1. Which financial statement report is required to be prepared first when producing a company's financial statement?
A. Income statement Correct
B. Balance sheet
C. Statement of owners' equity
D. Statement of cash flows
Explanation
Income statement (A) is correct because it calculates net income, needed for the statement of owners' equity, which feeds into the balance sheet. Balance sheet (B), owners' equity (C), and cash flows (D) rely on income statement data.
2. A business generates $750,000 in revenue but has high operating expenses. Which financial metric is most impacted by these expenses?
A. Net profit Correct
B. Revenue
C. Accounts payable
D. Gross revenue
Explanation
Net profit (A) is correct because operating expenses directly reduce net profit after revenue. Revenue (B) and gross revenue (D) are unaffected by expenses. Accounts payable (C) relates to liabilities, not expenses.
3. A company is reviewing its financial position and wants to increase liquidity. Which action should help?
A. Converting cash into long-term investments
B. Purchasing additional fixed assets
C. Selling inventory for cash Correct
D. Using cash to pay down debt
Explanation
Selling inventory for cash (C) is correct because it increases liquid assets (cash). Converting to investments (A) or buying assets (B) reduces liquidity. Paying debt (D) uses cash, decreasing liquidity.
4. Jaunty Coffee Co.’s balance sheet shows $750 million in its asset account and $250 million in its liabilities account. Jaunty Coffee Co. reports short-term assets of $200 million. What is Jaunty Coffee’s balance in long-term assets?
A. $200 million
B. $250 million
C. $450 million
D. $550 million Correct
Explanation
$550 million (D) is correct. Total assets ($750M) minus short-term assets ($200M) equals long-term assets ($750M - $200M = $550M). Options A, B, and C are incorrect based on the calculation.
5. Whole Pine Inc. took out notes payable from the bank which are due four years from today. Where should this be classified on the balance sheet?
A. Current asset
B. Non-current asset
C. Non-current liability Correct
D. Current liability
Explanation
Non-current liability (C) is correct because notes payable due in four years are long-term liabilities. Current assets (A) and non-current assets (B) are asset categories. Current liability (D) applies to debts due within one year.