Financial Accounting Fundamentals Coursera Quiz Answers

All Weeks Financial Accounting Fundamentals Coursera Quiz Answers

This course, developed at the Darden School of Business at the University of Virginia and taught by top-ranked faculty, will teach you the tools you’ll need to understand the fundamentals of financial accounting. Concise videos, the financial records of a small business, and “your turn” activities guide you through the three most commonly used financial statements: the Balance Sheet, the Income Statement, and the Statement of Cash Flows.

Beyond recording transactions, you’ll learn how to prepare these financial statements, and read and analyze them to draw basic conclusions about a company’s financial health.

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Financial Accounting Fundamentals Week 01 Quiz Answers

Quiz 1: Financial Accounting Fundamentals

Q1. An investment group is looking to invest some money into a company. Where should the investment group look for relevant information about the company’s performance?

  • The company’s Budgets
  • The company’s Tax Books
  • The company’s Management Books
  • The company’s Financial Books

Q2. A U.S. company is preparing its financial books to file with the Securities and Exchange Commission. Which of the following should direct the preparation of the company’s financial books?

  • U.S. Generally Accepted Accounting Principles (GAAP)
  • Independent audit firms
  • International Financial Reporting Standards (IFRS)
  • Investors and creditors

Q3. A European Union-based company is preparing its financial books. Which of the following should direct the preparation of the company’s financial books?

  • International audit firms
  • International Financial Reporting Standards (IFRS)
  • U.S. Generally Accepted Accounting Principles (GAAP)
  • International investors and creditors

Q4. Near the end of a fiscal period, a company is working on reporting its financial position, to share with investors and creditors. Which financial statement should the company use to report this information?

  • Income Statement
  • Statement of Cash Flows
  • Management Books
  • Balance Sheet

Q5. A company is working on reporting its net earnings for a fiscal period, to share with investors and creditors. Which financial statement should the company use to report this information?

  • Tax Books
  • Balance Sheet
  • Income Statement
  • Statement of Cash Flows

Q6. A company is working on reporting changes in the company’s cash balance during a fiscal period, to share with investors and creditors. Which financial statement should the company use to report this information?

  • Statement of Cash Flows
  • Budget
  • Income Statement
  • Balance Sheet

Q7. A company purchases inventory they hope to resell to customers. In which of the following Balance Sheet accounts should the company record the inventory purchased?

  • Current Liability account
  • Owners’ Equity account
  • Liability account
  • Asset account

Q8. A company delivers inventory to a customer who will pay for it next month. In which of the following Balance Sheet accounts should the company record the amount it is owed by the customer?

  • Current Liability account
  • Asset account
  • Owners’ Equity account
  • Liability account

Q9. A company purchases inventory from its supplier this month and will pay its supplier next month. In which of the following Balance Sheet accounts should the company record the obligation to pay its supplier?

  • Owners’ Equity account
  • Liability account
  • Other Equity account
  • Asset account

Q10. A company obtains a 5-year loan from a bank. In which of the following Balance Sheet accounts should the company record the obligation to repay the loan?

  • Other Equity account
  • Asset account
  • Owners’ Equity account
  • Liability account

Q11. A company issues some capital stock to investors. In which of the following Balance Sheet accounts should the company record the change in capital stock?

  • Owners’ Equity account
  • Current Asset account
  • Asset account
  • Liability account

Q12. A company buys back some of its stock from investors. In which of the following Balance Sheet accounts should the company record the change in treasury stock?

  • Owners’ Equity account
  • Asset account
  • Current Asset account
  • Liability account

Quiz 2: Financial Accounting Fundamentals

Q1. International Investment Group is looking to invest $95,000 into a company. Where should International Investment Group look for relevant information about the company’s performance?

  • The company’s Budgets
  • The company’s Tax Books
  • The company’s Financial Books
  • The company’s Management Books

Q2. College Computers, based in the U.S., is preparing its financial books. Which of the following should direct the preparation of College Computer’s financial books?

  • Investors and creditors
  • Independent audit firms
  • International Financial Reporting Standards (IFRS)
  • U.S. Generally Accepted Accounting Principles (GAAP)

Q3. Popdot, based in the European Union, is preparing its financial books. Which of the following should direct the preparation of Popdot’s financial books?

  • International Financial Reporting Standards (IFRS)
  • International investors and creditors
  • U.S. Generally Accepted Accounting Principles (GAAP)
  • International audit firms

Q4. Near the end of a fiscal period, College Computers is working on reporting its financial position, to share with investors and creditors. Which financial statement should College Computers use to report this information?

  • Management Books
  • Statement of Cash Flows
  • Income Statement
  • Balance Sheet

Q5. College Computers is working on reporting its net earnings for a year. Which financial statement should College Computers use to report this information?

  • Statement of Cash Flows
  • Tax Books
  • Balance Sheet
  • Income Statement

Q6. College Computers is working on reporting changes in the company’s cash balance during a quarter. Which financial statement should College Computers use to report this information?

  • Statement of Cash Flows
  • Budget
  • Balance Sheet
  • Income Statement

Q7. College Computers purchases $15,000 worth of tablet devices they hope to resell to students, faculty, and staff. In which of the following Balance Sheet accounts should College Computers record the tablet devices purchased?

  • Asset account
  • Owners’ Equity account
  • Liability account
  • Current Liability account

Q8. College Computers delivers $9,000 worth of laptop computers to the School of Business who will pay for them next month. In which of the following Balance Sheet accounts should College Computers record the amount it is owed by the customer?

  • Asset account
  • Liability account
  • Current Liability account
  • Owners’ Equity account

Q9. The Garden Spot purchases $30,000 worth of trees from Trees Direct this month and will pay Trees Direct next month. In which of the following Balance Sheet accounts should The Garden Spot record the obligation to pay Trees Direct?

  • Asset account
  • Owners’ Equity account
  • Liability account
  • Other Equity account

Q10. The Garden Spot obtains a 4-year loan of $10,000 from a bank. In which of the following Balance Sheet accounts should The Garden Spot record the obligation to repay the loan?

  • Owners’ Equity account
  • Liability account
  • Asset account
  • Other Equity account

Q11. The Garden Spot issues $50,000 worth of capital stock to investors. In which of the following Balance Sheet accounts should The Garden Spot record the change in capital stock?

  • Current Asset account
  • Asset account
  • Owners’ Equity account
  • Liability account

Q12. College Computers buys back $35,000 worth of stock from investors. In which of the following Balance Sheet accounts should College Computers record the change in treasury stock?

  • Asset account
  • Owners’ Equity account
  • Current Asset account
  • Liability account

Financial Accounting Fundamentals Week 02 Quiz Answers

Quiz 1: Financial Accounting Fundamentals

Q1. From a financial statement perspective, which of the following changes could occur during the current fiscal period?

  • Assets increase, Liabilities remain the same, and Owners’ Equity decreases
  • Assets increase, Liabilities decrease, and Owners’ Equity remains the same
  • Assets increase, Liabilities decrease, and Owners’ Equity decreases
  • Assets increase, Liabilities increase, and Owners’ Equity decreases

Q2. Which of the following could result from a single transaction during the current fiscal period?

  • Inventory increases and Accounts Payable decreases; other accounts stay the same
  • Cash increases and Common Stock decreases; other accounts stay the same
  • Accounts Receivable (AR) decreases and Cash increases; other accounts stay the same
  • Property, Plant, and Equipment (PP&E) increases and Short-term Loan decreases; other accounts stay the same

Q3. A company purchased office equipment for $10,000 and paid the full amount in cash. What is the journal entry for the purchase?

  • PP&E (A) (inc) $10,000 …Cash (A) (dec) $10,000
  • Cash (A) (dec) $10,000 …PP&E (A) (inc) $10,000
  • PP&E (A) (dec) $10,000 …Cash (A) (inc) $10,000
  • PP&E (A) (inc) $10,000 …Accrued Expenses (L) (inc) $10,000

Q4. A company purchased inventory for $10,000 and will pay the $10,000 next month. What is the journal entry for the purchase?

  • Inventory (A) (inc) $10,000 …Cash (A) (dec) $10,000
  • Inventory (A) (inc) $10,000 …Accounts Payable (L) (inc) $10,000
  • Inventory (A) (dec) $10,000 …Accounts Payable (L) (dec) $10,000
  • Accounts Payable (L) (inc) $10,000 …Inventory (A) (inc) $10,000

Q5. A company purchased some raw materials for $10,000, paid $5,000 in cash, and will pay the remaining $5,000 next month. What is the journal entry for the purchase?

  • Inventory (A) (inc) $10,000 …Cash (A) (dec) $5,000…Accounts Payable (L) (inc) $5,000
  • Inventory (A) (inc) $5,000 …Accounts Payable (L) (inc) $5,000
  • Inventory (A) (inc) $10,000 …Cash (A) (dec) $10,000
  • Inventory (A) (inc) $5,000 …Cash (A) (dec) $5,000

Q6. A company obtains a $30,000 6-month loan from a bank. What is the journal entry?

  • Cash (A) (inc) $30,000 …Loans Payable (L) (dec) $30,000
  • Cash (A) (inc) $30,000 …Accounts Payable (L) (inc) $30,000
  • Cash (A) (inc) $30,000 …Loans Payable (L) (inc) $30,000
  • Loans Payable (L) (inc) $30,000 …Cash (A) (inc) $30,000

Q7. A company raised $90,000 by issuing its common stock. What is the journal entry for the issuance of stock?

  • Capital Stock (OE) (dec) $90,000 …Cash (A) (dec) $90,000
  • Cash (A) (inc) $90,000 …Capital Stock (OE) (inc) $90,000
  • Cash (A) (inc) $90,000 …Accounts Payable (L) (inc) $90,000
  • Capital Stock (OE) (inc) $90,000 …Cash (A) (inc) $90,000

Q8. At the beginning of the month, the balance of the Loan Payable account was $50,000. At the end of the month, its balance was $80,000. Which of the following transactions could have occurred during the month?

  • The company took out a new $10,000 loan and purchased $20,000 of inventory on account, assuming no other transactions
  • The company purchased a machine for $80,000 on account and took a loan of $50,000 to pay for it, assuming no other transactions
  • The company took out a $30,000 loan, assuming no other transactions
  • The company took out a $50,000 loan and used this cash to pay a supplier $20,000, assuming no other transactions

Q9. At the beginning of the month, the balance of the Inventory account was $80,000. At the end of the month, its balance was $50,000. Which of the following transactions could have occurred during the month?

  • The company replaced some old trucks used in the plant. The original cost of the old trucks is $150,000 and the price of the new trucks is $120,000, assuming no other transactions
  • The company purchased inventory of $10,000 and paid suppliers $40,000, assuming no other transactions
  • The company purchased raw materials of $10,000 and sold finished goods of a $40,000 cost, assuming no other transactions
  • The company purchased inventory for $50,000 on account and sold it later in the month, assuming no other transactions

Q10. A company issued shares of stock for $20,000 and later bought back all of the shares initially issued for $15,000. What is the net change of Owners’ Equity during the month (assuming no other transactions occurred affecting Owners’ Equity)?

  • Decrease of $35,000
  • Increase of $5,000
  • Decrease of $5,000
  • Increase of $35,000

Q11. Suppose a company has only two Asset accounts: Cash and Inventory. During the month, the company purchased two units of inventory at a cost of $1,000 each and paid in cash. It subsequently sold one unit for $1,400 and received cash from the customer. What is the net change of Cash (assuming no other transactions)?

  • Increase of $1,400
  • Increase of $400
  • Decrease of $2,000
  • Decrease of $600

Q12. At the beginning of the month, the balance of the Cash account was $5,000. During the month, the company purchased two units of inventory at a cost of $1,000 each and paid in cash. It subsequently sold one unit for $1,400 and received cash from the customer. Assuming no other transactions, what is the balance of the Cash account at the end of the month?

  • $5,400
  • $6,400
  • $4,400
  • $3,000

Quiz 2: Financial Accounting Fundamentals

Q1. From a financial statement perspective, which of the following could occur during the current fiscal period?

  • Assets increase, Liabilities decrease, and Owners’ Equity remains the same
  • Assets decrease, Liabilities decrease, and Owners’ Equity increases
  • Assets decrease, Liabilities increase, and Owners’ Equity increases
  • Assets increase, Liabilities remain the same, and Owners’ Equity decreases

Q2. Which of the following could result from a single transaction during the current fiscal period?

  • Cash increases and Common Stock decreases; other accounts stay the same
  • Property, Plant, and Equipment (PP&E) increases and Short-term Loan decreases; other accounts stay the same
  • Accounts Receivable (AR) decreases and Cash increases; other accounts stay the same
  • Inventory decreases and Accounts Payable increases; other accounts stay the same

Q3. The Garden Spot purchased office equipment for $9,000 and paid the full amount in cash. What is the journal entry for the purchase?

  • PP&E (A) (inc) $9,000
    • …Accrued Expenses (L) (inc) $9,000
  • PP&E (A) (dec) $9,000
    • …Cash (A) (inc) $9,000
  • Cash (A) (dec) $9,000
    • …PP&E (A) (inc) $9,000
  • PP&E (A) (inc) $9,000
    • …Cash (A) (dec) $9,000

Q4. Campus Computers purchased inventory for $28,000 and will pay the $28,000 next month. What is the journal entry for the purchase?

  • Inventory (A) (dec) $28,000
    • …Accounts Payable (L) (dec) $28,000
  • Inventory (A) (inc) $28,000
    • …Accounts Payable (L) (inc) $28,000
  • Inventory (A) (inc) $28,000
    • …Cash (A) (dec) $28,000
  • Accounts Payable (L) (inc) $28,000
    • …Inventory (A) (inc) $28,000

Q5. Campus Computers purchased some semi-finished goods for $9,000, paid $5,000 in cash, and will pay the remaining amount next month. What is the journal entry for the purchase?

  • Inventory (A) (inc) $5,000
    • …Cash (A) (dec) $5,000
  • Inventory (A) (inc) $9,000
    • …Cash (A) (dec) $5,000 …Accounts Payable (L) (inc) $4,000
  • Inventory (A) (inc) $9,00
    • …Cash (A) (dec) $9,000
  • Inventory (A) (inc) $4,000
    • …Accounts Payable (L) (inc) $4,000

Q6. The Garden Spot obtains a $15,000 1-year loan from a bank. What is the journal entry?

  • Cash (A) (inc) $15,000 …Loans Payable (L) (inc) $15,000
  • Cash (A) (inc) $15,000 …Accounts Payable (L) (inc) $15,000
  • Loans Payable (L) (inc) $15,000 …Cash (A) (inc) $15,000
  • Cash (A) (inc) $15,000 …Loans Payable (L) (dec) $15,000

Q7. A company raised $75,000 by issuing its common stock. What is the journal entry for the issuance of stock?

  • Capital Stock (OE) (inc) $75,000 …Cash (A) (inc) $75,000
  • Capital Stock (OE) (dec) $75,000 …Cash (A) (dec) $75,000
  • Cash (A) (inc) $75,000 …Accounts Payable (L) (inc) $75,000
  • Cash (A) (inc) $75,000 …Capital Stock (OE) (inc) $75,000

Q8. At the beginning of the month, the balance of the Loan Payable account was $25,000. At the end of the month, its balance was $40,000. Which of the following transactions could have occurred during the month?

  • The company took out a new $5,000 loan and purchased $10,000 of inventory on account, assuming no other transactions
  • The company took out a $25,000 loan and used this cash to pay a supplier $10,000, assuming no other transactions
  • The company took out a $15,000 loan, assuming no other transactions
  • The company purchased a machine for $40,000 on account and took a loan of $25,000 to pay for it, assuming no other transactions

Q9. At the beginning of the month, the balance of Inventory was $50,000. At the end of the month, its balance was $35,000. Which of the following transactions could have occurred during the month?

  • The company purchased inventory for $35,000 on account and sold it later in the month, assuming no other transactions
  • The company purchased raw materials of $15,000 and sold finished goods of a $30,000 cost, assuming no other transactions
  • The company replaced some old trucks used in the plant. The original cost of the old trucks is $85,000 and the price of the new trucks is $70,000, assuming no other transactions
  • The company purchased inventory of $15,000 and paid suppliers $30,000, assuming no other transactions

Q10. A company issued shares of stock for $20,000 and later bought back all of the shares initially issued for $25,000. What is the net change of Owners’ Equity during the month (assuming no other transactions occurred affecting Owners’ Equity)?

  • Decrease of $5,000
  • Decrease of $45,000
  • Increase of $5,000
  • Increase of $45,000

Q11. Suppose a company has only two Asset accounts: Cash and Inventory. During the month, the company purchased two units of inventory at a cost of $1,000 each and paid in cash. It subsequently sold one unit for $2,400 and received cash from the customer. What is the net change of Cash (assuming no other transactions)?

  • Increase of $2,400
  • Increase of $400
  • Decrease of $2,000
  • Increase of $1,400

Q12. At the beginning of the month, the balance of the Cash account was $5,000. During the month, the company purchased two units of inventory at a cost of $1,000 each and paid in cash. It subsequently sold one unit for $2,400 and received cash from the customer. Assuming no other transactions, what is the balance of the Cash account at the end of the month?

  • $3,000
  • $74,000
  • $6,400
  • $5,400

Financial Accounting Fundamentals Week 03 Quiz Answers

Quiz 1: Financial Accounting Fundamentals

Q1. This month, a company receives $5,000 from a regular customer, of which $3,000 is for products delivered last month and $2,000 is for products that will be delivered next month. How much revenue should the company record for this month?

  • $2,000
  • $5,000
  • 0
  • $3,000

Q2. In December, a company signed a contract with a regular customer to sell products for $100,000. In January, the company received a payment of $100,000 from this customer for products to be delivered in February. Revenue regarding this transaction is recognized:

  • In February, when the products are delivered
  • In January, when payment is received
  • Equally over the 3 months
  • In December, when the contract is signed

Q3. In December, a company signed a contract with a regular customer, who has a good payment history, to sell products for $120,000. In January, the company delivered the products to the customer. The customer paid the company $120,000 in cash in February. Revenue regarding this transaction is recognized:

  • In February, when payment is received
  • Equally over the 3 months
  • In January, when the products are delivered
  • In December, when the contract is signed

Q4. This month, a company receives $5,000 from a regular customer, of which $3,000 is for products delivered last month and $2,000 is for products that will be delivered next month. What is the net change in Accounts Receivable this month (assuming no other transactions affecting Accounts Receivable)?

  • No change
  • Increase of $2,000
  • Decrease of $3,000
  • Decrease of $5,000

Q5. This month, a company receives $5,000 from a regular customer, of which $3,000 is for products delivered last month and $2,000 is for products that will be delivered next month. What is the net change in Deferred Revenue this month (assuming no other transactions affecting Deferred Revenue)?

  • Decrease of $3,000
  • No change
  • Increase of $2,000
  • Increase of $5,000

Q6. Which of the following transactions would result in an increase in Owners’ Equity (assuming no other transactions)?

  • A company sold finished goods of a $40,000 cost for $45,000, delivered the products, and received cash from the customer
  • A company purchased some office equipment for $10,000 and paid the full amount in cash
  • A company purchased some raw materials for $10,000, paid $5,000 in cash, and will pay the remaining $5,000 next month
  • A company repaid $60,000 of a 10-year loan it previously took from a bank (ignoring any interest)

Q7. A company sells its products to a customer for $5,000 on account. The cost of the products sold is $2,000. Select the journal entries that are correct (assuming no other transactions).

(1) Accounts Receivable (A) (inc) 5,000

…Retained Earnings (OE) (revenue) (inc) 5,000

(2) Retained Earnings (OE) (COGS) (dec) 2,000

…Inventory (A) (dec) 2,000

(3) Accounts Receivable (A) (inc) 5,000

…Inventory (A) (dec) 2,000

…Retained Earnings (OE) (Net Earnings) (inc) 3,000

(4) Retained Earnings (OE) (COGS) (dec) 5,000

…Inventory (A) (dec) 5,000

(5) Accounts Receivable (A) (inc) 2,000

…Retained Earnings (OE) (revenues) (inc) 2,000

  • (2) and (5)
  • (1) and (2)
  • (1) and (4)
  • (3)

Q8. In January, a company paid rental fees of $10,000 for February. Which of the following journal entries should be recorded in January and February?

  • In January: Retained Earnings (OE) (rent expense) (dec) 10,000
    • …Prepaid Rent (A) (dec) 10,000
    • In February: Prepaid Rent (A) (inc) 10,000
    • …Cash (A) (dec) 10,000
  • In January: Retained Earnings (OE) (rent expense) (dec) 10,000
    • …Cash (A) (dec) 10,000
  • In January: Prepaid Rent (A) (inc) 10,000
    • …Cash (A) (dec) 10,000
    • In February: Retained Earnings (OE) (rent expense) (dec) 10,000
    • …Prepaid Rent (A) (dec) 10,000
  • In February: Retained Earnings (OE) (rent expense) (dec) 10,000
    • …Cash (A) (dec) 10,000

Q9. On November 1, a company pays a total of $3,000 in rent for November, December, and January. What amount should the company record as rent expense in November and what is the balance in the Prepaid Rent account on December 31 (assuming no other transactions)?

  • November Rent Expense: $1,000; Prepaid Rent @ Dec. 31: $1,000
  • November Rent Expense: $2,000; Prepaid Rent @ Dec. 31: $1,000
  • November Rent Expense: $3,000; Prepaid Rent @ Dec. 31: 0
  • November Rent Expense: $1,500; Prepaid Rent @ Dec. 31: 0

Q10. On January 1, a company purchased a truck for $60,000. To pay for the truck, it took out a 3-year loan that was to be repaid in 3 equal principal payments over the 3 years. The truck is estimated to be used for 5 years. Which of the following accurately describes the depreciation expense that the company should record related to the truck?

  • The company should record $60,000 of depreciation expense in the year the truck was purchased
  • The company should record no depreciation expense for the truck until after the estimated useful life of 5 years
  • The company should record a total of $12,000 of depreciation expense per year for each of the 5 years of the estimated useful life of the truck
  • The company should record a total of $20,000 of depreciation expense per year for each of the 3 years of the life of the loan

Q11. At the end of January, the amount a company owes its employees for time worked in January totals $50,000, all of which will be included in their paychecks on February 5. Which of the following journal entries should be recorded in January and February?

  • In January: Retained Earnings (OE) (wage expense) (dec) 50,000
    • …Wage Payable (L) (inc) 50,000
    • In February: Wage Payable (L) (dec) 50,000
    • …Cash (A) (dec) 50,000
  • In January: Wage Payable (L) (dec) 50,000
    • …Cash (A) (dec) 50,000
  • In January: Wage Payable (L) (dec) 50,000
    • …Cash (A) (dec) 50,000
  • In February: Retained Earnings (OE) (wage expense) (dec)
    • …50,000 Wage Payable (L) (inc) 50,000
  • In February: Retained Earnings (OE) (wage expense) (dec) 50,000
    • …Cash (A) (dec) 50,000

Q12. On July 1, 2020, company takes out a $100,000 5-year loan with annual interest rate of 5%. Principal is scheduled to all be paid at the end of the loan term of 5 years, and interest payable annually on June 30. The company is getting ready to prepare financial statement for the year ending Dec 31, 2020. Which of the following entries correctly reflects what the company records, related to interest, for 2020 (assuming no other transactions affecting the relevant accounts)?

  • No interest expense should be recorded until interest is paid on July 1, 2021
  • On July 1, 2020: Retained Earnings (OE) (interest expense) (dec) 25,000
    • …Interest Payable (L) (inc) 25,000
  • On Dec 31, 2020: Retained Earnings (OE) (interest expense) (dec) 2,500
    • …Cash (A) (dec) 2,500
  • On Dec 31, 2020: Retained Earnings (OE) (interest expense) (dec) 2,500
    • …Interest Payable (L) (inc) 2,500

Quiz 2: Financial Accounting Fundamentals

Q1. This month, a company receives $10,000 from a regular customer, of which $6,000 is for products delivered last month and $4,000 is for products that will be delivered next month. How much revenue should the company record for this month?

  • $4,000
  • 0
  • $10,000
  • $6,000

Q2. In December, a company signed a contract with a regular customer to sell products for $100,000 and received $20,000. In January, the company received a payment of $80,000 from this customer for products to be delivered in February. Revenue regarding this transaction is recognized:

  • In February, when the products are delivered
  • In December for $20,000 and in January for $80,000
  • In December, when the contract is signed
  • Equally over the 3 months

Q3. In December, a company signed a contract with a regular customer, who has a good payment history, to sell products for $120,000. In January, The customer paid the company $20,000 in cash. In February, the company delivered the products to the customer. The customer paid the company $100,000 in cash in March. Revenue regarding this transaction is recognized:

  • In February, when the products are delivered
  • In December, when the contract is signed
  • Equally over the 4 months
  • In March, when payment is received

Q4. This month, a company receives $10,000 from a regular customer, of which $6,000 is for products delivered last month and $4,000 is for products that will be delivered next month. What is the net change in Accounts Receivable this month (assuming no other transactions that affect Accounts Receivable)?

  • No change
  • Decrease of $10,000
  • Decrease of $6,000
  • Increase of $4,000

Q5. This month, a company receives $2,500 from a regular customer, of which $1,500 is for products delivered last month and $1,000 is for products that will be delivered next month. What is the net change in Deferred Revenue this month (assuming no other transactions affecting Deferred Revenue)?

  • Decrease of $1,500
  • Increase of $1,000
  • Increase of $2,500
  • No change

Q6. Which of the following transactions would result in an increase in Owners’ Equity (assuming no other transactions)?

  • A company sold finished goods of a $80,000 cost for $90,000, delivered the products, and received cash from the customer
  • A company purchased some office equipment for $10,000 and paid the full amount in cash
  • A company repaid $60,000 of a 10-year loan it previously took from a bank (ignoring any interest)
  • A company purchased some raw materials for $10,000, paid $5,000 in cash, and will pay the remaining $5,000 next month

Q7. A company sells its products to a customer for $5,000 on account. The cost of the products sold is $2,000. Select the journal entries that are correct. (Assuming no other transactions.)

(1) Accounts Receivable (A) (inc) 2,000

…Retained Earnings (OE) (revenue) (inc) 2,000

(2) Retained Earnings (OE) (COGS) (dec) 2,000

…Inventory (A) (dec) 2,000

(3) Accounts Receivable (A) (inc) 5,000

…Inventory (A) (dec) 2,000

…Retained Earnings (OE) (Net Earnings) (inc) 3,000

(4) Retained Earnings (OE) (COGS) (dec) 5,000

…Inventory (A) (dec) 5,000

(5) Accounts Receivable (A) (inc) 5,000

…Retained Earnings (OE) (revenues) (inc) 5,000

  • (4) and (5)
  • (2) and (5)
  • (1) and (2)
  • (3)

Q8. In January, a company paid rental fees of $30,000 for February. Which of the following journal entries should be recorded in January and February?

  • In January: Retained Earnings (OE) (rent expense) (dec) 30,000
    • …Cash (A) (dec) 30,000
  • In January: Retained Earnings (OE) (rent expense) (dec) 30,000
    • …Prepaid Rent (A) (dec) 30,000
  • In February: Prepaid Rent (A) (inc) 30,000
    • …Cash (A) (dec) 30,000
  • In February: Retained Earnings (OE) (rent expense) (dec) 30,000
    • …Cash (A) (dec) 30,000
  • In January: Prepaid Rent (A) (inc) 30,000
    • …Cash (A) (dec) 30,000
  • In February: Retained Earnings (OE) (rent expense) (dec) 30,000
    • …Prepaid Rent (A) (dec) 30,000

Q9. On November 1, a company pays a total of $6,000 in rent for November, December and January. What amount should the company record as rent expense in November and what is the balance in the Prepaid Rent account on December 31 (assuming no other transactions)?

  • November Rent Expense: $2,000; Prepaid Rent @ Dec. 31: $2,000
  • November Rent Expense: $4,000; Prepaid Rent @ Dec. 31: $2,000
  • November Rent Expense: $6,000; Prepaid Rent @ Dec. 31: 0
  • November Rent Expense: $3,000; Prepaid Rent @ Dec. 31: 0

Q10. On January 1, a company purchased a truck for $60,000. To pay for the truck, it took out a 5-year loan that was to be repaid in 5 equal principal payments over the 5 years. The truck is estimated to be used for 3 years. Which of the following accurately describes the depreciation expense that the company should record related to the truck?

  • The company should record a total of $20,000 of depreciation expense per year for each of the 3 years of the estimated useful life of the truck
  • The company should record a total of $12,000 of depreciation expense per year for each of the 5 years of the life of the loan
  • The company should record no depreciation expense for the truck until after the estimated useful life of 3 years
  • The company should record $60,000 of depreciation expense in the year the truck was purchased

Q11. At the end of January, the amount a company owes its employees for time worked in January totals $80,000, all of which will be included in their paychecks on February 5. Which of the following journal entries should be recorded in January and February?

  • In January: Wage Payable (L) (dec) 80,000
    • …Cash (A) (dec) 80,000
  • In February: Retained Earnings (OE) (wage expense) (dec) 80,000
    • …Wage Payable (L) (inc) 80,000
  • In January: Wage Payable (L) (dec) 80,000
    • …Cash (A) (dec) 80,000
  • In January: Retained Earnings (OE) (wage expense) (dec) 80,000
    • …Wage Payable (L) (inc) 80,000
  • In February: Wage Payable (L) (dec) 80,000
    • …Cash (A) (dec) 80,000
  • In February: Retained Earnings (OE) (wage expense) (dec) 80,000
    • …Cash (A) (dec) 80,000

Q12. On July 1, 2020, company takes out a $100,000 5-year loan with annual interest rate of 3%. Principal is scheduled to all be paid at the end of the loan term of 5 years, and interest payable annually on June 30. The company is getting ready to prepare financial statement for the year ending Dec 31, 2020. Which of the following entries correctly reflects what the company records, related to interest, for 2020 (assuming no other transactions affecting the relevant accounts)?

  • On Dec 31, 2020: Retained Earnings (OE) (interest expense) (dec) 1,500
    • …Interest Payable (L) (inc) 1,500
  • No interest expense should be recorded until interest is paid on July 1, 2021
  • On Dec 31, 2020: Retained Earnings (OE) (interest expense) (dec) 1,500
    • …Cash (A) (dec) 1,500
  • On July 1, 2020: Retained Earnings (OE) (interest expense) (dec) 15,000
    • …Interest Payable (L) (inc) 15,000

Financial Accounting Fundamentals Week 04 Quiz Answers

Quiz 1: Financial Accounting Fundamentals

Q1. The beginning balance in total assets is $100,000 and total liability $30,000. The ending balance in total assets is $120,000 and total liability $20,000. Which of the following is possible?

  • Net income (or profit) of $10,000, no changes in the other Owners’ Equity accounts.
  • Net loss of $30,000, no changes in the other Owners’ Equity accounts.
  • Net loss of $10,000, no changes in the other Owners’ Equity accounts.
  • Net income (or profit): $40,000; dividends paid: $10,000; no changes in other Owners’ Equity accounts.

Q2. Under U.S. GAAP, which of the following activity is categorized as Financing Activity in the Statement of Cash Flows?

  • Receipt of Dividends
  • Payment of Interest on Debt
  • Receipt of Interest on Investments
  • Payment of Dividends

Q3. In year 1, Company A has the following info in its financial statements: Retained Earnings (beginning balance) of $32,000; Retained Earnings (ending balance) of $95,000; Revenue of $100,000, Expenses (including tax expense) of $30,000, and dividends declared $7,000.

What amount will be shown as Net Income in Income Statement?

  • $77,000
  • $70,000
  • $63,000
  • $95,000

Q4. The net increase in Accounts Receivable (AR) amounts to $30,000 and the net decrease in Wages Payable (WP) is $20,000. Assuming no accounts were written off for lack of payment, what is the net effect of AR and WP on the adjustments to Net Income if the indirect method is used in the Statement of Cash Flows?

  • Plus $50,000
  • Minus $50,000
  • Plus $10,000
  • Minus $10,000

Q5. The balance in PP&E on Company A’s Year 1 Balance Sheet is $20,000 and the balance in PP&E on its Year 2 Balance Sheet is $50,000. Depreciation expense recorded during Year 2 totaled 5,000. The company sold some equipment with a net book value of $2,000. How much PP&E did the company purchase during Year 2? Assuming no other transactions affected the account during the year.Hint: you may find it helpful to use a t-account as you work through this question.

  • $57,000
  • $37,000
  • $35,000
  • $30,000

Q6. The beginning balance in Accounts Receivable on Company A’s Year 2 Balance Sheet is $20,000. Sales on account during Year 2 are $200,000, cash collections from customers are $105,000, and an account for a customer owing $5,000 was written off because the company didn’t think the customer would pay. What is the ending balance in AR on the Year 2 Balance Sheet? Assuming no other transactions affected the account during the year.

Hint: you may find it helpful to use a t-account as you work through this question.

  • $120,000
  • $95,000
  • $110,000
  • $115,000

Q7. The beginning balance in Retained Earnings is $20,000 and the ending balance is $60,000. Net Income is $70,000. Which of the following will be found in the Statement of Cash Flows prepared using the Indirect Method?

  • Change in Retained Earnings of $40,000 in Operating Activities section
  • Change in Retained Earnings of $40,000 in Financing Activities section
  • Net income of $70,000 in Operating Activities section;
    • Payment of dividends of $30,000 in Financing Activities section
  • Net income of $70,000 in Operating Activities section;
    • Payment of dividends of $30,000 in Operating Activities section

Q8. The beginning balance in Accounts Payable on Company A’s Year 2 Balance Sheet is $180,000. The company purchased on account inventory of $200,000 during Year 2, and paid suppliers $40,000 in cash. What is the ending balance in Accounts Payable on the Year 2 Balance Sheet? Assuming no other transactions affected the account during the year.

Hint: you may find it helpful to use a t-account as you work through this question.

  • $340,000
  • $160,000
  • $20,000
  • $380,000

Q9. Company A purchased 1% of Company B’s outstanding stock for $50,000 as a short-term investment. Which of the following related to the purchase will be found in Company A’s Statement of Cash Flows?

  • Operating Activities: $50,000, cash outflow
  • Financing Activities: $50,000, cash outflow
  • Financing Activities: $50,000, cash inflow
  • Investing Activities: $50,000, cash outflow

Q10. The beginning balance in Inventory on Company A’s Year 2 Balance Sheet is $20,000. The company purchased inventory for $200,000 during Year 2, sold inventory with book value of $105,000 for $145,000. What is the ending balance in Inventory on the Year 2 Balance Sheet? Assuming no other transactions affected the account during the year.

Hint: you may find it helpful to use a t-account as you work through this question.

  • $95,000
  • $115,000
  • $75,000
  • $260,000

Q11. The net increase in Prepaid Expenses (Prepaid) amounts to $30,000 and the net decrease in Accounts Payable (AP) is $20,000. What is the net effect of Prepaid and AP on the adjustments to Net Income if the indirect method is used in the Statement of Cash Flows?

  • Minus $10,000
  • Plus $50,000
  • Minus $50,000
  • Plus $10,000

Q12. The beginning balance in Loan Payable on Company A’s Year 2 Balance Sheet is $180,000. The company took out new loans of $200,000 during Year 2, and repaid $40,000 of loans. What is the ending balance in Loan Payable on the Year 2 Balance Sheet? Assuming no other transactions affected the account during the year.

Hint: you may find it helpful to use a t-account as you work through this question.

  • $20,000
  • $340,000
  • $380,000
  • $160,000

Quiz 2: Financial Accounting Fundamentals

Q1. The beginning balance in total assets is $100,000 and total liability $30,000. The ending balance in total assets is $110,000 and total liability $50,000. Which of the following is possible?

  • Net loss of $60,000, no changes in the other Owners’ Equity accounts.
  • Net income (or profit) of $10,000, no changes in the other Owners’ Equity accounts.
  • Net income (or profit): $10,000; dividends paid: $20,000; no changes in other Owners’ Equity accounts.
  • Net loss of $70,000, no changes in the other Owners’ Equity accounts.

Q2. Under U.S. GAAP, which of the following activity is correctly categorized in the Statement of Cash Flows?

  • Receipt of Dividends: Financing Activity
  • Payment of Dividends: Financing Activity
  • Payment of Interest on Debt: Financing Activity
  • Receipt of Interest on Investments: Investing Activity

Q3. In year 1, Company A has the following info in its financial statements: Retained Earnings (beginning balance) of $32,000; Retained Earnings (ending balance) of $95,000; Expenses (including tax expense) of $30,000, and dividends declared $7,000. What amount will be shown as Net Income in Income Statement?

  • $88,000
  • $95,000
  • $63,000
  • $70,000

Q4. The net increase in Accounts Receivable (AR) amounts to $30,000 and the net increase in Wages Payable (WP) is $20,000. Assuming no accounts were written off for lack of payment, what is the net effect of AR and WP on the adjustments to Net Income if the indirect method is used in the Statement of Cash Flows?

  • Plus $50,000
  • Minus $50,000
  • Minus $10,000
  • Plus $10,000

Q5. The balance in PP&E on Company A’s Year 1 Balance Sheet is $20,000 and the balance in PP&E on its Year 2 Balance Sheet is $50,000. The company purchase PP&E of $37,000 during Year 2. The company sold some equipment with a net book value of $2,000. How much depreciation expense did the company record on its Year 2 Income Statement? Assuming no other transactions affected the account during the year.

Hint: you may find it helpful to use a t-account as you work through this question.

  • $30,000
  • $7,000
  • $5,000
  • $35,000

Q6. The beginning balance in Accounts Receivable on Company A’s Year 2 Balance Sheet is $40,000. Sales on account during Year 2 are $400,000, cash collections from customers are $210,000, and an account for a customer owing $10,000 was written off because the company didn’t think the customer would pay. What is the ending balance in AR on the Year 2 Balance Sheet? Assuming no other transactions affected the account during the year.

Hint: you may find it helpful to use a t-account as you work through this question.

  • $240,000
  • $230,000
  • $190,000
  • $220,000

Q7. The beginning balance in Retained Earnings is $20,000 and the ending balance is $50,000. Net Income is $70,000. Which of the following will be found in the Statement of Cash Flows prepared using the Indirect Method?

  • Change in Retained Earnings of $30,000 in Financing Activities section
  • Net income of $70,000 in Operating Activities section;
  • Payment of dividends of $40,000 in Financing Activities section
  • Change in Retained Earnings of $30,000 in Operating Activities section
  • Net income of $70,000 in Operating Activities section;
  • Payment of dividends of $40,000 in Operating Activities section

Q8. The ending balance in Accounts Payable on Company A’s Year 2 Balance Sheet is $180,000. The company purchase on account inventory of $200,000 during Year 2, and paid suppliers $40,000 in cash. What is the beginning balance in Accounts Payable on the Year 2 Balance Sheet? Assuming no other transactions affected the account during the year.

Hint: you may find it helpful to use a t-account as you work through this question.

  • $340,000
  • $20,000
  • $160,000
  • $380,000

Q9. Company A purchased 1% of Company B’s outstanding stock for $50,000 as a short-term investment. Which of the following related to the purchase will be found in the Statement of Cash Flows?

  • Investing Activities: $50,000, cash inflow
  • Financing Activities: $50,000, cash outflow
  • Operating Activities: $50,000, cash outflow
  • Investing Activities: $50,000, cash outflow

Q10. The beginning balance in Inventory on Company A’s Year 2 Balance Sheet is $20,000. The company purchased inventory for $200,000 during Year 2, sold inventory with book value of $105,000 for $145,000. What is the ending balance in Inventory on the Year 2 Balance Sheet? Assuming no other transactions affected the account during the year.

Hint: you may find it helpful to use a t-account as you work through this question.

  • $55,000
  • $260,000
  • $115,000
  • $75,000

Q11. The net decrease in Prepaid Expenses (Prepaid) amounts to $30,000 and the net decrease in Accounts Payable (AP) is $20,000. Assuming no inventory provision involved, what is the net effect of Inv and AP on the adjustments to Net Income if the indirect method is used in the Statement of Cash Flows?

  • Minus $10,000
  • Plus $50,000
  • Plus $10,000
  • Minus $50,000

Q12. The ending balance in Loan Payable on Company A’s Year 2 Balance Sheet is $180,000. The company took out new loans of $170,000 during Year 2, and repaid $40,000 of loans. What is the beginning balance in Loan Payable on the Year 2 Balance Sheet? Assuming no other transactions affected the account during the year.

Hint: you may find it helpful to use a t-account as you work through this question.

  • $220,000
  • $310,000
  • $10,000
  • $50,000

Financial Accounting Fundamentals Week 05 Quiz Answers

Quiz 1: Financial Accounting Fundamentals

Q1. The company has net income for the year of $110,000. The balance in Retained Earnings at the beginning of the year is $70,000. The company declared dividends of $50,000 during the year. What is the ending balance in Retained Earnings?

Hint: you may find it helpful to use a t-account as you work through this question.

  • $60,000
  • $10,000
  • $180,000
  • $130,000

Q2. Company A reported salary expense of $12,000 in its annual Income Statement. The balance in Salaries Payable decreased by $3,000 during the year, according to its Balance Sheet. What amount should Company A report as an adjustment to Net Income in its Statement of Cash Flow, assuming the indirect method is used?

  • Plus $3,000
  • Minus $3,000
  • Plus $9,000
  • Minus $15,000

Q3. Company A’s annual Income Statement shows net income of $75,000 and depreciation expense of $25,000. Its Balance Sheet as of the end of the year shows the following information:

What amount should Company A report as net cash flow from operating activities in the Statement of Cash Flow, assuming no other transactions/accounts?

  • $80,000
  • $120,000
  • $60,000
  • $140,000

Q4. The net book value of a truck at the beginning of the year is $30,000. During the year, the company recorded depreciation expense of $10,000 before it sold the truck for $25,000 in cash. Which of the following will be found in the Statement of Cash Flows prepared using the Indirect Method?

  • $10,000 depreciation expense added back to Net Income in Operating Activities section;
    • $20,000 book value of the Truck listed as cost of PP&E sold in Investing Activities section;
    • Sales proceeds of $25,000 listed in Investing Activities section
  • $10,000 depreciation expense added back to Net Income in Operating Activities section;
    • $5,000 gain on sale subtracted from Net Income in Operating Activities section;
    • Sales proceeds of $25,000 listed in Investing Activities section
  • $10,000 depreciation expense added back to Net Income in Operating Activities section;
    • $5,000 gain on sale added to Net Income in Operating Activities section;
    • Sales proceeds of $25,000 listed in Operating Activities section
  • $10,000 depreciation expense added back to Net Income in Operating Activities section;
    • $5,000 gain on sale in Investing Activities section;
    • Sales proceeds of $20,000 listed in Investing Activities section

Q5. In Year 2, Company B has the following information:

What amount should Company B report as net cash flow from financing activities in the Year 2 Statement of Cash Flow, assuming no other transactions/accounts?

  • $30,000, cash outflow
  • $5,000, cash inflow
  • $30,000, cash inflow
  • $55,000, cash inflow

Q6. Company A has the following information from its financial statements:

Which of the following statements is correct?

  • Retained Earnings increased by $50,000.
  • The increase in total liabilities is due to taking out a new loan in Year 20X2.
  • The debt/assets ratio decreased in Year 20X2.
  • The liabilities of Year 20X2 decreased by 33.33% from $30,000 to $20,000, compared to Year 20X1.

Q7. Company A has the following information from its financial statements:

Which of the following statements is correct?

  • Other expenses is fixed costs.
  • Return on Sales ratio is constant.
  • COGS is a fixed cost.
  • COGS is a variable cost.

Q8. Company A has the following information from its financial statements:

Which of the following statements is correct?

  • Cash Flow from Operating Activities has gone from negative in Year 1 to positive in Years 2 and 3. This trend is a desirable one because companies should strive for a positive Cash Flow from Operating Activities.
  • Cash Flow from Financing Activities has gone from positive in Years 1 and 2 to negative in Year 3. This suggests the company is having difficulty obtaining financing.
  • In Year 1, cash flow from operating activities was a net cash outflow, suggesting that Net Income of Year 1 was negative.
  • Cash Flow from Investing Activities has gone from negative in Years 1 and 2 to positive in Year 3. This trend is a desirable one because companies should strive for a positive Cash Flow from Investing Activities.

Q9. Company A has the following information excerpted from its financial statements:

Which of the following statements is correct?

  • Revenue grew by a larger percentage from Year 1 to Year 2 than from Year 2 to Year 3.
  • The Debt/Assets ratio increased from Year 1 to Year 2.
  • Gross margin remained constant from year 1 to 2, but gross margin ratio decreased from Year 1 to Year 2.
  • Return on sales ratio increased from Year 1 to Year 2.

Q10. Company A has the following information excerpted from its financial statements:

Which of the following statements is correct?

  • Assuming the median of return on sales ratio of 5% within the company’s industry can be used as an industry benchmark from Year 1 through Year 3. The company’s return on sales ratio is higher than the industry from Year 1 through Year 3.
  • The company did not take out any loans in Year 2.
  • Assuming the median of debt/assets ratio of 36% within the company’s industry can be used as an industry benchmark from Year 1 through Year 3. The company’s debt/assets ratio in Year 1 is higher than the industry.
  • Assuming the median of gross margin ratio of 30% within the company’s industry can be used as an industry benchmark from Year 1 through Year 3. The company’s gross margin ratio is higher than the industry from Year 1 through Year 3.

Q11. Company A has the following information excerpted from its financial statements:

Assume the cash balance on Dec. 31 Year 2 is 15,000, what is the cash balance at the end of Year 3?

  • $19,500
  • $10,500
  • $16,000
  • $14,000

Q12. Company A has the following information excerpted from its financial statements:

Suppose the company has only two liability accounts as of Dec. 31, Year 2: Accounts Payable and Loan Payable. Which of the following statements is correct?

  • The balance in Loan Payable as of Dec. 31 Year 2 is $9,240.
  • The balance in Loan Payable as of Dec. 31 Year 3 is $10,000.
  • The balance in Loan Payable as of Dec. 31 Year 1 is $2,840.
  • The balance in Loan Payable as of Dec. 31 Year 1 is $9,240.

Quiz 2: Financial Accounting Fundamentals

Q1. The company has net income for the year of $130,000. The balance in Retained Earnings at the beginning of the year is $80,000. The company declared dividends of $70,000 during the year. What is the ending balance in Retained Earnings?

Hint: you may find it helpful to use a t-account as you work through this question.

  • $60,000
  • $20,000
  • $140,000
  • $210,000

Q2. Company A reported salary expense of $12,000 in its annual Income Statement. The balance in Salaries Payable decreased by $3,000 during the year, according to its Balance Sheet. What amount should Company A report as an adjustment to Net Income in its Statement of Cash Flow, assuming the indirect method is used?

  • Plus $15,000
  • Minus $15,000
  • Plus $3,000
  • Minus $3,000

Q3. Company A’s annual Income Statement shows net income of $75,000 and depreciation expense of $25,000. Its Balance Sheet as of the end of the year shows the following information:

What amount should Company A report as net cash flow from operating activities in the Statement of Cash Flow, assuming no other transactions/accounts?

  • $80,000
  • $140,000
  • $120,000
  • $60,000

Q4. The net book value of a truck at the beginning of the year is $30,000. During the year, the company recorded depreciation expense of $10,000 before it sold the truck for $25,000 in cash. Which of the following will be found in the Statement of Cash Flows prepared using the Indirect Method?

  • $10,000 depreciation expense added back to Net Income in Operating Activities section;
  • $5,000 gain on sale subtracted from Net Income in Operating Activities section;
  • Sales proceeds of $25,000 listed in Investing Activities section
  • $10,000 depreciation expense added back to Net Income in Operating Activities section;
  • $5,000 gain on sale added to Net Income in Investing Activities section;
  • Sales proceeds of $20,000 listed in Investing Activities section
  • $10,000 depreciation expense added back to Net Income in Operating Activities section;
  • $20,000 book value of the Truck listed as cost of PP&E sold in Investing Activities section;
  • Sales proceeds of $25,000 listed in Investing Activities section
  • $10,000 depreciation expense added back to Net Income in Operating Activities section;
  • $5,000 gain on sale added to Net Income in Operating Activities section;
  • Sales proceeds of $25,000 listed in Operating Activities section

Q5. In Year 2, Company B has the following information:

What amount should Company B report as net cash flow from financing activities in the Year 2 Statement of Cash Flow, assuming no other transactions/accounts?

  • $60,000, cash outflow
  • $60,000, cash inflow
  • $110,000, cash inflow
  • $10,000, cash inflow

Q6. Company A has the following information from its financial statements:

Which of the following statements is correct?

  • The debt/assets ratio decreased in Year 20X2.
  • Common Stock increased by $50,000.
  • The increase in total liabilities is due to taking out a new loan in Year 20X2.
  • The liabilities of Year 20X2 decreased by 33.33% from $30,000 to $20,000, compared to Year 20X1.

Q7. Company A has the following information from its financial statements:

Which of the following statements is correct?

  • Other expenses is variable costs.
  • Return on Sales ratio increased.
  • Return on Sales ratio is constant.
  • COGS is a fixed cost.

Q8. Company A has the following information from its financial statements:

Which of the following statements is correct?

  • Cash Flow from Investing Activities has gone from negative in Years 1 and 2 to positive in Year 3. This trend is a desirable one because companies should strive for a positive Cash Flow from Investing Activities.
  • In Year 1, cash flow from operating activities was a net cash outflow, suggesting that Net Income of Year 1 was negative.
  • Cash Flow from Operating Activities has gone from negative in Year 1 to positive in Years 2 and 3. This trend is a desirable one because companies should strive for a positive Cash Flow from Operating Activities.
  • Cash Flow from Financing Activities has gone from positive in Years 1 and 2 to negative in Year 3. This suggests the company is having difficulty obtaining financing.

Q9. Company A has the following information excerpted from its financial statements:

Which of the following statements is correct?

  • Gross margin ratio increased from Year 2 to Year 3.
  • Return on sales ratio increased from Year 1 to Year 2.
  • The Debt/Assets ratio increased from Year 1 to Year 2.
  • Revenue grew by a larger percentage from Year 1 to Year 2 than from Year 2 to Year 3.

Q10. Company A has the following information excerpted from its financial statements:

Which of the following statements is correct?

  • Assuming the median of gross margin ratio of 30% within the company’s industry can be used as an industry benchmark from Year 1 through Year 3. The company’s gross margin ratio is higher than the industry from Year 1 through Year 2.
  • Assuming the median of return on sales ratio of 5% within the company’s industry can be used as an industry benchmark from Year 1 through Year 3. The company’s return on sales ratio is higher than the industry from Year 1 through Year 2.
  • Assuming the median of debt/assets ratio of 36% within the company’s industry can be used as an industry benchmark from Year 1 through Year 3. The company’s debt/assets ratio in Year 2 is lower than the industry.
  • The company did not take out any loans in Year 3.

Q11. Company A has the following information excerpted from its financial statements:

Assume the cash balance on Dec. 31 Year 1 is 15,000, what is the cash balance at the end of Year 3?

  • $10,500
  • $20,500
  • $19,500
  • $16,000

Q12. Company A has the following information excerpted from its financial statements:

Suppose the company has only two liability accounts as of Dec. 31, Year 2: Accounts Payable and Loan Payable. Which of the following statements is correct?

  • The balance in Loan Payable as of Dec. 31 Year 3 is $10,000.
  • The balance in Loan Payable as of Dec. 31 Year 1 is $9,240.
  • The balance in Loan Payable as of Dec. 31 Year 1 is $2,840.
  • The balance in Loan Payable as of Dec. 31 Year 3 is $2,840.
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