Multiple Choice Questions

1. Using the information in Multiple-Choice Exercise 1-7, what is Marker’s stockholders’ equity?

a. $22,500

b. $18,200

c. $12,500

d. $5,700

2. Which of the following statements regarding the income statement is true?

a. The income statement shows the results of a company’s operations at a specific point in time.

b. The income statement consists of assets, expenses, liabilities, and revenues.

c. The income statement provides information about the future profitability and growth of a company.

d. Typical income statement accounts include Sales revenue, Unearned revenue, and Cost of sales.

3. For the most recent year, Grant Company reported revenues of $150,000, cost of goods sold of $84,000, inventory of $5,000, salaries expense of $40,000, rent expense of $15,000, and cash of $20,000. What was Grant’s net income?

a. $66,000

b. $11,000

c. $26,000

d. $95,000

4. Which of the following statements concerning retained earnings is true?

a. Retained earnings is the difference between revenues and expenses.

b. Retained earnings is increased by dividends and decreased by net income.

c. Retained earnings is reported as a liability on the balance sheet.

d. Retained earnings represents the income that has not been distributed as dividends.

5. Which of the following sentences regarding the statement of cash flows is false?

a. The statement of cash flows describes the company’s cash receipts and cash payments for a period of time.

b. The ending cash balance on the statement of cash flows equals the change in cash shown on the balance sheet.

c. The statement of cash flows reports cash flows in three categories: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

d. The statement of cash flows may be used by creditors to assess the creditworthiness of a company.

6. Which of the following statements is true?

a. The auditor’s opinion is typically included in the notes to the financial statements.

b. The notes to the financial statements are an integral part of the financial statements that clarify and expand on the information presented in the financial statements.

c. The management’s discussion and analysis section does not convey any information that cannot be found in the financial statements themselves.

d. The annual report is required to be filed with the New York Stock Exchange.