Corporate Financial Statements Flashcards
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Read the first 7 Corporate Financial Statements flashcards as text
Which of the following is classified as an intangible asset on the balance sheet?
Answer: Patent rights
Patents are intangible assets — non-physical assets with economic value, such as patents, trademarks, copyrights, and goodwill.
A company uses straight-line depreciation for a $100,000 asset with a 10-year useful life and no residual value. What is the annual depreciation expense?
Answer: $10,000
Straight-line depreciation = (Cost − Residual value) ÷ Useful life = $100,000 ÷ 10 = $10,000 per year.
On the income statement, gross profit is calculated as:
Answer: Revenue minus cost of goods sold
Gross profit = Revenue − Cost of goods sold (COGS), measuring profitability before operating expenses.
Which of the following would be classified as a current liability on the balance sheet?
Answer: Accounts payable
Accounts payable are obligations due within one year and are therefore classified as current liabilities.
When a company reports comprehensive income, it includes:
Answer: Net income plus other comprehensive income items
Comprehensive income equals net income plus other comprehensive income (OCI) items such as unrealized gains/losses on certain investments and foreign currency translation adjustments.
Retained earnings on the balance sheet represent:
Answer: Cumulative net income less dividends paid since the company's inception
Retained earnings are the accumulated profits kept in the business after distributing dividends to shareholders over the company's history.
Which financial ratio uses information from BOTH the income statement and the balance sheet?
Answer: Return on equity (ROE)
ROE = Net income (income statement) ÷ Shareholders' equity (balance sheet), making it a cross-statement ratio.