Q: Which of the following best describes the accounting equation?

$$\text{Assets} = \text{Liabilities} + \text{Shareholders’ Equity}$$

Q: A company’s working capital is calculated as:

$$\text{Current Assets} - \text{Current Liabilities}$$

Question 1

Which of the following best describes the purpose of the Statement of Income?

Accepted Answer

To measure the operational performance of a company over a specific period by reporting revenues and expenses.

Question 2

Which of the following is NOT considered a current asset on the Statement of Financial Position?

Accepted Answer

Property, Plant & Equipment

Question 3

A company has current assets of $$50,000 and current liabilities of 25$$,000. What is its current ratio?

Accepted Answer

$$2.00$$

Question 4

Which of the following transactions would increase retained earnings on the Statement of Changes in Shareholders’ Equity?

Accepted Answer

Reporting net income for the year

Question 5

If a company reports the following: Revenues = $$120,000, Expenses = 90$$,000, what is the Net Income?

Accepted Answer

$$30,000$$

Question 6

Which of the following best describes the accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Shareholders’ Equity}$$

Question 7

A company has cash of $$5,000, short-term investments of 2$$,000, accounts receivable of $$3,000, and current liabilities of 10$$,000. What is the quick ratio?

Accepted Answer

$$(5,000 + 2,000 + 3,000) / 10,000 = 1.00$$

Question 8

Which of the following is a noncurrent liability?

Accepted Answer

Bonds Payable

Question 9

Which of the following best explains the relationship between the Statement of Income and the Statement of Changes in Shareholders’ Equity?

Accepted Answer

Net income from the Statement of Income is added to retained earnings in the Statement of Changes in Shareholders’ Equity.

Question 10

A company has the following balances: Beginning Retained Earnings = $$10,000, Net Income = 5$$,000, Dividends Declared = $2,000. What is the ending Retained Earnings?

Accepted Answer

$$13,000$$

Question 11

Which of the following is NOT a component of shareholders’ equity?

Accepted Answer

Accounts Payable

Question 12

If a company’s total assets are $$500,000 and total liabilities are 350$$,000, what is the amount of shareholders’ equity?

Accepted Answer

$$150,000$$

Question 13

Which of the following best describes the quick ratio?

Accepted Answer

It measures the ability to pay current liabilities using cash, short-term investments, and accounts receivable.

Question 14

Which of the following would be classified as an intangible asset?

Accepted Answer

Patent

Question 15

A company’s working capital is calculated as:

Accepted Answer

$$	ext{Current Assets} - 	ext{Current Liabilities}$$

Question 16

Which of the following is a real-world example of a merchandising-sector company?

Accepted Answer

A retailer like Home Depot

Question 17

Which of the following would NOT be found on the Statement of Financial Position?

Accepted Answer

Net Income

Question 18

If a company pays dividends, how does this affect the Statement of Changes in Shareholders’ Equity?

Accepted Answer

It decreases retained earnings.

Question 19

Which of the following best describes the difference between current and noncurrent liabilities?

Accepted Answer

Current liabilities are due within one year; noncurrent liabilities are due beyond one year.

Question 20

A company has the following: Cash = $$10,000, Short-term Investments = 5$$,000, Accounts Receivable = $$8,000, Inventory = 12$$,000, Current Liabilities = $20,000. What is the quick ratio?

Accepted Answer

$$(10,000 + 5,000 + 8,000) / 20,000 = 1.65$$

A Further Look at Financial Statements: Structure, Elements, and Liquidity Analysis

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