Question

1/The change in owners' equity due to only revenue and expense transactions is explained by the: Multiple Choice

* 

Income statement.


* 

Statement of financial position.


* 

Statement of cash flows.


*Tax return.


2/ If cash flows from operating activities is a positive amount, then: Multiple Choice

* 

The company must have paid off more debts than it earned during the year.


* 

The company must have had a net profit for the year.


* 

The amount will be shown on the statement of cash flows in parentheses.


* 

The company may still have a decrease in the total amount of cash for the period.


3/ Which of the following statements regarding liquidity and profitability is not true? Multiple Choice

* 

If a business is unable to pay its debts as they come due, it is operating unprofitably.


* 

A business may be liquid, yet operate unprofitably for several years.


* 

In order to survive in the long run, a business must both remain liquid and operate profitably.


* 

A business may operate profitably, yet be unable to meet its obligations.

4/
Which of the following liabilities would most likely be listed last on a statement of financial position? Multiple Choice

* 

Bonds payable, due in 20 years.


* 

Note payable, due in 3 years.


* 

Income taxes payable.


* 

Accounts payable.


Answer 1

1:Option 1

The Income statement shows the amount carried to retained earnings after all revenues and expenses have been considered. Other options do not refer to revenues and expenses.

2: Option 4

The company can still have a negative cash balance since it may have cash outflow due to financing and investing activities. Option 1 relates to financing activities and not operating. Net profit does not indicate cash flows since it is accounting income. amount shown on the statement of cash flows in parentheses pertains to negative cash balance.

3: Option 1

Option 1 is false since a firm may be profitable yet illiquid. It may have net profits but may not have sufficient current assets in its balance sheet.Other options are true.

4: Option 1

Bonds payable pertains to long term debt and so is listed later on the balance sheet. Others are current liabilities and are listed further up.