ACTUAL ACCT WINTER QTR FINAL EXAM -WEEK 6 COMPLETE QUESTIONS AND ANSWERS GRADED A+

Which number is transferred from the income statement to the statement of retained earnings? ANS: net income gross profit total expenses cost of goods sold Response Feedback: The net income, or final line of the income statement, is transferred to the statement of retained earnings. Which opinion from an independent auditor’s report indicates that no opinion is made due to missing information? ANS: disclaime r unqualifi ed qualified adverse Response Feedback: Due to missing information, a disclaimer opinion includes no actual opinion. A business owner is concerned about the ability of his business to pay its debts in the next 30 days due to the company’s limited amount of available cash. The business owner is worried about the firm’s . ANS: solven cy liquidit y Response Feedback: Liquidity refers to the ability of a business to pay its debts/obligations. A group of investors are considering investing in ATX Enterprises. What is the investor's purpose for reviewing the income statements of ATX Enterprises? ANS: evaluate the firm’s potential solvency for the purpose of obtaining loans understand the components and distribution of stockholders’ equity identify the firm’s assets and liabilities at the end of the accounting period determine the firm’s net income or net losses over a specific period of time Response Feedback: The income statement provides investors and creditors with information about the amount of net income earned (its profitability) or net losses over a specified period of time. Which number from the balance sheet is used to reconcile the ending balance on the statement of cash flows? ANS: accounts receivable capital stock assets cash Response Feedback: The cash in the assets section of the balance sheet is used to reconcile the balance of the statement of cash flows, as both represent cash on hand. What is the purpose of the cash amount on the balance sheet relative to the ending balance on the cash flow statement? ANS: the cash amount on the balance sheet reduces the ending balance on the cash flow statement the cash amount on the balance sheet reconciles the ending balance on the cash flow statement the cash amount on the balance sheet has no effect on the ending balance on the cash flow statement the cash amount on the balance sheet increases the ending balance on the cash flow statement Response Feedback: the cash amount on the balance sheet reconciles the ending balance on the cash flow statement. The two numbers are the same and represent the company’s cash on hand at the end of the accounting period. Wilson Consulting is seeking a $500,000 loan from National Bank to purchase land for an office building. The bank’s loan officer asks numerous questions based on the balance sheet to determine the risk of providing the loan. Which question about information on the balance sheet best addresses the liquidity of Wilson Consulting? ANS: How often are profits distributed to stockholders? How long has the firm been in business? What are the firm’s debts and obligations? What are the firm’s average monthly revenues? Response Feedback: Liquidity refers to the ability of a business to pay its debts/obligations given its available cash. A group of potential investors in A&E Software are reviewing the firm's statement of cash flows. The investors are specifically focusing on whether A&E is able to generate net cash by selling its software products. Which section on the statement of cash flows would provide this information? ANS: financin g investin g sales operati ng Response Feedback: The cash flows from operating activities section would help the investors determine whether the firm is able to generate net cash inflows from selling its goods and services. Which question can be answered by reviewing a company’s statement of retained earnings? ANS: What was the most recent account balance for the company? Does the company have enough earnings to pay dividends? Does the company’s cash flow support its operating activities? What are the company’s long-term assets and liabilities? Response Feedback: Investors are interested in the statement of retained earnings because they want to ensure that a company has enough earnings to pay dividends to shareholders. True or false. The statement of retained earnings is used by firms to report changes in cash inflows and outflows from one accounting period to the next. ANS: True Fals e Response Feedback: The statement of retained earnings reports changes in retained earnings over a period of time not cash flows, which are reported in the statement of cash flows. Of the likely audiences for the annual report, which party is most interested in the company’s ability to pay for goods and services it purchases? ANS: investors custome rs employe es vendors Response Feedback: Because they are the parties who sell goods and services to the company, this is the vendor’s main interest in the annual report. The document shown below is used by investors to determine whether a firm has enough earnings to pay shareholder dividends and support future growth. What is this document known as: