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Test answers for Financial Statements 2016

(98) Last updated: January 23
Elance • Fin. & Mgt.
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98 Answered Test Questions:

1. Net Income Equals:

Answers:

• Operating Revenues minus Operating Expenses

• Total Revenues minus Total Expenses

• Total Revenues minus Cost of Goods Sold

• Revenue minus Expenses plus Taxes

2. Cost of Goods Sold is calculated using which of the following?

Answers:

• Sales - Cost of Goods Purchased + Beginning Inventory - Ending Inventory

• Beginning Inventory - Cost of Goods Purchased + Ending Inventory

• Beginning Inventory + Cost of Goods Purchased - Ending Inventory

• Sales + Gross Profit + Beginning Inventory - Ending Inventory

3. What is the order in which assets are typically listed on the balance sheet?

Answers:

• In alphabetical order

• In order of value

• In order of acquisition

• In order of liquidity

4. Almost all financial statements use what form of accounting?

Answers:

• Cash basis accounting

• Cost basis accounting

• Accrual basis accounting

• Voodoo accounting

5. The income statement is also called what?

Answers:

• Statement of earnings

• Statement of cash flows

• Balance sheet

• Statement of retained income

6. Why would investors have an interest in a company's statement of retained earnings?

Answers:

• Investors want to know that a company is reinvesting enough of their earnings to support future growth and pay dividends

• Investors want to know that the products being sold are ones they believe are good quality

• Investors want to know that a company is reinvesting enough of their earnings to expand into other industries

• Investors want to know that a company is reinvesting enough of their earnings to expand vertically

7. Which item does not depreciate?

Answers:

• Factory Building

• Goodwill

• Manufacturing Equipment

8. When are current liabilities due to be paid?

Answers:

• Within the next three months

• Within the next 12 months

• Within the next 60 days

• On the date of the balance sheet

9. A company’s working capital is defined as

Answers:

• Accounts receivable minus accounts payable

• Current assets plus long-term assets

• Current assets minus current liabilities

• Revenues minus expenses

10. What is another name for the Balance Sheet?

Answers:

• Statement of Earnings

• Statement of Financial Position

• Statement of Profitability and Loss

• Statement of Operations

11. What agency does a publicly traded company file with if they sell stock?

Answers:

• The Federal Reserve

• National Security Agency

• Central Intelligence Agency

• The Securities Exchange Commission

12. True or False? Liabilities and shareholders’ equity must be equal.

Answers:

• True

• False

13. What information is found on the Income Statement?

Answers:

• Revenues, Expenses, Net Profit or Loss

• Assets, Liabilities and Shareholder's Equity

• Retained Earnings, Accumulated Depreciation and Shareholders Equity

• Cash inflows and Cash outflows from Operating, Investing and Financing activities

14. What is the basic accounting equation used to calculate the balance sheet?

Answers:

• Capital = Liabilities + Stockholders Assets

• Profit = Liabilities + Stockholders Equity

• Assets = Liabilities + Stockholders Equity

• Assets = Securities + Stockholders Equity

15. On a balance sheet, goodwill is an example of what?

Answers:

• Accounts Receivable

• Charitable Donations

• Deferred Liabilities

• Intangible Assets

16. What are retained earnings?

Answers:

• Earnings that have been converted into assets

• Earnings that have been converted into stock

• Earnings that have been reinvested back into the business

• Earnings that have been paid out as salaries

17. What are revenues?

Answers:

• Income from investments

• Income from goods or services that have been sold

• Income from assets

• Income from liabilities

18. Which two line items are used to calculate Working Capital?

Answers:

• Retained Earnings and Total Liabilities

• Fixed Assets and Long-term Liabilities

• All Assets and All Liabilities

• Current Assets and Current Liabilities

19. Which of the following is NOT a division of sources and uses of cash flow on the cash flow statement?

Answers:

• Financing activities

• Material business activities

• Investing activities

• Operating activities

20. What is an example of a liability?

Answers:

• Equipment

• Cash

• Stocks owned by the business

• A property tax bill

21. Which of the following is NOT a primary section of a company’s financial statements?

Answers:

• Letter from the CEO

• Statement of Cash Flows

• Balance Sheet

• Summary of Operations

22. Which of the following is NOT one of the four basic financial statements?

Answers:

• Audit Statement

• Statement of Cash Flows

• Income Statement

• Balance Sheet

23. What sources of cash flow are included on the statement of cash flows?

Answers:

• Cash flows from operating activities, investing activities, and financing activities

• Cash flows from employment activities, research activities, and financing activities

• Cash flows from credit activities, investing activities, and marketing activities

• Cash flows from credit activities, expansion activities, and marketing activities

24. What audience is an annual report addressing?

Answers:

• The media

• Other businesses

• Shareholders

• Environmental groups

25. What should balance on a company’s balance sheet?

Answers:

• Deferred Assets and Deferred Credits

• Accounts Payable and Accounts Receivable

• Revenues and Expenses

• Total Assets and the sum of Liabilities and Shareholders’ Equity

26. What is GAAP, and why is it important?

Answers:

• Greatly Anticipated Accounting Principles; These principles were set because the IRS is anticipating payment.

• Generally Accepted Accounting Principles; It is important because it is responsible for standardizing accounting procedures.

• Generally Acknowledged Accounting Principles; It is important because taxation isn't an exact science and the goal is to be approximate in tax payment.

• Greatly Appreciated Accounting Practices; It is important because the IRS appreciates your taxes.

27. What is the calculation used on the income statement?

Answers:

• Liabilities – Assets = Net Income

• Revenues – Equity = Net Income

• Liabilities – Expenses = Net Income

• Revenues – Expenses = Net Income

28. Of the following, which is an item that doesn't belong in the heading of a balance sheet?

Answers:

• Title of the statement

• Name of the entity

• Specific date of the statement

• Address of the business

29. What information is found on the Balance Sheet?

Answers:

• Cash inflows and Cash outflows from Operating, Investing and Financing Activities

• Gross Profit, Cost of Goods Sold and Net Income

• Assets, Liabilities and Shareholder's Equity

• Revenues, Expenses, Net Profit or Loss

30. True or False? All expenses required to be paid in the same accounting period.

Answers:

• True

• False

31. Current assets do NOT include which of the following

Answers:

• Cash on hand

• Securities

• Machinery and equipment

• Accounts receivable

32. What happens to retained earnings as dividends are declared?

Answers:

• Retained earnings stay the same.

• Retained earnings increase.

• Dividends do not affect retained earnings.

• Retained earnings decrease.

33. When goods have been sold but not paid for, where are they documented in the  balance sheet?

Answers:

• As accounts payables.

• As accounts receivable.

• As assets.

• As liabilities.

34. On a balance sheet, which of the following is subject to depreciation?

Answers:

• All assets and liabilities

• All assets

• All long-term assets except for land

• All long-term assets including land

35. What four components are contained in a financial statement?

Answers:

• Balance sheet, income statement, annual report, statement of cash flow

• Balance sheet, income statement, statement of retained earnings, statement of cash flow

• Statement sheet, income statement, statement of retained earnings, statement of cash flow

• Balance sheet, auditing form, statement of retained earnings, statement of cash flow

36. What does it mean when a company's stock is volatile?

Answers:

• The value of the stock often changes drastically

• The companies stock is rising quickly

• The companies stock is sinking quickly

• The companies stock is stable but expensive

37. A measure of the overall efficiency of asset utilization is the:

Answers:

• Acid-test Ratio

• Receivable Turnover Ratio

• Earnings Per Share

• Asset Turnover Ratio

38. Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment are referred to as:

Answers:

• Revenue Expenditure

• Operational Expenditures

• Capital Assets

• Capital Expenditures

39. What is the objective of financial statement analysis?

Answers:

• To better understand how to report earnings to the Federal Reserve

• To understand whether a product is worth buying

• To understand the risk vs. profitability of a company

• To understand how to properly address shareholders

40. Is net income equal to the net cash generated by operations? Where is net cash reported?

Answers:

• No. Net cash is reported on the cash flow statement.

• No. Net cash is placed into a special account.

• No. Net cash is spending money that does not need to be reported.

• Yes. Net cash is reported as net income.

41. How is the return on assets calculated?

Answers:

• Gross margin divided by total assets

• Net income divided by total assets

• Gross revenues divided by total assets

• Tangible assets divided by intangible assets

42. What equation is used when calculating the statement of retained earnings?

Answers:

• Beginning Retained Earnings + Liabilities – Dividends = Ending Retained Earnings

• Beginning Retained Earnings + Net Income – Ending Retained Earnings = Dividends

• Beginning Retained Earnings + Net Income – Assets = Ending Retained Earnings

• Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings

43. Which corporate officers must certify the accuracy of financial statements?

Answers:

• Treasurer and Chair of the Board

• CEO and CFO

• Any two senior corporate officers

• COO and Comptroller

44. What does the statement of retained earnings tell you about a company's position?

Answers:

• It tells you how it has been affected by net income and distribution of dividends

• It tells you what items would be best to sell in the following year

• It tells you how much has been earned

• It tells you how much the company is paying their employees

45. What category would cash paid for taxes fall under?

Answers:

• Cash flows from operating activities

• Cash flows from credit activities

• Cash flows from accounting activities

• Cash flows from investing activities

46. What do the footnotes to financial statements typically provide?

Answers:

• an overview of significant accounting policies

• A review of stock compensation plans

• All of these

• A discussion of contingencies potentially affecting earnings

47. How do you calculate the Current Ratio?

Answers:

• Total Assets / Total Liabilities

• Net Income / Net Revenue

• Total Current Assets / Total Current Liabilities

• (Current assets – Inventories) / Current Liabilities

48. What is the first statement to calculate before moving on to the statement of retained earnings?

Answers:

• The balance sheet.

• The statement of cash flows.

• Statement of dividends.

• Income statement.

49. Current assets are assets that are intended to be converted into cash or consumed within:

Answers:

• Two Years

• The Inventory Cycle

• The Operating Cycle

• One year

50. What's the difference between a Capital lease and an Operational lease?

Answers:

• Capital leases are traditionally used for short-term leases while Operational leases are for long-term leases.

• Capital leases are fixed while Operational leases are variable.

• Capital leases are variable while Operational leases are fixed.

• Capital leases are traditionally used for long-term leases while Operational leases are for short-term leases.

51. All are Profitability Ratios, except:

Answers:

• Return On Assets

• Current Ratio

• Return On Capital Employed

• Return On Equity

52. If you needed to replace machinery at your company, where would you list this on the statement of cash flows?

Answers:

• Under cash flows from investing activities

• Under cash flows from purchasing activities

• Under cash flows from cash activities

• Under cash flows from accounting activities

53. What is Goodwill?

Answers:

• An asset that is recorded to adjust year-end changes to long-term assets on the Balance Sheet.

• An asset that captures the excess purchase price of an acquired business bought for greater than fair market value.

• An asset category that captures all of the intangible assets of a company.

• A liability that causes the valuation of a company to fall below fair market value.

54. EBITDA is Operating Profit:

Answers:

• After Deprecition and Amortization

• Before Depreciation and Amortization

• Before Cost of Goods Sold

• Before Gross Profit

55. Parentheses around a number in financial statements indicates what?

Answers:

• The number is a gain or increase

• The number is an estimate

• The number is a loss or decrease

• the number is very important

56. When profits are reinvested into the business, what are they called?

Answers:

• Retained earnings

• Contributed equity

• Contributed capital

• Retained money

57. True or false? A company can never have negative income tax liabilities.

Answers:

• False

• True

58. What is ROE, and why is it important?

Answers:

• Return on equity; It is important because it tells you the amount of net income returned as a percentage of shareholders equity

• Return on equity; It is important because it tells you the amount of dividends returned as a percentage of shareholders equity

• Return on equity; It is important because it tells you the amount of gross income returned as a percentage of creditors equity

• Return on equity; It is important because it tells you the amount of gross income returned as a percentage of shareholders equity

59. Which component of a financial statement will tell you, ultimately, whether a company has earned or lost money?

Answers:

• Statement of cash flows

• Income statement

• Statement of retained earnings

• The balance sheet

60. When all statements and documents are collated, what activity does it allow investors to partake in?

Answers:

• Patent valuation

• Cash flow analysis

• Product valuation

• Business valuation

61. Companies report accounts receivable at:

Answers:

• Net Realizable Value

• Liquidation Value

• Gross Realizable Value

• Cumulative Gross Value

62. Income from Operations is equal to Gross Profit less:

Answers:

• Cost of Goods Sold

• Other Expenses

• Financing Expenses

• Operating Expenses

63. Which of the following is NOT a component of the acronym EBITDA?

Answers:

• Assets

• Interest

• Depreciation

• Earnings

64. How are retained earnings calculated?

Answers:

• Gross income minus expenses

• Gross revenues minus expenses

• Net income minus dividends

• Total assets minus liabilities

65. How will a business acquisition typically impact a company’s cash flow?

Answers:

• decrease

• make no change to

• increase

66. SOX stands for:

Answers:

• Simple Options Exchange

• Standard Operation and Execution

• none of these

• The Sarbanes-Oxley Act

67. What is the overall objective of using ratio analysis?

Answers:

• Evaluate how well the business is using its resources

• Determine the business's liquidity

• (none of these are correct)

• Evaluate the company's return on investment

68. How do you calculate the Quick Ratio?

Answers:

• Total Liabilities / Total Assets

• Total Current Assets / Total Current Liabilities

• Gross Profit / Net Revenue

• (Current assets – Inventories) / Current Liabilities

69. Which of the following would be reported as a cash inflow from investing activities?

Answers:

• Cash paid for dividends

• Cash paid to retire bonds

• Proceeds from selling investments in the equity securities of other companies

• Proceeds from selling shares of the company

70. Analysis of risk has what intention?

Answers:

• Revealing a company's ethical standards

• Revealing a company's environmental risk

• Revealing a company's credit risk

• Understand a company's competitive advantage

71. What is an accounting entity?

Answers:

• An undefined unit that is recognized, but not accounted for

• An entity that must be included with all the other accounting entities

• A clearly defined unit that must be accounted for separately

• A clearly defined unit that must be accounted for with the rest of the units

72. Which items are traditionally disclosed separately on an Income Statement?

Answers:

• Payroll expense, rent expense and operating income

• Gross profit, operating profit and net profit

• Extraordinary items, changes in accounting principles and discontinued operations

• Repairs and Maintenance, operating profit and gross profit

73. Which of the following is NOT a method of calculating depreciation?

Answers:

• Declining balance method

• Straight-line method

• Mechanical valuation method

• Activity method

74. The Dividend Payout Ratio is calculated by dividing total dividends by:

Answers:

• Revenues

• Income before Taxes

• Net Income

• Income before Interest and Taxes

75. Which of the following is not an element included in the statement of retained earnings?

Answers:

• Stockholder equity

• Dividends

• Net income

• Beginning-of-the-year retained earnings

76. Which of the following is NOT one of the four GAAP principles?

Answers:

• Revenue recognition principle

• Full disclosure principle

• Matching principle

• Market value principle

77. When you have finished calculating your statement of cash flows, where is the final result transferred to?

Answers:

• The income statement.

• The statement of cash flows.

• The statement of retained earnings.

• The balance sheet.

78. Where would an entry be made for the purchase of goods or services without a contract or note?

Answers:

• Under assets as accounts receivable

• Under liabilities as accounts payable

• Under contracts as notes payable

• Under assets as goods receivable

79. What does a company’s debt-to-equity ratio describe?

Answers:

• The nature of the company’s capitalization

• The relationship between current liabilities and shares outstanding

• Shares of stock purchased on credit

• When a company will go bankrupt

80. What does it mean when a company's change in cash is negative?

Answers:

• Cash flows from business activities are superseding that of the prior year.

• The company has earned enough money to repay its creditors.

• The company did not make enough money to repay creditors, pay dividends for the next year.

81. What is the final line of the statement of operations?

Answers:

• Gross profits minus expenses

• Net after-tax profits

• Price-to-earnings ratio

• Profit margin

82. Within the context of stockholders equity, what are cash and other assets considered?

Answers:

• More stockholders equity

• Profits

• Contributed capital

• Liabilities

83. Which value appears on all three components of financial statements?

Answers:

• Gross revenues

• Net profits

• Taxes paid

• Accounts receivable

84. Which entity is primarily responsible for setting accounting standards?

Answers:

• the SEC

• the GAAP

• the AICPA

• the FASB

85. Which of the following does NOT increase cash flows?

Answers:

• Decrease in inventory

• Collection of notes receivable

• Increase in accounts receivable

• Increase in accounts payable

86. Gross profit equals

Answers:

• Gross revenues minus expenses

• Net revenues minus cost of sales

• Assets minus liabilities

• Net revenues minus taxes

87. Why would a creditor heavily scrutinize a company's statement of retained earnings?

Answers:

• It tells the creditor how much debt the company is in.

• Every dollar that is paid to the stockholders as dividends is a dollar not available to pay back its debt.

• It gives the creditor insight as to whether it should buy the companies stock.

• Every dollar that is paid to the creditor is a dollar not available to pay back its debt.

88. A financial statement is a smaller piece of a much larger annual document submitted to the Securities Exchange Commission. What is the name of the document?

Answers:

• Annual report.

• 10K

• 10Q

• W-2

89. Two figures must be transferred to the balance sheet before the final result can be calculated. What are they, and where are they transferred from?

Answers:

• Retained earnings from the statement of retained earnings, and cash from the balance sheet.

• Retained earnings from the statement of retained earnings, and cash from the statement of cash flows.

• Retained earnings from the income statement, and cash from the statement of cash flows.

• Retained earnings from the income statement, and cash from the balance sheet.

90. On which Financial Statement(s) are Discontinued Operations reported?

Answers:

• Balance Sheet and Income Statement

• Balance Sheet

• Statement of Cash Flows

• Income Statement

91. True or false? A declared dividend decreases shareholders’ equity.

Answers:

• True

• False

92. In the DuPont system, what is the Return On Equity equal to?

Answers:

• Net Profit Margin times Sales times Equity Multiplier

• Sales times Asset Turnover

• Profit Margin times Total Asset Turnover times Equity Multiplier

• Net Profit Margin times Fixed Assets times Equity Multiplier

93. Which of the following activities would be regarded as a financing activity on the Statement of Cash Flows?

Answers:

• Loans made to other businesses

• Dividend distributions

• Employee wages

• Profits earned from the sale of other companies stocks

94. Using the financial statements, how is Free Cash Flow calculated?

Answers:

• EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital

• EBIT - Depreciation & Amortization + Change in Net Working Capital - Capital Expenditures

• EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditures

• EBITDA - Depreciation & Amortization + Change in Net Working Capital + Capital Expenditures

95. What are the two basic formats of the Income Statement?

Answers:

• Single-Step and Multi-Step

• Cash Basis and Single-Step.

• Accrual Basis and Multiple-Step.

• Accural Basis and Single-Step

96. Which of the following is NOT a potential off-balance-sheet liability?

Answers:

• Long-term lease obligations

• (none of these)

• Pension obligations

• Undisclosed subsidiaries or partnerships

• Reserve for bad debts

97. In preparing consolidated financial statements, which type of transaction is NOT wholly or partially eliminated?

Answers:

• Parent company investments in a subsidiary

• Purchases and sales within the company

• Parent company stock repurchases

• Interest revenue and expenses on loans within the company

98. On a classified Balance Sheet, the asset line items appear in which order?

Answers:

• Current Assets; Long-term Investments; Property, Plant, and Equipment; Intangible Assets; Other Assets

• Current Assets; Intangible Assets; Property, Plant, and Equipment; Long-term Investments; Other Assets

• Current Assets; Property, Plant, and Equipment; Long-term Investments; Intangible Assets; Other Assets

• Current Assets; Other Assets; Long-term Investments; Intangible Assets; Property, Plant, and Equipment