Equity In A Business F4 Quiz

25 Questions | Total Attempts: 266

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Questions and Answers
  • 1. 
    Instead of issuing a statement of stockholders’ equity, a corporation that does not have any changes in contributed capital and that has not issued any common or preferred stock may want to prepare a:
    • A. 

      Statement of retained earnings

    • B. 

      Statement of cash flows

    • C. 

      Combined income statement and balance sheet

    • D. 

      None of these answers is correct

  • 2. 
    What is the impact of net income on the owners’ equity in a business?
    • A. 

      Net income increases owners’ equity.

    • B. 

      The answer depends on whether the business is a proprietorship or a partnership.

    • C. 

      Net income does not directly affect owners’ equity, since it is an income statement amount.

    • D. 

      Net income decreases owners’ equity.

  • 3. 
    In what order should financial statements be prepared?
    • A. 

      Statement of owners’ equity, balance sheet, income statement

    • B. 

      Balance sheet, statement of owners’ equity, income statement

    • C. 

      Balance sheet, income statement, statement of owners’ equity

    • D. 

      Income statement, statement of owners’ equity, balance sheet

  • 4. 
    Gross margin represents:
    • A. 

      The amount the products cost the company

    • B. 

      How much more a company received from the sale of its products than what the products cost the company

    • C. 

      The amount available from sales to cover all other expenses the company incurs

    • D. 

      Answers b and c are both correct.

  • 5. 
    Expenses take various forms as shown on the income statement. The cost of the products that merchandisers and manufacturers sell make up an expense called:
    • A. 

      Cost of goods sold

    • B. 

      Cost of products sold

    • C. 

      Cost of sales

    • D. 

      All of these answers are correct

  • 6. 
    The income that is produced by the major business activity of the company is shown on the income statement as:
    • A. 

      Net income

    • B. 

      Operating income

    • C. 

      Gross income

    • D. 

      Net profit

  • 7. 
    What information will a multiple-step income statement show that a single-step will omit?
    • A. 

      Total expenses and operating income

    • B. 

      Gross profit and net income

    • C. 

      Gross margin and operating income

    • D. 

      Gross margin and net loss

  • 8. 
    Gross profit can be calculated as:
    • A. 

      Sales - cost of goods sold

    • B. 

      Sales + cost of goods sold

    • C. 

      Sales - total expenses

    • D. 

      Sales + operating income

  • 9. 
    The advantage for users of a multiple-step income statement over the single-step is that it clearly shows:
    • A. 

      Total expenses

    • B. 

      Gross profits

    • C. 

      Net loss

    • D. 

      Total revenues

  • 10. 
    The excess of the rewards over the sacrifices for a given time period is the monetary reward of doing business, which is also known as:
    • A. 

      Net earnings

    • B. 

      Net profit

    • C. 

      Earnings

    • D. 

      All of these answers are correct.

  • 11. 
    Which ratio uses net income as its denominator?
    • A. 

      Earnings per share

    • B. 

      Rate of return on assets ratio

    • C. 

      Dividend payout ratio

    • D. 

      Net profit margin ratio

  • 12. 
    The statement of cash flows provides a wealth of important information. Activities related to the items found on the income statement may appear in which section of the statement of cash flows?
    • A. 

      Financing activities

    • B. 

      Operating activities

    • C. 

      Investing activities

    • D. 

      Earnings activities

  • 13. 
    On the income statement, when the cost of goods sold is subtracted from sales, the result is:
    • A. 

      Net loss

    • B. 

      Gross margin

    • C. 

      Net income

    • D. 

      Operating income

  • 14. 
    When preparing financial statements, accountants prepare which statement first?
    • A. 

      Balance sheet

    • B. 

      Statement of owners’ equity

    • C. 

      Statement of cash flows

    • D. 

      Income statement

  • 15. 
    It is generally better to see cash outflow than inflow from which business activity?
    • A. 

      Operating activities

    • B. 

      Investing activities

    • C. 

      Financing activities

    • D. 

      Investing and/or financing activities

  • 16. 
    The link between the income statement and the balance sheet is called:
    • A. 

      Dividends

    • B. 

      Revenue

    • C. 

      Expenses

    • D. 

      Articulation

  • 17. 
    A dividend is actually paid on the date of:
    • A. 

      Record

    • B. 

      Declaration

    • C. 

      Liability

    • D. 

      Payment

  • 18. 
    The basic formula used by a company to compute its income tax is:
    • A. 

      Sales x tax rate

    • B. 

      Total assets x tax rate

    • C. 

      Taxable income x tax rate

    • D. 

      Cost of goods sold x tax rate

  • 19. 
    The ending capital balance found in a statement of owners’ equity is also found on:
    • A. 

      The statement of cash flows

    • B. 

      The income statement

    • C. 

      The balance sheet

    • D. 

      The ending capital balance is not found on any other financial statement.

  • 20. 
    The relationship among the accounting elements found on the income statement can be represented by the following equation:
    • A. 

      Revenues – expenses = net loss

    • B. 

      Revenues – expenses = net income

    • C. 

      Answers a and b are both correct

    • D. 

      Assets – liabilities = net income

  • 21. 
    The statement that provides a “bridge” between the information the income statement provides and the information the balance sheet provides is the:
    • A. 

      Statement of financial position

    • B. 

      Statement of owners’ equity

    • C. 

      Statement of cash flows

    • D. 

      None of these answers is correct

  • 22. 
    The financial statement that would provide the best information on a firm's past performance is the:
    • A. 

      None of these answers is correct

    • B. 

      Income statement

    • C. 

      Balance sheet

    • D. 

      Owners' equity statement

  • 23. 
    The equation used in the statement of owners’ equity starts with beginning owners’ equity, then:
    • A. 

      Adjust for changes in stock ownership and any net income or loss

    • B. 

      Add contributions by owners, plus net income or minus net loss, and minus distributions to owners

    • C. 

      Add contributions by owners and subtract distributions to owners

    • D. 

      Add any net income or subtract any net loss for the income statement period

  • 24. 
    The shareholder who will receive the dividend is the one who holds one or more shares of stock on the:
    • A. 

      Declaration date

    • B. 

      Record date

    • C. 

      Distribution date

    • D. 

      Payment date

  • 25. 
    The following information is available for a company: Net sales, $750,950; Cost of goods sold, $330,418; total expenses, $214,775; average total assets for the year, $459,785. What is the company’s rate of return on assets ratio (round your answer to two decimal places)?
    • A. 

      45%

    • B. 

      27%

    • C. 

      56%

    • D. 

      The ratio cannot be computed from the information given.

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