The Balance Sheet Format F3
Questions and Answers
- 1.
Total equity is calculated by adding owner contributions and:
- A.
Earnings
- B.
Bankers
- C.
Creditors
- D.
Liabilities
Correct Answer
A. EarningsExplanation
Total equity is calculated by adding owner contributions and earnings. Owner contributions refer to the amount of money or assets that the owner has invested into the business. Earnings, on the other hand, represent the profits generated by the business. By adding these two components together, we can determine the total equity of the business, which represents the owner's stake or interest in the company.Rate this question:
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- 2.
Lonnie has just purchased 50 shares of $3 par value stock from JML Corporation. He paid a total of $275 for the shares. How much will JML recognize as “Additional paid-in capital” from the sale?
- A.
$275
- B.
$0
- C.
$125
- D.
$150
Correct Answer
C. $125Explanation
JML will recognize $125 as "Additional paid-in capital" from the sale. This is calculated by subtracting the par value of the stock ($3) from the total amount paid for the shares ($275). The difference, $272, represents the amount paid in excess of the par value, which is recognized as additional paid-in capital.Rate this question:
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- 3.
The ratio that is computed by taking total liabilities and dividing them by total assets is called the:
- A.
Reinvested assets ratio
- B.
Debt to equity ratio
- C.
Quick ratio
- D.
Debt ratio
Correct Answer
D. Debt ratioExplanation
The debt ratio is calculated by dividing total liabilities by total assets. This ratio measures the proportion of a company's assets that are financed by debt. It indicates the company's ability to repay its debts and acts as a measure of financial leverage. A higher debt ratio suggests a higher level of debt and a greater risk for the company, while a lower ratio indicates a more conservative financial structure.Rate this question:
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- 4.
The balance sheet is also known as:
- A.
Statement of financial condition
- B.
Statement of financial position
- C.
Statement of cash flows
- D.
Answers a and b are both correct.
Correct Answer
D. Answers a and b are both correct.Explanation
The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It presents the company's assets, liabilities, and shareholders' equity. The balance sheet is also known as the statement of financial condition or the statement of financial position. Both terms refer to the same financial statement, which summarizes the company's financial health and helps stakeholders assess its solvency and liquidity. Therefore, answers a and b are both correct as they represent alternative names for the balance sheet.Rate this question:
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- 5.
The balance sheet format which places assets on the left side and liabilities and owners’ equity on the right is called the:
- A.
Report form
- B.
Correct form
- C.
Bookkeeping form
- D.
Account form
Correct Answer
D. Account formExplanation
The balance sheet format that places assets on the left side and liabilities and owners' equity on the right is called the account form. This format is commonly used in financial accounting to present a snapshot of a company's financial position at a specific point in time. By separating assets and liabilities, the account form provides a clear and organized representation of the company's resources and obligations.Rate this question:
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- 6.
The balance sheet format that is the most popular is the:
- A.
Report form
- B.
Account form
- C.
Investor form
- D.
No one balance sheet form is more popular than another.
Correct Answer
A. Report formExplanation
The report form is the most popular balance sheet format because it presents the assets, liabilities, and equity in a vertical format. This format is easier to read and understand for users of financial statements such as investors and creditors. The report form also allows for easy comparison of different periods and facilitates analysis of the financial position of a company.Rate this question:
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- 7.
Which one of the following items is classified as a liability on the balance sheet?
- A.
Cash
- B.
Land
- C.
Note payable
- D.
Common stock
Correct Answer
C. Note payableExplanation
A note payable is classified as a liability on the balance sheet because it represents a debt that the company owes to another party. It is a legal agreement that obligates the company to make future payments, usually with interest, to the lender. This debt is considered a liability because it represents an obligation that the company has to repay the borrowed funds.Rate this question:
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- 8.
A bond that is sold without a pledge of collateral is known as a(n):
- A.
Commercial bond
- B.
Debenture bond
- C.
Consumer bond
- D.
Indenture bond
Correct Answer
B. Debenture bondExplanation
A debenture bond is a type of bond that is sold without any collateral or specific assets pledged as security. This means that the bond is backed solely by the creditworthiness and reputation of the issuer. Unlike other types of bonds, such as mortgage bonds or secured bonds, debenture bonds do not have any specific assets or properties that can be seized by bondholders in the event of default. Instead, bondholders rely on the general creditworthiness of the issuer to receive interest payments and the return of principal.Rate this question:
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- 9.
The balance sheet element identified as the residual interest in the assets of an entity that remains after deducting its liabilities is called:
- A.
Equity
- B.
Assets
- C.
Cash flows
- D.
Liabilities
Correct Answer
A. EquityExplanation
Equity is the correct answer because it represents the residual interest in the assets of an entity after deducting its liabilities. In other words, it is the owner's claim on the assets of the company once all obligations have been settled. Equity can be further divided into different components such as share capital, retained earnings, and additional paid-in capital, which reflect the ownership and investment in the company.Rate this question:
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- 10.
A company invests in a new building and equipment to manufacture a new product. In the statement of cash flows, this activity would be considered a(n):
- A.
Expansion activity
- B.
Operating activity
- C.
Investing activity
- D.
Financing activity
Correct Answer
C. Investing activityExplanation
The company's investment in a new building and equipment to manufacture a new product is considered a capital expenditure, which falls under the category of investing activities in the statement of cash flows. Investing activities involve the acquisition or disposal of long-term assets, such as property, plant, and equipment, and are reported separately from operating and financing activities.Rate this question:
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- 11.
The basic rules management uses to conduct the corporation’s business are called the:
- A.
Articles of incorporation
- B.
Annual report
- C.
Corporate charter
- D.
Corporate bylaws
Correct Answer
D. Corporate bylawsExplanation
Corporate bylaws are the basic rules that management uses to conduct a corporation's business. These bylaws outline the internal structure, operations, and decision-making processes of the corporation. They typically include details about the roles and responsibilities of directors and officers, procedures for meetings and voting, and guidelines for financial management. Bylaws are essential for ensuring transparency, accountability, and consistency within the corporation.Rate this question:
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- 12.
Total stockholders’ equity is a combination of __________ and ___________.
- A.
Retained earnings; reinvested earnings
- B.
Common stock; preferred stock
- C.
Contributed capital; retained earnings
- D.
Common stock; treasury stock
Correct Answer
C. Contributed capital; retained earningsExplanation
Total stockholders' equity is the total value of the shareholders' ownership in a company. It is calculated by adding the contributed capital, which represents the amount of money invested by shareholders in exchange for ownership shares, and the retained earnings, which are the accumulated profits that have been reinvested back into the company. Therefore, contributed capital and retained earnings are the two components that make up the total stockholders' equity.Rate this question:
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- 13.
You buy a used pickup truck for $10,000. You pay $3,500 in cash and borrow the rest of the money from a bank. Using the accounting equation, how much do you still owe for the truck?
- A.
$3,500
- B.
$6,500
- C.
$0
- D.
$10,000
Correct Answer
B. $6,500Explanation
Based on the given information, you buy a used pickup truck for $10,000. You pay $3,500 in cash, which means you still owe the remaining amount. Therefore, the amount you still owe for the truck is $6,500.Rate this question:
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- 14.
When deciding whether to purchase stock, the economic decision-making question that can be answered with certainty is:
- A.
How much will I be paid?
- B.
When will I be paid?
- C.
Will I be paid?
- D.
None of these questions can be answered with certainty.
Correct Answer
D. None of these questions can be answered with certainty.Explanation
The question asks about the economic decision-making question that can be answered with certainty when deciding whether to purchase stock. The correct answer states that none of the given questions can be answered with certainty. This implies that the amount of payment, the timing of payment, and the certainty of payment cannot be determined when purchasing stock.Rate this question:
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- 15.
In the statement of cash flows, activities that are associated with a company’s borrowing of funds and amounts received from the sale of its own stock are called:
- A.
Financing activities
- B.
Operating activities
- C.
Investing activities
- D.
Continuing activities
Correct Answer
A. Financing activitiesExplanation
The activities that are associated with a company's borrowing of funds and amounts received from the sale of its own stock are called financing activities. These activities involve obtaining funds to support the company's operations and growth. This can include issuing bonds or taking out loans to finance projects, as well as issuing and selling stock to raise capital. By categorizing these activities as financing activities, the statement of cash flows provides insight into how the company is funding its operations and investments.Rate this question:
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- 16.
The balance sheet represents a “snapshot” of the assets, liabilities, and owners’ equity of a company for:
- A.
One month
- B.
One day
- C.
One year
- D.
Any time period of the accountant’s choosing
Correct Answer
B. One dayExplanation
The balance sheet represents a "snapshot" of the assets, liabilities, and owners' equity of a company for one day. It provides a summary of the financial position of the company at a specific point in time, typically at the end of the day. It shows what the company owns (assets), what it owes (liabilities), and the difference between the two (owners' equity) on that particular day. This allows stakeholders to assess the financial health and stability of the company at that specific moment.Rate this question:
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- 17.
A balance sheet must follow the accounting equation to stay in balance. There are two ways to present a balance sheet. When a balance sheet is shown in a vertical format, it is in the:
- A.
Report form
- B.
Correct form
- C.
Investor form
- D.
Account form
Correct Answer
A. Report formExplanation
A balance sheet must follow the accounting equation to stay in balance. The report form is one of the two ways to present a balance sheet. In the report form, the assets, liabilities, and equity are presented in a vertical format, with assets listed first followed by liabilities and equity. This format is commonly used by businesses to provide a clear and organized overview of their financial position. The other way to present a balance sheet is the account form, where assets are listed on the left side and liabilities and equity on the right side. However, in this case, the correct answer is the report form.Rate this question:
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- 18.
The rate of interest printed on a bond that is used to calculate the bond’s interest payments is called the:
- A.
Contract rate
- B.
Coupon rate
- C.
Effective rate
- D.
Stated rate
Correct Answer
C. Effective rateExplanation
The effective rate is the correct answer because it refers to the rate of interest printed on a bond that is used to calculate the bond's interest payments. This rate takes into account any compounding that may occur over the bond's term, providing a more accurate representation of the actual return on the investment. The contract rate, coupon rate, and stated rate may also be used to refer to the bond's interest rate, but they do not necessarily account for compounding.Rate this question:
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- 19.
The cost of borrowing money is knows as:
- A.
Principal
- B.
Interest
- C.
Time
- D.
Rate
Correct Answer
B. InterestExplanation
Interest refers to the cost of borrowing money. It is the amount charged by a lender to a borrower for the use of their money. When someone borrows money, they are required to pay back the principal amount (the initial amount borrowed) along with the interest. The interest rate determines the percentage of the principal that needs to be paid as interest over a specific period of time. Therefore, interest accurately represents the cost of borrowing money.Rate this question:
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- 20.
Which right or benefit below is not a characteristic of preferred stock?
- A.
Voting rights
- B.
Preferred stockholders are not owners of the corporation
- C.
Preferred stockholders receive their dividend before common stockholders
- D.
If the corporation goes out of business, preferred stockholders receive their distribution of assets before common stockholders
Correct Answer
A. Voting rightsExplanation
Preferred stock is a type of stock that typically does not come with voting rights. Unlike common stockholders, preferred stockholders do not have the ability to vote on corporate matters or elect board members. Instead, their main benefit is receiving their dividend payments before common stockholders and having a higher claim on the corporation's assets in the event of bankruptcy or liquidation. Therefore, the lack of voting rights is not a characteristic of preferred stock.Rate this question:
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- 21.
Par value:
- A.
Has a great deal of meaning for common stockholders since dividends are often based on par value
- B.
Is a requirement of any newly formed corporation issuing stock
- C.
Is meaningless when issuing preferred stock because legally such stock can never have a par value
- D.
May be important for preferred stock because dividends are often stated as a percentage of par value
Correct Answer
D. May be important for preferred stock because dividends are often stated as a percentage of par valueExplanation
The explanation for the given correct answer is that par value may be important for preferred stock because dividends are often stated as a percentage of par value. Preferred stockholders typically receive a fixed dividend payment, which is usually expressed as a percentage of the stock's par value. Therefore, the par value becomes relevant in determining the dividend amount for preferred stockholders. In contrast, common stockholders do not have a guaranteed dividend and their dividends are not usually based on par value.Rate this question:
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- 22.
XYZ Industries has just declared a dividend on preferred stock. The stock has a par value of $100 and a stated dividend rate of 7%. If the company has 4,000 shares outstanding, the dividend per share will be:
- A.
$70
- B.
$2,800
- C.
$100
- D.
$7
Correct Answer
D. $7Explanation
The dividend per share will be $7. This can be calculated by multiplying the par value of the stock ($100) by the stated dividend rate (7%). So, $100 x 0.07 = $7. Therefore, each share of preferred stock will receive a dividend of $7.Rate this question:
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- 23.
A balance sheet that has only one equity account that contains the owner's name in the title indicates that this firm is most likely a:
- A.
Sole proprietorship
- B.
Limited partnership
- C.
Corporation
- D.
Partnership
Correct Answer
A. Sole proprietorshipExplanation
A balance sheet that has only one equity account with the owner's name in the title indicates that the firm is most likely a sole proprietorship. In a sole proprietorship, the owner has complete control over the business and is personally liable for its debts and obligations. The equity account represents the owner's investment in the business and any profits or losses. In other types of businesses such as partnerships or corporations, there would typically be multiple equity accounts representing the investments of multiple owners or shareholders.Rate this question:
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- 24.
Ratios cover four main areas of financial concern: profitability, efficiency, liquidity, and solvency. Ratios that look at how a company is financed and its prospects for making payments to creditors and owners are:
- A.
Efficiency ratios
- B.
Liquidity ratios
- C.
Profitability ratios
- D.
Solvency ratios
Correct Answer
D. Solvency ratiosExplanation
Solvency ratios are used to assess a company's ability to meet its long-term financial obligations and remain solvent. These ratios focus on the company's financial structure and its ability to generate enough cash flow to cover its debt payments. By analyzing solvency ratios, creditors and owners can evaluate the company's financial health and determine whether it has the capacity to repay its debts and continue operations in the long term. Therefore, solvency ratios are specifically designed to provide insights into a company's financial stability and its ability to fulfill its financial obligations.Rate this question:
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- 25.
The ownership interest in a company is known as:
- A.
Net assets
- B.
Net worth
- C.
Equity
- D.
All these answers are correct.
Correct Answer
D. All these answers are correct.Explanation
The ownership interest in a company is referred to as net assets, net worth, and equity. These terms are used interchangeably to represent the value of the company after deducting its liabilities. Net assets represent the total assets minus total liabilities, net worth represents the owner's equity in the company, and equity represents the residual interest in the assets of the company after deducting liabilities. Therefore, all of these answers accurately describe the ownership interest in a company.Rate this question:
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Current Version
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Mar 21, 2023Quiz Edited by
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Feb 19, 2011Quiz Created by
Amphib2007
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