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Name: _________________

Class: ____________________

Date: _________________ ID: A

Chapter 15 & 16 Test

True/False

Indicate whether the statement is true or false.

____ 1. Assets are things that are OWED, and liabilities are things that are OWNED.

____ 2. An accounts receivable record shows money owed and payments made by a business.

____ 3. Financial statements provide detailed information on such items as insurance and real
property.

____ 4. Retained earnings are a type of equity capital,

____5. An assets book value can be calculated by subtracting its original cost from its depreciation.

____ 6. Stores that use budgets for their financial operations are usually more successful than stores
that do not use budgets.

____ 7. Money that owners borrow for their business using their own homes as security for the loan is
owner capital.

____ 8. The book value of a share of stock is found by dividing the corporations net worth (Assetsliabilities) by the total number of shares outstanding.

____ 9. When starting a business, it is usually desirable to issue only common stock.

____ 10. There are only 3 types of budgets.

Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 11. What is the formula for calculating the book value of stock?
a.
b.
c.
d.

Number of shares / net worth


Net worth + number of shares
Net worth * number of shares
Net worth / number of shares

____ 12. Calculate a companys book value of stock based on the following information: Assets = $1,500;
Liabilities = $1,200; Net worth = $300; Number of total shares = 15
a.
b.
c.
d.

$13 per share


$15 per share
$22 per share
$20 per share

____ 13. The primary reason businesses keep financial records is to


a.
b.
c.
d.

Comply with federal laws


Keep track of debts owed
Determine if they have made a profit or a loss
Make monthly payments on time

____ 14. A business that is planning to introduce a new product will need a
a. Capital budget
b. Cash budget

c. sales budget
d. start-up budget

____ 15. The original cost of an asset less its accumulated depreciation is the
a. Balance value
b. Book value

c. depreciated value
d. residual value

____ 16. Net worth, owners equity, and stockholders equity are all terms meaning
a. Capital
b. Liabilities

c. assets
d. inventory

____ 17. An operating budget includes projected


a. Sales
b. Profits

c. costs
d. all of the responses are correct

____ 18. What does a sales budget provide?


a. An estimate of the sales for the next month or year.

b. A report of stock on hand that is ready to be sold.


c. A report of the actual sales of each sales representative.
d. A report of the actual sales for the last year.
____ 19. The financial reports that businesses use the most are
a.
b.
c.
d.

Income statements and balance sheets


Merchandise inventories and P&L statements
Balance sheets and petty cash records
Capital budgets and cash flow planners

____ 20. The basic accounting equation is


a. Capital = assets + liabilities
b. Assets = capital liabilities

c. liabilities = assets + capital


d. assets = liabilities + capital

____ 21. The amount owed to a business by its customers is considered


a. Accounts payable
b. An asset

c. capital
d. a liability

____ 22. The investment made in a business by its owners is called


a. Working capital
b. Equity capital

c. creditor capital
d. cash flow

____ 23. Retained earnings refer to


a.
b.
c.
d.

Money from the sale of bonds


Money from the sale of stock
Profits that owners do not save for use in the business
Profits that owners do not take out of the business so they can make the business better

____ 24. A process of recording and reporting the financial information resulting from business transactions are
called
a. Budgeting
b. Reporting

c. accounting
d. financing

____ 25. Earnings reinvested in the business to replace equipment, add new facilities, or serve as financial
protection are called
a. Profits
b. Debt capital

c. retained earnings
d. dividends

____ 26. Which statement is true of common stockholders?


a.
b.
c.
d.

They have the right to vote at annual meetings, at one vote per share of stock owned.
If the corporation makes a profit, they are paid before creditors.
They are guaranteed dividends every year.
They must purchase stock at its par value

____ 27. Which statement is true about preferred stockholders?


a.
b.
c.
d.

Holders are guaranteed dividends.


Holders receive profits of the business before creditors.
Holders typically do not have voting privileges in a business.
Holders receive profits after common stockholders.

____ 28. Which of the following is (are) ways to obtain capital?

a. Equity capital
b. Through the black market

c. retained earnings
d. Both A & C

____ 29. Which of the following financial statements contains assets, liabilities, and capital (stockholders
equity or Owners equity)?
a.
b.
c.
d.

Financial records
Income statement
Balance sheet
Budget

____ 30. Which of the following financial statements contain expenses, revenues and net loss or profit?
a.
b.
c.
d.

Financial records
Income statement
Balance sheet
Budget

Matching
Match each item with the correct statement below.

____ 31. An unconditional written promise to pay a certain sum of money, at a


particular time or on demand, to the order of one who has obtained the note.

a. Accounts payable

____ 34. Money invested in the business by its owner or owners.

b.
c.
d.
e.
f.
g.

____ 35. Things Owned, such as cash and buildings.

h. Liabilities

____ 36. Claims against assets or things OWED the debts or things owed of
a business

i.

Promissory Note

j.

Preferred Stock

____ 32. Money the business owed for credit purchases


____ 33. A financial statement that lists assets, liabilities, and capital of a
business.

____ 37. The value of a share of stock that is found by dividing the net worth
(assets minus liabilities) of the corporation by the total number of shares
outstanding.
____ 38. A financial statement/ document that reports total revenue and
expenses for a specific period to determine a net profit or loss.
____ 39. Ownership that gives holders preference over the common
stockholders when distributing dividends or assets.
____ 40. Ownership that gives holders the right to participate in managing the
business by having voting privileges and by sharing in the profits (dividends) if
there are any.

Assets
Balance sheet
Book value
Common Stock
Equity Capital
Income statement

Complete the following Balance Sheet and Income Statement. Both are worth 5 points.
Balance Sheet
Get the assets column correct = 1 point
Get the liabilities column correct = 1 point
Get the capital column correct = 1 point
Get the Calculations correct = 1 point
Get the top part correct = 1 point

Income Statement
Get the top part correct = 1 point
Get the revenue section correct = 1 pt.
Get the gross profit calc. correct = 1 pt
Get the expenses sec. correct = 1 pt.
Calc. net profit/loss correct = 1 point

From the information provided, prepare a balance sheet for Reys Rib Shack using the form that follows. Data
needed:

Accounts Payable = $6,404


Capital = $11,235
Equipment = $3,974
Buildings & Land = $ 12,000
Rent Payable = $10,000
Cash = $6,265
Accounts Receivable = $5,400

Reys Rib Shack


____________________________________
____________________________________
Assets

Liabilities & Capital

______________

$_________

Liabilities

______________

$_________

______________

$_______

______________

$_________

______________

$_______

______________

$_________

Total Liabilities

$_______

Capital:
______________
Total Assets:

$_________

Total Liabilities & Capital

$________
$________

On the form below, prepare this years 2016 income statement for Fins Ice Cream Shop. Data needed:

Sales Income = $1,327,800


Rent Income = $99,500
Cost of Goods Sold = $985,000
Salaries & Wages Expense = $225,000
Rent Expense = $144,000
Depreciation of Equipment = $18,000
Utilities Expense = $3,000
Supplies = $7,000

Fins Ice Cream Shop


_____________________________________________________
_____________________________________________________
Revenue:
____________________________

$________________

____________________________

$________________

Total Revenue:

$_______________

Cost of Goods Sold:

$_______________

Gross Profit:

$________________

Operating Expenses:
__________________________

$_________________

__________________________

$_________________

__________________________

$__________________

___________________________

$__________________

___________________________

$__________________

Total Operating Expenses

Net Profit/Loss (Before Taxes)

$___________________

$________________________

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