debt or equity. Investing activities involve the acquisition and sale of long-term assets such as property, plant and equipment or other investments. Choice C reflects these three types of activities.

Question 14

Which one of the following is an investing activity of a business?
A)Paying for purchases of inventory
B)Issuing stock for cash
C)Borrowing money from a bank
D)Purchasing a manufacturing plant for cash

Accepted Answer

Purchasing a manufacturing plant for cash is an example of an investing activity because it involves the acquisition of a long-term asset that will generate income for the business over several years. Paying for purchases of inventory (A) is an example of an operating activity because it relates to the day-to-day operations of the business. Issuing stock for cash (B) is an example of a financing activity because it involves raising capital from investors. Borrowing money from a bank (C) is also an example of a financing activity because it involves obtaining funds from an external source.

Question 15

Which one of the following is an operating activity of a business?
A)Paying for purchases of inventory
B)Issuing stock for cash
C)Borrowing money from a bank
D)Purchasing a manufacturing plant

Accepted Answer

Paying for purchases of inventory is an operating activity because it relates to the day-to-day operations of buying and selling goods that generate revenue for the business. Issuing stock for cash is a financing activity, borrowing money from a bank is a financing activity, and purchasing a manufacturing plant is an investing activity.

Question 16

Which of the following best describes a company's financing activities?
A)Financing activities focus on the sale of products and services.
B)Financing activities include selling products.
C)Financing activities enable a company to acquire assets needed to run a business.
D)Financing activities are represented by the revenues and expenses on the income statement.

Accepted Answer

Financing activities refer to the ways in which a company obtains funds to run its business, including obtaining loans, issuing bonds or stocks, and selling assets. These activities are not directly related to the sale of products or services (answer A), although the proceeds from financing activities can be used to finance the production and sale of products. The sale of products (answer B) is part of a company's operating activities. Financing activities are reflected on the statement of cash flows, not the income statement (answer D).

Question 17

As used in accounting, the "Notes to the Financial Statements" should be:
A)Listed with the liabilities on the balance sheet
B)Omitted at the option of the company
C)Included as an integral part of the financial statements
D)Reported as expenses on the Income Statement

Accepted Answer

The "Notes to the Financial Statements" are an integral part of the financial statements and are included as additional information that provides details about the accounting policies, assumptions, and other important information that cannot be disclosed on the face of the financial statements. This information is important for investors and other users of the financial statements to understand the underlying transactions and events that have led to the reported numbers. Therefore, the notes should always be included as part of the financial statements.

Question 18

Financial statements are intended to tell the reader the value of a company.

Accepted Answer

Financial statements are intended to provide information about the financial performance, financial position and cash flows of a company, but they do not necessarily provide a specific value of the company. The value of a company can be estimated using various methods such as market valuation, discounted cash flow analysis, or comparable company analysis.

Question 19

Which one of the following sections is least likely to be found in a corporate annual report?
A)Notes to the Financial Statements
B)Forecasts of Cash Flows and Earnings
C)Report of the Independent Accountants
D)Management's Discussion and Analysis

Accepted Answer

While some corporations may choose to include forecasts of cash flows and earnings in their annual report, it is not a required section and therefore less likely to be found compared to the other options. The other sections, Notes to the Financial Statements, Report of the Independent Accountants, and Management's Discussion and Analysis, are all typically included in a corporate annual report.

Question 20

Marvel Shoes
Marvel Shoes reported the following items on its statement of cash flows for the current year: 
-Read the information about Marvel Shoes.What was the amount of net increase or decrease in the cash balance for Marvel Shoes for the current year?
A)$ 10,000 increase
B)$ 30,000 increase
C)$ 40,000 increase
D)$ 70,000 increase

Accepted Answer

The net increase in cash balance is calculated by adding the net cash inflows from operating activities ($70,000) to the net cash outflows from investing activities (-$20,000) and financing activities (-$40,000), which equals a $10,000 increase.

Quiz 2: Financial Statements and the Annual Report

Which of the following best describes a company's operating activities?

Business entities generally carry on:

Accountants are the main reason financial statements are prepared.

Which financial statement reports the sources and uses of an entity's cash resources?

Supplementary disclosures required by GAAP that help explain detail behind the accounting treatment of certain items in the financial statements is most likely found in which of the following sections of a corporate annual report?

Which of the following represents the correct sequence of the three business activities on the Statement of Cash Flows?

Which one of the following is a financing activity of a business?

Which of the following represents one of the purposes of the notes to financial statements?

Which of the following items will be found in a corporate annual report?

Marvel Shoes Marvel Shoes reported the following items on its statement of cash flows for the current year: -Read the information about Marvel Shoes.What was the cash balance for Marvel Shoes at the end of the current year?

Although businesses engage in a wide variety of activities, all of these activities can be categorized into three types.Which of the following choices best reflects these three types of business activities?

Which one of the following is an investing activity of a business?

Which one of the following is an operating activity of a business?

Which of the following best describes a company's financing activities?

As used in accounting, the "Notes to the Financial Statements" should be:

Financial statements are intended to tell the reader the value of a company.

Which one of the following sections is least likely to be found in a corporate annual report?

Marvel Shoes Marvel Shoes reported the following items on its statement of cash flows for the current year: -Read the information about Marvel Shoes.What was the amount of net increase or decrease in the cash balance for Marvel Shoes for the current year?