LO 1-7

Question 1

income statement details

Answer 1

how business performed during a specific accounting period - year or quarter

Question 2

revenues are economical ______ earned from customers

Answer 2

benefits

Question 3

expenses are ___________ incurred

Answer 3

sacrifices

Question 4

expenses > revenues

Answer 4

net loss

Question 5

revenues > expenses

Answer 5

net income

Question 6

_______ is not included in the income statement

Answer 6

DIVIDEND

Question 7

an income statement shows only the

Answer 7

benefits (revenues) and sacrifices (expenses)

Question 8

retained earnings are high if we have

Answer 8

earnings/net income/profit

Question 9

retained earnings are low if we have

Answer 9

distributions/dividends

Question 10

how to calculate

Answer 10

beg retained earnings
PLUS net income
LESS dividends
________________

= ending retained earnings

Question 11

The income statement presents

A.) an explanation of the changes in the beginning and ending balances of stockholders’ equity.

B.) a comparison of the benefits and the sacrifices a company experiences from its operations.

C.) information in three categories including operating, investing, and financial activities.

D.) a list of a company’s assets and the sources of those assets.

Answer 11

B.) a comparison of the benefits and the sacrifices a company experiences from its operations.

Question 12

Kilgore Company experienced the following events during its first accounting period.

(1) Issued common stock for $5,000 cash.
(2) Earned $3,000 of cash revenue.
(3) Paid a $4,000 cash to purchase land.
(4) Paid cash dividends amounting to $400.
(5) Paid $2,200 of cash expenses.

Based on this information the amount of net income is _____.

a. 800
b. 400
c. 2,200
d. 4,400

Answer 12

net income is $800 ( Revenues 3000- Expenses 2200).

Question 13

Which of the following items would be an example of revenue?

a. cash received from a bank loan
b. cash received from investors from sale of common stock
c. cash received from sale of land
d. cash received from customers at the time services were provided

Answer 13

d. cash received from customers at the time services were provided

Question 14

Retained earnings at the beginning of the period was $300. During the period, Kilgore Company earned revenue of $1,100 and incurred expenses of $400. Assuming dividends paid to stockholders were $200, the ending balance in retained earnings must have been:

A. $1,000

B. $800

C. $1,200

D. $600

Answer 14

B. 800

Beginning retained earnings + Net Income - Dividends = Ending retained earnings. First, calculate net income as revenue minus expenses. Net income = $1,100 -$400= $700. Ending retained earnings= $300+$700-$200=$800.

Question 15

Which of the following statements models shows the effects of paying a cash dividend?

Balance Sheet Income Statement
Assets = Liab. + Equity Rev. - Exp. = Net Inc.
A. − + NA NA NA NA
B. − NA − NA + −
C.− NA + NA + −
D.− NA − NA NA NA

A. Option A

B. Option B

C. Option C

D. Option D

Answer 15

D. Option D

Paying a cash dividend decreases the asset account (Cash) and decreases the equity account (Retained Earnings). Paying a dividend is not recognized as an expense. Therefore, it has no effect on the Income Statement.

Question 16

Which of the following financial statements provides information about a company as of a specific point of time?

A. Income Statement

B. Balance Sheet

C. Statement of Cash Flows

D. None of the above

Answer 16

B. Balance Sheet

The balance sheet provides information about a company as of a specific point in time.

Question 17

Kilgore Company experienced the following events during its first accounting period.

Borrowed $10,000 cash from a creditor.
Earned $5,000 of cash revenue.
Paid $2,000 cash to pay off a portion of its note payable.
Paid cash dividends amounting to $100.
Paid $2,200 cash for operating cash expenses.

Based on this information, what is the amount of expense shown on the income statement?

A. $2,200

B. $2,300

C. $4,200

D. $4,300

Answer 17

A. $2,200

Expenses are economic sacrifices incurred to produce revenue. In this case, the company’s sacrifice was a decrease in assets (cash). Note that dividends are not expenses. Dividends are not paid in order to produce revenue. Instead they are transfers of wealth from the business to its owners. Paying back a portion of the note payable is also not an expense. It will decrease assets (cash) and decrease liabilities (note payable) by $2,000.

Question 18

The financial statement that reports the revenues and expenses for a period of time such as a year or a month is the

A. Balance Sheet

B. Income Statement

C. Statement of Cash Flows

D. None of the answers are correct

Answer 18

B. Income Statement

The income statement reports the revenues and expenses for a period of time such as a year, month or quarter. The balance sheet reports the company’s assets and the sources of those assets as of a specific date. The statement of cash flows does not report revenues and expenses.