# Accounting Fundamentals – CFI Quiz Answer

## Constructing a Balance Sheet

Before diving into the content of this session, let’s answer a question to see how much you know about this topic. Drag the description to match the financial statement.

• Balance sheet: Show the company owns, what it owns, and what it’s worth
• Income statement: show what a company has earned, what it has paid, and what the resulting profits or losses over a certain period of time.
• Statement of cash flow: show how much cash the company has brought in, and how much it is paid out.

Drag the items and drop them in the appropriate parts of a balance sheet. You have two attempts.

• Assets: Cash, inventory, equipment.
• liabilities: long term bank loan, account payable
• Equity: common shares, retained earning

Which of the following are typically classified as current assets on the balance sheet? Select all the correct answers. You have 2 attempts.

• Current assets: cash, inventor , account receive

Drag and drop the items to complete the balance sheet equation.

• Assets= liability + equity

What will happen to the following balance sheet when a company borrows a five year bank loan of 60?

• Non-current liabilities will increase to 110 and the common shares will reduce to 92
• cash will increase to 107, and the current liabilities will increase to 120
• current liabilities will increase to 120 and the common shares will reduce to 92
• cash will increase to 107, and the non-current liabilities will increase to 110

What will happen to this balance sheet when the company pays a salary of 20 with cash? You have 2 attempts

• The account payable will increase to 40 and revenues will reduce to 100
• the cash balance will reduce to 110 and the revenues will reduce to 100
• The account payable will increase to 40 and revenues will reduce to 25
• the cash balance will reduce to 110 and the revenues will reduce to 25

What happen to the balance sheet when a company purchases inventory for 50 with cash? You have 2 attempts.

• the inventory balance will increase to 65 and the common shares will increase to 295
• the inventory balance will increase to 65 and the total shares will increase to 375
• the inventory balance will increase to 65 and the cash balance will reduce to 80
• the inventory balance will increase to 65 and the current liabilities will increase to 50

Click on the appropriate section of the balance sheet where you can find accounts receivable. you have 2 attempts.

What will happen to this balance sheet when the company purchases inventory of 30 with a credit card?

• inventory will increase to 110, and cost of sales will increase to 105
• inventory will increase to 110, and cash will reduce to 80.
• inventory will increase to 110, and account receivable will reduce to 15
• inventory will increase to 110, and accounts payable will increase to 60.

## Constructing an Income Statement

Match up the terms that are interchangeable. You have 2 attempts.

•  revenue: sales
• operating profit: EBIT(Earning before interest and taxes)
• direct operating costs: Cost of goods sold
• net income: Net earning: Net profit

Click on the number on the Balance Sheet that is equal to amount of net income on the income statement.

• Retained earning

Drag the items on the right and drop them in the appropriate sections of an income statement.

• Direct operating cost: includes cost of goods sold.
• Indirect operating cost:: including selling expenses, general and administrative expenses
• Cost of debt finance includes :: interest expense.

Match the finance terms with their definitions.

• Accounts payable: Amounts owed by the company to suppliers(current liabilities)
• Accounts receivable: Amounts owed by the customers to the company( current asset)
• Prepayments: upfront payment relating to a future period(current asset)
• Accrued expenses: Expenses that have been incurred but not yet paid(current liabilities)

On November 1, the company buys insurance for the next 12 months at a cost of 120. From November 1 to november 30, which accounts on the balance sheet will be affected by this transaction?

• Cash
• Prepaid expense
• Expense

A company spends 150 to purchase equipment. If the useful life of this equipment is five years, and we could allocate the usefulness of this equipment evenly over five years. At the end of the five years, it will have a scrap value of 30. How much is the depreciation expense on the income statement?  Fill in the blank with a number. You have 2 attempts.

• 24

A company spends 500 cash to purchase equipment at the beginning of the year. The opening PP&E balance is 0. This equipment has an estimated useful life of 10 years and no salvage value. How will this affect the balance sheet? Select ALL correct answers. You have 2 attempts.

• The cash balance will reduce by 500 at the time of purchase.
• The Property, Plant & Equipment will be 450 at the end of the year
• The expenses will increase by 500 at the end of the year.
• The Property, Plant & Equipment will be 450 at the end of the year.
• The expenses will increase by 50 at the end of the year.

ANSWER: When a company spends 500 cash to purchase equipment, the cash balance will reduce by 500 at the time of purchase. Since the estimated useful life is 10 years, the depreciation expense is 500/10=50. As a result, the expenses will increase by 50 and the PP&E value will 500-50=450 at the end of the year.

## Constructing a Cash Flow Statement

Drag the activity items and drop them in the appropriate parts of a Cash Flow Statement. You have 2 attempts.

• Operating activities includes receiving revenues, paying salaries, changes in working capital balances
• Financing activities includes issuing shares, raising debt

If a company earns 200 in cash sales and another 400 on credit, what will happen on their financial statements? Select ALL correct answers.

• 200 will be included in the statement of cash flow under operating cash flows
• All 600 will be included in the income statement as revenue
• Only 200 will be included in the income statement as revenue
• 600 will be included in the statement of cash flow under operating cash flows.

A manufacturing company purchased 4 machines for \$60,000 with cash and will use them in the business for 10 years. The expected scrap value at the end of the 10 years time is \$20,000. The company uses straight-line depreciation, and charges a full year of depreciation expense in the year that it makes the purchase. Drag and drop the numbers to match the transactions flow through each of the three financial statements. You have 2 attempts.

• Investing activity on the cash flow statement: \$60000
• Depreciation expense on the income statement:\$4000
• Property, plant, and equipment on the balance sheet:\$56000

Match the depreciation methods with their descriptions.

• Straight-line: (Cost – Salvage value) / Useful life
• Double declining balance: ((100% / Useful life of asset) x 2) x Beginning period book value
• Units of production: (# of units produced / Lifetime # of units) x (Cost – Salvage value)

If a company uses indirect methods to create a Cash Flow Statement, which items from the Income Statement need to be adjusted? Select ALL correct answers. You have 2 attempts.

Tax paid in cash

• Depreciation expenses
• Sales or purchases made on credit
• Inventory purchased but not sold in the period
• Stock based compensations

Calculate the increase in accounts receivable and increase in accounts payable based on the transactions that took place in the period. Enter a number in each blank. You have 2 attempts.

Cash sales: 510

Cash purchases: 180

Sales on credit: 210

Purchase on credit: 320

Receipts from receivables: 190

Payments to payables: 260

Cash expenses: 90 Depreciation: 60

• Increase in accounts receivable: 20
• Increase in accounts payable: 60

If Alpha Limited has net income of 100, a depreciation expense of 50, an accounts receivable increase of 20 over last period, and an accounts payable decrease of 10 over last period, what is the company’s net operating cash flows? You have 2 attempts.

• 110
• 120
• 130
• 140

Calculate the cash inflow or outflow based on the items on the balance sheets in 2 years. Enter a positive number to indicate cash inflow and a negative number to indicate cash outflow.  You have 2 attempts.

If Alpha Limited has opening PP&E balance of 100, a depreciation expense of 50, and a closing PP&E balance of 75, what is Alpha’s net capital expenditure (or CAPEX)? You have 2 attempts.

• 25
• 50
• 75
• 125

## Qualified Assessment

Where would ‘accounts payable’ most likely appear in a set of financial statements?

Review Later

• In both the income statement and the balance sheet
• In the income statement before operating profit
• In the balance sheet under ‘non-current liabilities’
• In the balance sheet under ‘current liabilities’

The purpose of the income statement is to:

• Show where the business’s cash has come from and where it has been spent
• Show, at a particular date, the sources of funds provided to a business by shareholders and others and how these funds have been used
• Show the revenues, expenses and operating profit for the financial year
• To give a detailed breakdown of key items shown in the primary financial statements

What is the best definition of a non-current asset?

• The total of current assets less current liabilities
• Expenditure made to fulfill a revenue obligation
• An asset intended for use on a continuing basis in the company’s activities
• An asset purchased for resale

Within how many months of the balance sheet date is a current liability usually payable?

• 12 months
• 1 month
• 6 months
• 24 months

What is the principal purpose of charging depreciation on non-current assets?

• To show the assets at their market value in the balance sheet
• To comply with the fundamental concept of prudence
• To ensure that sufficient funds are available to replace the assets
• To spread the cost of the assets over their estimated useful lives

A piece of manufacturing equipment was purchased at the beginning of 2021 for an original cost of \$50,000. Over it’s useful life, the equipment is expected to produce 40,000 widgets as follows:

2021: 4,000 units

2022: 10,000 units

2023: 12,000 units

2024: 8,000 units

2025: 6,000 units

The asset can be salvaged for 10% of its original cost at the end of 2025. The usage of the asset varies over time and is dependent on the output. What is depreciation expense for 2025?

Review Later

• \$6,750
• \$5,000
• \$7,500
• \$4,500

The purpose of the cash flow statement is to:

• To give a detailed breakdown of key items shown in the primary financial statements
• Show the revenues, expenses and operating profit for the financial year
• Show, at a particular date, the sources of funds provided to a business by shareholders and others and how these funds have been used
• Show where the business’s cash has come from and where it has been spent

If Beta Limited has opening PP&E balance of 150, a depreciation expense of 75, and a closing PP&E balance of 170, what is Beta’s net capital expenditure (or CAPEX)?

• 55
• 95
• 395
• 245

What is the net change in non-cash working capital that would appear on the cash flow statement given the following:

i) Increase in cash of \$500

ii) Increase in accounts receivables of \$800

ii) Decrease in inventories of \$350

iv) Decrease in prepaid expenses of \$225

v) Increase in PP&E of \$950

vi) Increase in accounts payable of \$400

• -\$175
• \$175
• -\$50
• \$50

If ABC Inc. buys a piece of equipment for \$50,000, will use it in the business for 5 years and in 5 years expects to sell it for \$10,000. What should ABC Inc. show in its cash flow statement in the year of purchase?

• \$8,000 cash outflow under investing activities
• \$42,000 cash outflow under investing activities
• \$8,000 cash inflow under investing activities
• \$50,000 cash outflow under investing activities