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Test Bank Accounting Tools for Business Decision Making, 6th Edition Paul D. Kimmel

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Test Bank Accounting Tools for Business Decision Making, 6th Edition Paul D. Kimmel

Test Bank Accounting Tools for Business Decision Making, 6th Edition Paul D. Kimmel

CHAPTER 1

 

INTRODUCTION TO FINANCIAL STATEMENTS

 

SUMMARY OF QUESTIONS BY LEARNING OBJECTIVE AND BLOOM’S TAXONOMY

Item

LO

BT

Item

LO

BT

Item

LO

BT

Item

LO

BT

Item

LO

BT

True-False Statements

1.

1

K

9.

1

K

17.

2

K

25.

3

K

33.

3

K

2.

1

K

10.

1

K

18.

2

C

26.

3

K

34.

3

K

3.

1

K

11.

1

K

19.

2

K

27.

3

K

35.

3

K

4.

1

K

12.

2

K

20.

3

K

28.

3

C

36.

3

K

5.

1

K

13.

2

K

21.

3

K

29.

3

C

37.

3

K

6.

1

K

14.

2

K

22.

3

K

30.

3

C

38.

3

K

7.

1

K

15.

2

K

23.

3

K

31.

3

C

39.

3

K

8.

1

K

16.

2

K

24.

3

K

32.

3

C

40.

3

C

Multiple Choice Questions

41.

1

K

68.

1

K

95.

3

AP

122.

3

AP

149.

3

K

42.

1

K

69.

1

K

96.

3

K

123.

3

AN

150.

3

C

43.

1

K

70.

1

K

97.

2

C

124.

3

AN

151.

3

C

44.

1

K

71.

1

K

98.

2

C

125.

3

K

152.

3

C

45.

1

K

72.

1

C

99.

3

K

126.

3

K

153.

3

AP

46.

1

K

73.

1

K

100.

3

K

127.

3

K

154.

3

AP

47.

1

K

74.

1

K

101.

3

K

128.

3

AP

155.

3

AP

48.

1

K

75.

1

C

102.

3

C

129.

3

AP

156.

3

AP

49.

1

K

76.

2

C

103.

3

K

130.

3

AP

157.

3

AP

50.

1

K

77.

2

C

104.

3

C

131.

3

AP

158.

3

AP

51.

1

C

78.

2

K

105.

3

K

132.

3

AN

159.

3

K

52.

1

C

79.

2

K

106.

3

K

133.

3

AN

160.

3

K

53.

1

K

80.

2

K

107.

3

K

134.

3

AN

161.

3

AN

54.

1

K

81.

2

K

108.

3

K

135.

3

AN

162.

3

AN

55.

1

C

82.

2

K

109.

3

C

136

3

AN

163.

3

AN

56.

1

K

83.

2

K

110.

3

K

137.

3

K

164.

3

AN

57.

1

K

84.

2

K

111.

3

K

138.

3

K

165.

3

AN

58.

1

K

85.

2

K

112.

3

K

139.

3

K

166.

3

K

59.

1

K

86.

2

K

113.

3

C

140.

3

K

167.

3

K

60.

1

K

87.

2

K

114.

3

K

141.

3

K

168.

3

K

61.

1

K

88.

2

K

115.

3

C

142.

3

K

169.

3

K

62.

1

K

89.

2

K

116.

3

K

143.

3

K

170.

3

K

63.

1

K

90.

2

K

117.

3

K

144.

3

K

171.

3

K

64.

1

K

91.

2

K

118.

3

C

145.

3

K

172.

3

K

65.

1

K

92.

2

K

119.

3

AP

146.

3

K

173.

3

C

66.

1

K

93.

2

K

120.

3

AP

147.

3

C

174.

3

K

67.

1

K

94.

3

AP

121.

3

AP

148.

3

K

 

 

 

Brief Exercises

175.

1

C

179.

3

AP

183.

3

AP

187.

3

C

191.

3

AN

176.

2

C

180.

3

C

184.

3

AP

188.

3

AN

 

 

 

177.

3

AP

181.

3

AP

185.

3

K

189.

3

C

 

 

 

178.154.

3

AP

182.

3

K

186.

3

C

190.

3

AN

 

 

 

Exercises

192.

3

AP

194.

3

AP

196.

3

AN

198.

3

AP

200.

3

AP

193.

3

AP

195.

3

AP

197.

3

AP

199.

3

AN

201.

3

AN

                               


 

Completion Statements

202.

1

K

204.

2

K

206.

3

K

208.

3

K

 

 

 

203.

1

K

205.

3

K

207.

3

K

209.

3

K

 

 

 

 

Matching

210.

1-6

K

 

 

 

 

 

 

 

 

 

 

 

 

Short Answer Essay

211.

1

K

214.

1

K

217.

3

AN

220.

3

C

 

 

 

212.

1

C

215.

3

C

218.

3

K

221.

3

E

 

 

 

213.

1

C

216.

3

C

219.

3

C

222.

3

C

 

 

 

 

 

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE

Learning Objective 1

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

1.

TF

11.

TF

50.

MC

60.

MC

70.

MC

211.

SA

2.

TF

41.

MC

51.

MC

61.

MC

71.

MC

212.

SA

3.

TF

42.

MC

52.

MC

62.

MC

72.

MC

213.

SA

4.

TF

43.

MC

53.

MC

63.

MC

73.

MC

214.

SA

5.

TF

44.

MC

54.

MC

64.

MC

74.

MC

 

 

6.

TF

45.

MC

55.

MC

65.

MC

75.

MC

 

 

7.

TF

46.

MC

56.

MC

66.

MC

175.

BE

 

 

8.

TF

47.

MC

57.

MC

67.

MC

202.

CS

 

 

9.

TF

48.

MC

58.

MC

68.

MC

203.

CS

 

 

10.

TF

49.

MC

59.

MC

69.

MC

210.

Ma

 

 

Learning Objective 2

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

12.

TF

18.

TF

80.

MC

86.

MC

92.

MC

204.

CS

13.

TF

19.

TF

81.

MC

87.

MC

93.

MC

210.

Ma

14.

TF

76.

MC

82.

MC

88.

MC

97.

MC

 

 

15.

TF

77.

MC

83.

MC

89.

MC

98.

MC

 

 

16.

TF

78.

MC

84.

MC

90.

MC

142.

MC

 

 

17.

TF

79.

MC

85.

MC

91.

MC

176.

BE

 

 

 

 


 

Learning Objective 3

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

20.

TF

99.

MC

123.

MC

147.

MC

171.

MC

197.

Ex

21.

TF

100.

MC

124.

MC

148.

MC

172.

MC

198.

Ex

22.

TF

101.

MC

125.

MC

149.

MC

173.

MC

199.

Ex

23.

TF

102.

MC

126.

MC

150.

MC

174.

MC

200.

Ex

24.

TF

103.

MC

127.

MC

151.

MC

177.

BE

201.

Ex

25.

TF

104.

MC

128.

MC

152.

MC

178.

BE

205.

CS

26.

TF

105.

MC

129.

MC

153.

MC

179.

BE

206.

CS

27.

TF

106.

MC

130.

MC

154.

MC

180.

BE

207.

CS

28.

TF

107.

MC

131.

MC

155.

MC

181.

BE

208.

CS

29.

TF

108.

MC

132.

MC

156.

MC

182.

BE

209.

CS

30.

TF

109.

MC

133.

MC

157.

MC

183.

BE

210.

Ma

31.

TF

110.

MC

134.

MC

158.

MC

184.

BE

215.

SA

32.

TF

111.

MC

135.

MC

159.

MC

185.

BE

216.

SA

33.

TF

112.

MC

136.

MC

160.

MC

186.

BE

217.

SA

34.

TF

113.

MC

137.

MC

161.

MC

187.

BE

218.

SA

35.

TF

114.

MC

138.

MC

162.

MC

188.

BE

219.

SA

36.

TF

115.

MC

139.

MC

163.

MC

189.

BE

220.

SA

37.

TF

116.

MC

140.

MC

164.

MC

190.

BE

221.

SA

38.

TF

117.

MC

141.

MC

165.

MC

191.

BE

222.

SA

39.

TF

118.

MC

142.

MC

166.

MC

192.

Ex

 

 

40.

TF

119.

MC

143.

MC

167.

MC

193.

Ex

 

 

94.

MC

120.

MC

144.

MC

168.

MC

194.

Ex

 

 

95.

MC

121.

MC

145.

MC

169.

MC

195.

Ex

 

 

96.

MC

122.

MC

146.

MC

170.

MC

196.

Ex

 

 

                           

 

Note:   TF  =  True-False                             C  =  Completion

           MC  =  Multiple Choice                    Ex  =  Exercise

           Ma  =  Matching                              SA  =  Short Answer Essay

 


CHAPTER LEARNING OBJECTIVES

1.   Describe the forms of business organization and the uses of accounting information. A sole proprietorship is a business owned by one person. A partnership is a business owned by two or more people associated as partners. A corporation is a separate legal entity for which evidence of ownership is provided by shares of stock. Internal users are managers who need accounting information to plan, organize, and run business operations. The primary external users are investors and creditors. Investors (stockholders) use accounting information to decide whether to buy, hold, or sell shares of a company’s stock. Creditors (suppliers and bankers) use accounting information to assess the risk of granting credit or loaning money to a business. Other groups who have an indirect interest in a business are taxing authorities, customers, labor unions, and regulatory agencies.

2.   Explain the three principal types of business activity. Financing activities involve collecting the necessary funds to support the business. Investing activities involve acquiring the resources necessary to run the business. Operating activities involve putting the resources of the business into action to generate a profit.

3.   Describe the four financial statements and how they are prepared. An income statement presents the revenues and expenses of a company for a specific period of time. A retained earnings statement summarizes the changes in retained earnings that have occurred for a specific period of time. A balance sheet reports the assets, liabilities, and stockholders’ equity of a business at a specific date. A statement of cash flows summarizes information concerning the cash inflows (receipts) and outflows (payments) for a specific period of time. Assets are resources owned by a business. Liabilities are the debts and obligations of the business. Liabilities represent claims of creditors on the assets of the business. Stockholders’ equity represents the claims of owners on the assets of the business. Stockholders’ equity is subdivided into two parts: common stock and retained earnings. The basic accounting equation is: Assets = Liabilities + Stockholders’ Equity. Within the annual report, the management discussion and analysis provides management’s interpretation of the company’s results and financial position as well as a discussion of plans for the future. Notes to the financial statements provide additional explanation or detail to make the financial statements more informative. The auditor’s report expresses an opinion as to whether the financial statements present fairly the company’s results of operations and financial position.


TRUE-FALSE STATEMENTS

    1.     A business organized as a separate legal entity owned by stockholders is a partnership.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

    2.     Corporate stockholders generally pay higher taxes but have no personal liability.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

    3.     The liability of corporate stockholders is limited to the amount of their investment. 

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

    4.     The majority of U.S. business is transacted by proprietorships.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

    5.     Proprietorships in the United States generate more revenue than the other two forms of business enterprise.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

    6.     Owners of business firms are the only people who need accounting information.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

    7.     Management of a business enterprise is the major external user of information.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

    8.     External users of accounting information are managers who plan, organize, and run a business.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

    9.     The information needs and questions of external users vary considerably.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  10.     Accounting communicates financial information about a business to both internal and external users.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  11.     Two primary external users of accounting information are investors and creditors.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  12.     Financing activities for corporations include borrowing money and selling shares of their own stock.

 

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  13.     Investing activities involve collecting the necessary funds to support the business.

 

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting


14.     The purchase of equipment is an example of a financing activity.

 

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  15.     Assets are resources owned by a business and provide future services or benefits to the business.

 

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  16.     Payments to owners are operating activities.

 

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  17.     The economic resources that are owned by a business are called stockholders’ equity.

 

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  18.     Operating activities involve putting the resources of the business into action to generate a profit.

 

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  19.     A business is usually involved in two types of activity—financing and investing.

 

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  20.     Net income for the period is determined by subtracting total expenses and dividends from revenues.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  21.     A different set of financial statements usually is prepared for each user.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  22.     The heading for the income statement might include the line “As of December 31, 20xx.”

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  23.     Net income is another term for revenue.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  24.     Cash is another term for stockholders’ equity.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  25.     The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  26.     The balance sheet reports assets and claims to those assets at a specific point in time.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 


  27.     The basic accounting equation states that Assets = Liabilities.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  28.     One way of stating the accounting equation is: Assets + Liabilities = Stockholders’ Equity.

 

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  29.     The accounting equation can be expressed as Assets - Stockholders’ Equity = Liabilities.

 

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  30.     The accounting equation can be expressed as Assets - Liabilities = Stockholders’ Equity.

 

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  31.     If the assets owned by a business total $150,000 and liabilities total $105,000, stockholders’ equity totals $45,000.

 

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

 

  32.     If the assets owned by a business total $100,000 and liabilities total $65,000, stockholders’ equity totals $25,000.

 

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

 

  33.     Claims of creditors and owners on the assets of a business are called liabilities.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  34.     Creditors’ rights to assets supersede owners’ rights to the assets.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  35.     All publicly traded U.S. companies must provide their stockholders with an annual report each year.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  36.     Information in the notes to the financial statements has to be quantifiable (numeric).

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  37.     An auditor is an accounting professional who conducts an independent examination of the accounting data presented by a company.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Professional Demeanor, IMA: Reporting

 

  38.     The management discussion and analysis (MD & A) section of an annual report covers various financial aspects of a company.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Reporting

 

  39.     Explanatory notes and supporting schedules are an optional part of an annual report.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Reporting


  40.     Examples of notes are descriptions of the significant accounting policies and methods used in preparing the statements, explanations of contingencies, and various statistics.

 

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Reporting

 

Answers to True-False Statements

 

1.

F

9.

T

17.

F

25.

T

33.

F

2.

T

10.

T

18.

T

26.

T

34.

T

3.

T

11.

T

19.

F

27.

F

35.

T

4.

F

12.

T

20.

F

28.

F

36.

F

5.

F

13.

F

21.

F

29.

T

37.

T

6.

F

14.

F

22.

F

30.

T

38.

T

7.

F

15.

T

23.

F

31.

T

39.

F

8.

F

16.

F

24.

F

32.

F

40.

T

 

 

MULTIPLE CHOICE QUESTIONS

  41.     The proprietorship form of business organization

a.   must have at least two owners in most states.

b.   generally receives favorable tax treatment relative to a corporation.

c.   combines the records of the business with the personal records of the owner.

d.   is classified as a separate legal entity.

 

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  42.     A business organized as a corporation

a.   is not a separate legal entity in most states.

b.   requires that stockholders be personally liable for the debts of the business.

c.   is owned by its stockholders.

d.   has tax advantages over a proprietorship or partnership.

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  43.     The partnership form of business organization

a.   is a separate legal entity.

b.   is a common form of organization for service-type businesses.

c.   enjoys an unlimited life.

d.   has limited liability.

 

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  44.     Which of the following is not one of the three forms of business organization?

a.   Corporations

b.   Partnerships

c.   Proprietorships

d.   Investors

 

Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting


  45.     Most business enterprises in the United States are

a.   proprietorships and partnerships.

b.   partnerships.

c.   corporations.

d.   government units.

 

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  46.     A business organized as a separate legal entity is a

a.   corporation.

b.   proprietor.

c.   government unit.

d.   partnership.

 

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  47.     Which of the following is not an advantage of the corporate form of business organization?

a.   No personal liability

b.   Easy to transfer ownership

c.   Favorable tax treatment

d.   Easy to raise funds

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  48.     An advantage of the corporate form of business is that

a.   it has limited life.

b.   its owner’s personal resources are at stake.

c.   its ownership is easily transferable via the sale of shares of stock.

d.   it is simple to establish.

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  49.     Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?

a.   Reduced legal liability for investors

b.   Harder to transfer ownership

c.   Lower taxes

d.   Most common form of organization

 

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  50.     A corporation has which of the following set of characteristics?

a.   Shared control, tax advantages, increased skills and resources

b.   Simple to set up and maintains control with founder

c.   Easier to transfer ownership and raise funds, no personal liability

d.   Harder to raise funds and gives owner control

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 


  51.     A small neighborhood barber shop that is operated by its owner would likely be organized as a

a.   joint venture.

b.   partnership.

c.   corporation.

d.   proprietorship.

 

Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  52.     A local retail shop has been operating as a sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following is not a reason for this owner to incorporate?

a.   Ability to raise capital for expansion

b.   Desire to limit the owner’s personal liability

c.   The prestige of operating as a corporation

d.   The ease in transferring shares of the corporation’s stock

 

Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  53.     All of the following are advantages for choosing a proprietorship for a business except

a.   a proprietorship is a simple form of business to set up.

b.   a proprietorship gives the owner control of the business.

c.   proprietorship receive more favorable tax treatment.

d.   transfer of ownership is easily achieved through stock sales.

 

Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  54.     Jack and Jill form a partnership. Jack runs the business in New York, while Jill vacations in Hawaii. During the time Jill is away from the business, Jack increases the debts of the business by $20,000. Which of the following statements is trueregarding this debt?

a.   Only Jack is personally liable for the debt, since he has been the managing partner during that time.

b.   Only Jill is personally liable for the debt of the business, since Jack has been working and she has not.

c.   Both Jack and Jill are personally liable for the business debt.

d.   Neither Jack nor Jill is personally liable for the business debt, since the partnership is a separate legal entity.

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  55.     Which one of the following questions is most likely asked by an internal human resources director for the company?

a.   Which product line is most profitable?

b.   What price for our product will maximize the company income?

c.   What average pay raise is affordable for employees this year?

d.   Should any product lines be eliminated?

 

Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 


  56.     Which of the following are internal reports that accounting provides to internal users?

a.   Forecasts of cash needs for next year.

b.   Financial comparisons of operating activity alternatives.

c.   Both forecasts of cash needs and financial comparisons are internal reports.

d.   Neither forecasts of cash needs or financial comparisons is an internal report.

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  57.     Which of the following is the best definition of an internal user of accounting information?

a.   Investors who use accounting information to decide whether to buy or sell stock.

b.   Creditors like banks that use accounting information to evaluate the risk of lending money.

c.   Labor unions who use accounting information to examine the ability of the company to pay increased wages and benefits.

d.   Managers who use accounting information to plan, organize, and run a business.

 

Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  58.     External users of accounting information, like the Internal Revenue Service, are most commonly known as

a.   taxing authorities.

b.   labor unions.

c.   customers.

d.   regulatory agencies.

 

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  59.     Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX)?

a.   The Act calls for increased oversight responsibilities for boards of directors.

b.   The Act has resulted in increased penalties for financial fraud by top management.

c.   The Act calls for decreased independence of outside auditors reviewing corporate financial statements.

d.   The Act is meant to decrease the likelihood of unethical corporate behavior.

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  60.     Which of the following is not a step for solving an ethical dilemma?

a.   Identifying the alternatives and weighing the impact of each alternative on various stakeholders.

b.   Certifying the ethical accuracy of the financial information.

c.   Identifying and analyzing the principal elements in the situation.

d.   Recognizing the ethical situation and issues involved.

 

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Professional Demeanor, IMA: Reporting

 

  61.     Which of the following is the most appropriate and modern definition of accounting?

a.   The information system that identifies, records, and communicates the economic events of an organization to interested users.

b.   A means of collecting information.

c.   The interconnected network of subsystems necessary to operate a business.

d.   Electronic collection, organization, and communication of vast amounts of information.

 

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting


  62.     Which of the following would not be considered an internal user of accounting data for the Xanadu Company?

a.   President of the company

b.   Production manager

c.   Merchandise inventory clerk

d.   President of the employees' labor union

 

Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  63.     Which of the following groups uses accounting information primarily to insure the entity is operating within prescribed rules?

a.   Taxing authorities

b.   Regulatory agencies

c.   Labor Unions

d.   Management

 

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Professional Demeanor, IMA: Reporting

 

  64.     The group of users of accounting information charged with achieving the goals of the business is its

a.   auditors.

b.   investors.

c.   managers.

d.   creditors.

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FC: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

 

  65.     Which of the following external groups uses accounting information to determine whether the company can pay its obligations?

a.   Investors in common stock

b.   Marketing managers

c.   Creditors

d.   Chief Financial Officer

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  66.     Which of the following groups uses accounting information to determine whether the company’s net income will result in a stock price increase?

a.   Investors in common stock

b.   Marketing managers

c.   Creditors

d.   Chief Financial Officer

 

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  67.     Which of the following groups uses accounting information to determine whether a marketing proposal will be cost effective?

a.   Investors in common stock

b.   Marketing managers

c.   Creditors

d.   Chief Financial Officer

 

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Project Management, IMA: Business Economics

 


  68.     Which of the following would not be considered an external user of accounting data for the Julian Company?

a.   Internal Revenue Service agent

b.   Management

c.   Creditors

d.   Customers

 

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  69.     Which of the following would not be considered an internal user of accounting data for a company?

a.   The president of a company

b.   The controller of a company

c.   Creditor of a company

d.   Salesperson of a company

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  70.     Which of the following is a primary user of accounting information with a direct financial interest in the business?

a.   Taxing authority

b.   Creditor

c.   Regulatory agency

d.   Labor union

 

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  71.     Which of the following is a user of accounting information with an indirect financial interest in a business?

a.   A financial adviser

b.   Management

c.   Investor

d.   Creditor

 

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  72.     Which type of corporate information is readily available to investors?

a.   Financial comparison of operating alternatives

b.   Marketing strategies for a product that will be introduced in eighteen months

c.   Forecasts of cash needs for the upcoming year

d.   Amount of net income retained in the business

 

Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  73.     Which of the following statements concerning users of accounting information is incorrect?

a.   Management is considered an internal user.

b.   Present creditors are considered external users.

c.   Regulatory authorities are considered internal users.

d.   Taxing authorities are considered external users.

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 


  74.     External users want answers to all of the following questions except

a.   Is the company earning satisfactory income?

b.   Will the company be able to pay its debts as they come due?

c.   Will the company be able to afford employee pay raises this year?

d.   How does the company compare in profitability with competitors?

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  75.     Which type of corporate information is not available to investors?

a.   Dividend history

b.   Forecast of cash needs for the upcoming year

c.   Cash provided by investing activities

d.   Beginning cash balance

 

Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  76.     The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)

a.   account payable.

b.   account receivable.

c.   revenue.

d.   expense.

 

Ans: A, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  77.     The right to receive money in the future is called a(n)

a.   account payable.

b.   account receivable.

c.   liability.

d.   revenue.

 

Ans: B, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  78.     Which of the following is not a principal type of business activity?

a.   Operating

b.   Investing

c.   Financing

d.   Delivering

 

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  79.     Borrowing money is an example of a(n)

a.   delivering activity.

b.   financing activity.

c.   investing activity.

d.   operating activity.

 

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 


  80.     Issuing shares of stock in exchange for cash is an example of a(n)

a.   delivering activity.

b.   investing activity.

c.   financing activity.

d.   operating activity.

 

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  81.     Debt securities sold to investors that must be repaid at a particular date some years in the future are called

a.   accounts payable.

b.   notes receivable.

c.   taxes payable.

d.   bonds payable.

 

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  82.     Which of the following activities involves collecting the necessary funds to support the business?

a.   Operating

b.   Investing

c.   Financing

d.   Delivering

 

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  83.     Buying assets needed to operate a business is an example of a(n)

a.   delivering activity.

b.   financing activity.

c.   investing activity.

d.   operating activity.

 

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  84.     Which activities involve acquiring the resources to run the business?

a.   Delivering

b.   Financing

c.   Investing

d.   Operating

 

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  85.     Which activities involve putting the resources of the business into action to generate a profit?

a.   Delivering

b.   Financing

c.   Investing

d.   Operating

 

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 


  86.     The statement of cash flows would disclose the payment of a dividend

a.   nowhere on the statement.

b.   in the operating activities section.

c.   in the investing activities section.

d.   in the financing activities section.

 

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  87      Buying and selling products are examples of

a.   operating activities.

b.   investing activities.

c.   financing activities.

d.   delivering activities.

 

Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  88.     The common characteristic possessed by all assets is

a.   long life.

b.   great monetary value.

c.   tangible nature.

d.   future economic benefit.

 

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  89.     Expenses are incurred

a.   only on rare occasions.

b.   to produce assets.

c.   to produce liabilities.

d.   to generate revenues.

 

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  90.     The cost of assets consumed or services used is also known as

a.   a revenue.

b.   an expense.

c.   a liability.

d.   an asset.

 

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  91.     Resources owned by a business are referred to as

a.   stockholders’ equity.

b.   liabilities.

c.   assets.

d.   revenues.

 

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  92.     The best definition of assets is the

a.   cash owned by the company.

b.   collections of resources belonging to the company and the claims on these resources.

c.   owners’ investment in the business.

d.   resources belonging to a company that have future benefit to the company.

 

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics


  93.     Debts and obligations of a business are referred to as

a.   assets.

b.   equities.

c.   liabilities.

d.   expenses.

 

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

  94.     Jackson Company recorded the following cash transactions for the year:

Paid $135,000 for salaries.

Paid $60,000 to purchase office equipment.

Paid $15,000 for utilities.

Paid $6,000 in dividends.

Collected $275,000 from customers.

What was Jackson’s net cash provided by operating activities?

a.   $125,000

b.   $65,000

c.   $140,000

d.   $119,000

 

Ans: A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $275,000 - $135,000 - $15,000 = $125,000

              (Cash coll. – sal. paid – util. paid)

 

  95.     Gibson Company recorded the following cash transactions for the year:

Paid $180,000 for salaries.

Paid $80,000 to purchase office equipment.

Paid $20,000 for utilities.

Paid $8,000 in dividends.

Collected $350,000 from customers.

What was Gibson’s net cash provided by operating activities?

a.   $150,000

b.   $70,000

c.   $170,000

d.   $142,000

 

Ans: A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $350,000 - $180,000 - $20,000 = $150,000

              (Cash coll. – sal. paid – util. paid)

 

 

  96.     When expenses exceed revenues, which of the following is true?

a.   a net loss results

b.   a net income results

c.   assets equal liabilities

d.   assets are increased

 

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  97.     Which of the following is an asset?

a.   Mortgage payable

b.   Investments

c.   Common stock

d.   Retained earnings

 

Ans: B, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

  98.     Which of the following is not a liability?

a.   Unearned Service Revenue

b.   Accounts Payable

c.   Accounts Receivable

d.   Interest Payable

 

Ans: C, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

  99.     Which of the following financial statements is divided into major categories of operating, investing, and financing activities?

a.   The income statement.

b.   The balance sheet.

c.   The retained earnings statement.

d.   The statement of cash flows.

 

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

100.     The retained earnings statement shows all of the following except

a.   the amounts of changes in retained earnings during the period.

b.   the causes of changes in retained earnings during the period.

c.   the time period following the one shown for the income statement.

d.   beginning retained earnings on the first line of the statement.

 

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

101.     Ending retained earnings for a period is equal to beginning

a.   Retained earnings + Net income + Dividends

b.   Retained earnings – Net income – Dividends

c.   Retained earnings + Net income – Dividends

d.   Retained earnings – Net income + Dividends

 

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None, IMA: Business Economics

 

102.     Which of the following statements is true?

a.   Amounts received from issuing stock are revenues.

b.   Amounts paid out as dividends are not expenses.

c.   Amounts paid out as dividends are reported on the income statement.

d.   Amounts received from issued stock are reported on the income statement.

 

Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

103.     Dividends are reported on the

a.   income statement.

b.   retained earnings statement.

c.   balance sheet.

d.   income statement and balance sheet.

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 


104.     Dividends paid

a.   increase assets.

b.   increase expenses.

c.   decrease revenues.

d.   decrease retained earnings.

 

Ans: D, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

105.     The financial statement that summarizes the changes in retained earnings for a specific period of time is the

a.   balance sheet.

b.   income statement.

c.   statement of cash flows.

d.   retained earnings statement.

 

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

106.     To show how successfully your business performed during a period of time, you would report its revenues and expenses in the

a.   balance sheet.

b.   income statement.

c.   statement of cash flows.

d.   retained earnings statement.

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

107.     Net income results when

a.   Assets > Liabilities.

b.   Revenues = Expenses.

c.   Revenues > Expenses.

d.   Revenues < Expenses.

 

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

108.     Net income will result during a time period when

a.   assets exceed liabilities.

b.   assets exceed revenues.

c.   expenses exceed revenues.

d.   revenues exceed expenses.

 

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

109.     Retained earnings at the end of the period is equal to

a.   retained earnings at the beginning of the period plus net income minus liabilities.

b.   retained earnings at the beginning of the period plus net income minus dividends.

c.   net income.

d.   assets plus liabilities.

 

Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 


110.     Which of the following financial statements is concerned with the company at a point in time?

a.   Balance sheet

b.   Income statement

c.   Retained earnings statement

d.   Statement of cash flows

 

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

111.     The company’s policy toward dividends and growth could best be determined by examining the

a.   balance sheet.

b.   income statement.

c.   retained earnings statement.

d.   statement of cash flows.

 

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

112.     An income statement

a.   summarizes the changes in retained earnings for a specific period of time.

b.   reports the changes in assets, liabilities, and stockholders’ equity over a period of time.

c.   reports the assets, liabilities, and stockholders’ equity at a specific date.

d.   presents the revenues and expenses for a specific period of time.

 

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

113.     If the retained earnings account increases from the beginning of the year to the end of the year, then

a.   net income is less than dividends.

b.   a net loss is less than dividends.

c.   additional investments are less than net losses.

d.   net income is greater than dividends.

 

Ans: D, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

114.     The retained earnings statement would not show

a.   the retained earnings beginning balance.

b.   revenues and expenses.

c.   dividends.

d.   the ending retained earning balance.

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

115.     If the retained earnings account decreases from the beginning of the year to the end of the year, then

a.   net income is less than dividends.

b.   there was a net income and no dividends.

c.   additional investments are less than net losses.

d.   net income is greater than dividends.

 

Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None, IMA: Business Economics

 


116.     Which financial statement is prepared first?

a.   Balance sheet

b.   Income statement

c.   Retained earnings statement

d.   Statement of cash flows

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

117.     An income statement shows

a.   revenues, liabilities, and stockholders’ equity.

b.   expenses, dividends, and stockholders’ equity.

c.   revenues, expenses, and net income.

d.   assets, liabilities, and stockholders’ equity.

 

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

118.     In a study session, a classmate makes this statement “Dividends are listed as expenses on the income statement.” What is your best response to this statement?

a.   I’ve been struggling with that concept and I feel that dividends should be shown on the balance sheet as assets.

b.   You are right. Revenues and expenses are shown on the income statement. Dividends are a cost of generating revenues and that makes them an expense. Why else would a corporation pay dividends?

c.   Dividends represent a portion of corporate profits that are paid to the shareholders. They belong on the retained earnings statement.

d.   Dividends are deducted from retained earnings on the balance sheet.

 

Ans: C, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

119.     Henson Company began the year with retained earnings of $380,000. During the year, the company recorded revenues of $500,000, expenses of $380,000, and paid dividends of $40,000. What was Henson’s retained earnings at the end of the year?

a.   $540,000

b.   $460,000

c.   $840,000

d.   $500,000

 

Ans: B, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $380,000 + ($500,000 - $380,000) - $40,000 = $460,000

Beg.(R/E + (rev.- exp.) – div.)

 

120.     Pinson Company began the year with retained earnings of $670,000. During the year, the company recorded revenues of $600,000, expenses of $380,000, and paid dividends of $140,000. What was Pinson’s retained earnings at the end of the year?

a.   $1,030,000

b.   $750,000

c.   $1,130,000

d.   $600,000

 

Ans: B, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $670,000 + ($600,000 - $380,000) - $140,000 = $750,000

Beg.(R/E + (rev.- exp.) – div.)

 

 


121.     Finney Company began the year by issuing $80,000 of common stock for cash. The company recorded revenues of $740,000, expenses of $640,000, and paid dividends of $40,000. What was Finney’s net income for the year?

a.   $60,000

b.   $140,000

c.   $100,000

d.   $180,000

 

Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $740,000 - $640,000 = $100,000

              (Rev. – exp.)

 

122.     Lankston Company began the year by issuing $120,000 of common stock for cash. The company recorded revenues of $1,100,000, expenses of $960,000, and paid dividends of $60,000. What was Lankston’s net income for the year?

a.   $80,000

b.   $200,000

c.   $140,000

d.   $260,000

 

Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $1,100,000 - $960,000 = $140,000

              (Rev. – exp.)

 

123.     Gilkey Corporation began the year with retained earnings of $310,000. During the year, the company issued $420,000 of common stock, recorded expenses of $1,200,000, and paid dividends of $80,000. If Gilkey’s ending retained earnings was $330,000, what was the company’s revenue for the year?

a.   $1,220,000

b.   $1,300,000

c.   $1,640,000

d.   $1,720,000

 

Ans: B, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $330,000 + $80,000 + $1,200,000 - $310,000 = $1,300,000

              (End. R/E + div. paid + exp. – beg. R/E)

 

124.     Kilmer Corporation began the year with retained earnings of $930,000. During the year, the company issued $1,260,000 of common stock, recorded expenses of $3,600,000, and paid dividends of $240,000. If Kilmer’s ending retained earnings was $990,000, what was the company’s revenue for the year?

a.   $3,660,000

b.   $3,900,000

c.   $4,920,000

d.   $50,160,000

 

Ans: B, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $990,000 + $240,000 + $3,600,000 - $930,000 = $3,900,000

              (End. R/E + div. paid + exp. – beg. R/E)

 

 

125.     A balance sheet shows

a.   revenues, liabilities, and stockholders’ equity.

b.   expenses, dividends, and stockholders’ equity.

c.   revenues, expenses, and dividends.

d.   assets, liabilities, and stockholders’ equity.

 

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting


126.     The accounting equation may be expressed as

a.   Assets = Stockholders’ Equity – Liabilities.

b.   Assets = Liabilities + Stockholders’ Equity.

c.   Assets + Liabilities = Stockholders’ Equity.

d.   Assets + Stockholders’ Equity = Liabilities.

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

127.     Which of the following is not a satisfactory statement of the accounting equation?

a.   Assets = Stockholders’ Equity – Liabilities

b.   Assets = Liabilities + Stockholders’ Equity

c.   Assets - Liabilities = Stockholders’ Equity

d.   Assets - Stockholders’ Equity = Liabilities

 

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

128.     Jimmy’s Repair Shop started the year with total assets of $300,000 and total liabilities of $240,000. During the year the business recorded $630,000 in revenues, $330,000 in expenses, and dividends of $60,000. Stockholders’ equity at the end of the year was

a.   $360,000.

b.   $300,000.

c.   $240,000.

d.   $270,000.

 

Ans: B, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: ($300,000 - $240,000) + ($630,000 - $330,000) - $60,000 = $300,000

                [Beg. tot. assets – beg. tot. liab.) + (rev.- exp.) – div.]

 

129.     Jimmy’s Repair Shop started the year with total assets of $300,000 and total liabilities of $240,000. During the year the business recorded $630,000 in revenues, $330,000 in expenses, and dividends of $60,000. The net income reported by Jimmy’s Repair Shop for the year was

a.   $240,000.

b.   $300,000.

c.   $180,000.

d.   $570,000.

 

Ans: B, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $630,000 - $330,000 = $300,000

                (Rev. – exp)

 

130.     Ashley’s Accessory Shop started the year with total assets of $210,000 and total liabilities of $120,000. During the year the business recorded $330,000 in revenues, $165,000 in expenses, and dividends of $60,000. Stockholders’ equity at the end of the year was

a.   $180,000.

b.   $165,000.

c.   $195,000.

d.   $105,000.

 

Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: ($210,000 - $120,000) + ($330,000 - $165,000) - $60,000 = $195,000

 

                [Beg. tot. assets – beg. tot. liab.) + (rev.- exp.) – div.]


131.     Ashley’s Accessory Shop started the year with total assets of $210,000 and total liabilities of $120,000. During the year the business recorded $330,000 in revenues, $165,000 in expenses, and dividends of $60,000. The net income reported by Ashley’s Accessory Shop for the year was

a.   $120,000.

b.   $150,000.

c.   $195,000.

d.   $165,000.

 

Ans: D, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $330,000 - $165,000 = $165,000

                (Rev. – exp.)

 

132.     If total liabilities increased by $90,000 and stockholders’ equity increased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period?

a.   $120,000 decrease

b.   $120,000 increase

c.   $150,000 increase

d.   $180,000 increase

 

Ans: B, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

 

Solution: $90,000 + $30,000 = $120,000

                (Tot. liab. inc. + st. eq inc.)

 

133.     If total liabilities decreased by $90,000 and stockholders’ equity increased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period?

a.   $120,000 increase

b.   $60,000 decrease

c.   $60,000 increase

d.   $90,000 decrease

 

Ans: B, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

 

Solution: ($90,000) + $30,000 = ($60,000)

                (Tot. liab. dec. + st. eq. inc.)

 

134.     If total liabilities decreased by $75,000 and stockholders’ equity increased by $15,000 during a period of time, then total assets must change by what amount and direction during that same period?

a.   $60,000 decrease

b.   $60,000 increase

c.   $75,000 increase

d.   $90,000 increase

 

Ans: A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

 

Solution: ($75,000) + $15,000 = ($60,000)

                (Tot. liab. dec. + st. eq. inc.)

 


135.     If total liabilities decreased by $105,000 and stockholders’ equity decreased by $35,000 during a period of time, then total assets must change by what amount and direction during that same period?

a.   $140,000 increase

b.   $70,000 decrease

c.   $140,000 decrease

d.   $70,000 decrease

 

Ans: C, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

 

Solution: ($105,000) + ($35,000) = ($140,000)

(Tot. liab. dec. + st. eq. dec.)

 

136.     If total liabilities increased by $69,000 during a period of time and stockholders’ equity decreased by $27,000 during the same period, then the amount and direction (increase or decrease) of the period’s change in total assets is a(n)

a.   $69,000 increase.

b.   $96,000 increase.

c.   $42,000 decrease.

d.   $42,000 increase.

 

Ans: D, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

 

Solution: $69,000 - $27,000 = $42,000 increase.

                (Tot. liab. dec. - st. eq. dec.)

 

137.     The balance sheet

a.   summarizes the changes in retained earnings for a specific period of time.

b.   reports the changes in assets, liabilities, and stockholders’ equity over a period of time.

c.   reports the assets, liabilities, and stockholders’ equity at a specific date.

d.   presents the revenues and expenses for a specific period of time.

 

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

138.     The retained earnings statement

a.   summarizes the changes in retained earnings for a specific period of time.

b.   reports the changes in assets, liabilities, and stockholders’ equity over a period of time.

c.   reports the assets, liabilities, and stockholders’ equity at a specific date.

d.   presents the revenues and expenses for a specific period of time.

 

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

139.     Liabilities

a.   are future economic benefits.

b.   are debts and obligations.

c.   possess service potential.

d.   are things of value owned by a business.

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 


140.     Liabilities of a company are owed to

a.   debtors.

b.   owners.

c.   creditors.

d.   stockholders.

 

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

141.     Stockholders’ equity can be described as claims of

a.   creditors on total assets.

b.   owners on total assets.

c.   customers on total assets.

d.   debtors on total assets.

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

142.     Payments to stockholders are called

a.   expenses.

b.   liabilities.

c.   dividends.

d.   distributions.

 

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

143.     Common stock is reported on the

a.   statement of cash flows.

b.   retained earnings statement.

c.   income statement.

d.   balance sheet.

 

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

144.     Stockholders’ equity is comprised of

a.   common stock and dividends.

b.   common stock and retained earnings.

c.   dividends and retained earnings.

d.   net income and retained earnings.

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

145.     Stockholders’ equity

a.   is usually equal to cash on hand.

b.   is equal to liabilities and retained earnings.

c.   includes retained earnings and common stock.

d.   is shown on the income statement.

 

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

146.     Retained earnings is

a.   the stockholders’ claim on total assets.

b.   equal to cash.

c.   equal to revenues.

d.   the amount of net income kept in the corporation for future use.

 

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 


147.     Which financial statement would best indicate whether the company relies on debt or stockholders’ equity to finance its assets?

a.   Statement of cash flows

b.   Retained earnings statement

c.   Income statement

d.   Balance sheet

 

Ans: D, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None, IMA: Business Economics

 

148.     The primary purpose of the statement of cash flows is to report

a.   a company's investing transactions.

b.   a company's financing transactions.

c.   information about cash receipts and cash payments of a company.

d.   the net increase or decrease in cash.

 

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

149.     Claims of owners are called

a.   dividends.

b.   stockholders’ equity.

c.   liabilities.

d.   income payable.

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

150.     Which of the following is not a common way that managers use the balance sheet?

a.   To analyze the balances of assets, liabilities, and stockholders’ equity throughout the accounting period

b.   To determine if the cash balance is sufficient for future needs

c.   To analyze the balance between debt and common stock financing

d.   To analyze the balance of accounts receivable on the last day of the accounting period

 

Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

151.     Why are financial statement users interested in the statement of cash flows?

a.   It is the easiest financial statement to evaluate.

b.   It provides information about an important company resource.

c.   It is the first statement that is presented to users.

d.   It helps users decide whether assets such as office equipment should be replaced.

 

Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

152.     Why should the income statement be prepared first?

a.   The statement of cash flows should be prepared first because it determines the sources of cash. That information is then used in preparing the income statement.

b.   Net income from the income statement flows into the retained earnings statement. The ending retained earnings balance then flows into the balance sheet.

c.   The income statement does not have to be prepared first. Financial statements can be prepared in any order.

d.   None of these answer choices are correct.

 

Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 


153.     Elston Company compiled the following financial information as of December 31, 2017:

Service revenue                            $840,000

Common stock                             180,000

Equipment                                     240,000

Operating expenses                      750,000

Cash                                              210,000

Dividends                                         60,000

Supplies                                           30,000

Accounts payable                         120,000

Accounts receivable                        90,000

Retained earnings, 1/1/17 450,000

 

Elston’s assets on December 31, 2017 are

a.   $1,410,000.

b.   $1,020,000.

c.   $480,000.

d.   $570,000.

 

Ans: D, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $240,000 + $210,000 + $30,000 + $90,000 = $570,000

                (Equip + cash + sup. + A/R)

 

154.     Elston Company compiled the following financial information as of December 31, 2017:

Service revenue                            $840,000

Common stock                             180,000

Equipment                                     240,000

Operating expenses                      750,000

Cash                                              210,000

Dividends                                         60,000

Supplies                                           30,000

Accounts payable                         120,000

Accounts receivable                        90,000

Retained earnings, 1/1/17 450,000

 

Elston’s retained earnings on December 31, 2017 are

a.   $450,000.

b.   $540,000.

c.   $480,000.

d.   $ 30,000.

 

Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $450,000 + ($840,000 - $750,000) - $60,000 = $480,000

(Beg. R/E + (ser. rev. – oper. exp.) – div.)
155.     Elston Company compiled the following financial information as of December 31, 2017:

Service revenue                            $840,000

Common stock                             180,000

Equipment                                     240,000

Operating expenses                      750,000

Cash                                              210,000

Dividends                                         60,000

Supplies                                           30,000

Accounts payable                         120,000

Accounts receivable                        90,000

Retained earnings, 1/1/17 450,000

 

Elston’s stockholders’ equity on December 31, 2017 is

a.   $630,000.

b.   $660,000.

c.   $480,000.

d.   $720,000.

 

Ans: B, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $180,000 + [$450,000 + ($840,000 - $750,000) - $60,000] = $660,000

                (Com. st. + beg. R/E + (ser. rev. – oper. exp.) – div.)

 

156.     Benedict Company compiled the following financial information as of December 31, 2017:

Service revenue                            $1,120,000

Common stock                                 240,000

Equipment                                        320,000

Operating expenses                      1,000.000

Cash                                                 280,000

Dividends                                            80,000

Supplies                                              40,000

Accounts payable                            160,000

Accounts receivable                        120,000

Retained earnings, 1/1/17    600,000

 

Benedict’s assets on December 31, 2017 are

a.   $1,880,000.

b.   $1,360,000.

c.   $640,000.

d.   $760,000.

 

Ans: D, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $320,000 + $280,000 + $40,000 + $120,000 = $760,000

                        (Equip. + cash + sup. + A/R)


157.     Benedict Company compiled the following financial information as of December 31, 2017:

Service revenue                            $1,120,000

Common stock                                240,000

Equipment                                        320,000

Operating expenses                      1,000,000

Cash                                                 280,000

Dividends                                            80,000

Supplies                                              40,000

Accounts payable                            160,000

Accounts receivable                        120,000

Retained earnings, 1/1/17     600,000

 

Benedict’s retained earnings on December 31, 2017 are

a.   $600,000.

b.   $720,000.

c.   $640,000.

d.   $ 40,000.

 

Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $600,000 + ($1,120,000 - $1,000,000) - $80,000 = $640,000

                (Beg. R/E + (ser. rev. – oper. exp.) – div.)     

 

158.     Benedict Company compiled the following financial information as of December 31, 2017:

Service revenue                            $1,120,000

Common stock                                240,000

Equipment                                        320,000

Operating expenses                      1,000,000

Cash                                                 280,000

Dividends                                            80,000

Supplies                                              40,000

Accounts payable                            160,000

Accounts receivable                        120,000

Retained earnings, 1/1/17    600,000

 

Benedict’s stockholders’ equity on December 31, 2017 is

a.   $840,000.

b.   $880,000.

c.   $640,000.

d.   $960,000.

 

Ans: B, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $240,000 + [$600,000 + ($1,120,000 - $1,000,000) - $80,000] = $880,000

                (Com. st. + beg. R/E + (ser. rev – oper. exp.) – div.)

 

159.     The heading on the statement of cash flows identifies all of the following except

a.   the preparer of the statement.

b.   the company

c.   the time period covered by the statement.

d.   the type of statement.

 

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 


160.     All of the following are interrelationships that are important to understand when preparing financial statements except

a.   the net income from the income statement is used in the retained earnings statement.

b.   the ending retained earnings from the retained earnings statement is used in the stockholder's equity section of the balance sheet.

c.   the cash on the balance sheet should be equal to the cash at the end of the period on the statement of cash flows.

d.   all of the payments on the balance sheet should be equal to the cash payments for operating activities on the statement of cash flows.

 

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

161.     Marvin Services Corporation had the following accounts and balances:

 

Accounts payable

$30,000

Equipment

$35,000

Accounts receivable

5,000

Land

35,000

Buildings

?

Unearned service revenue

10,000

Cash

15,000

Total stockholders' equity

?

 

If the balance of the Buildings account was $70,000 and $5,000 of Accounts Payable were paid in cash, what would be the balance of the total stockholders' equity?

a.   $135,000

b.   $120,000

c.   $170,000

d.   $130,000

 

Ans: B, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: ($5,000 + $70,000 + $10,000 + $35,000 + $35,000) - ($25,000 + $10,000) = $120,000

                [A/R + Bldg. bal. + (cash bal. – A/P pd.) + equip. + land] – [(A/P bal – A/P pd.) + un. ser. rev.]

 

162.     Marvin Services Corporation had the following accounts and balances:

 

Accounts payable

$30,000

Equipment

$35,000

Accounts receivable

5,000

Land

35,000

Buildings

?

Unearned service revenue

10,000

Cash

15,000

Total stockholders' equity

?

 

If the balance of the Buildings account was $40,000 and $10,000 of Accounts Payable were paid in cash, what would be the total liabilities and stockholders' equity?

a.   $90,000

b.   $78,000

c.   $80,000

d.   $120,000

 

Ans: D, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $5,000 + $40,000 + $5,000 + $35,000 + $35,000 = $120,000

[A/R + Bldg. bal. + (Cash bal. – A/P pd.) + equip. + land]
163.     Marvin Services Corporation had the following accounts and balances:

 

Accounts payable

$30,000

Equipment

$35,000

Accounts receivable

5,000

Land

35,000

Buildings

?

Unearned service revenue

10,000

Cash

15,000

Total stockholders' equity

?

 

If total stockholder's equity was $95,000, what would be the balance of the Buildings Account?

a.   $35,000

b.   $135,000

c.   $145,000

d.   $45,000

 

Ans: D, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: ($30,000 + $10,000 + $95,000) - ($5,000 + $15,000 + $35,000 + $35,000) = $45,000

(A/P + un. ser. rev. + tot. st eq.) – (A/R + cash + equip. + land)

 

164.     Marvin Services Corporation had the following accounts and balances:

 

Accounts payable

$30,000

Equipment

$35,000

Accounts receivable

5,000

Land

35,000

Buildings

?

Unearned service revenue

10,000

Cash

15,000

Total stockholders' equity

?

 

If the balance of the Buildings account was $75,000 and the equipment was sold for $35,000, what would be the total of stockholders' equity?

a.   $65,000

b.   $90,000

c.   $115,000

d.   $125,000

 

Ans: D, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $5,000 + $75,000 + ($15,000 + $35,000) + $35,000 - ($30,000 + $10,000) = $125,000

(A/R + Bldg. bal. + cash + equp. + land) - (A/P + un. ser. rev.)

 

165.     Marvin Services Corporation had the following accounts and balances:

 

Accounts payable

$30,000

Equipment

$35,000

Accounts receivable

5,000

Land

35,000

Buildings

?

Unearned service revenue

10,000

Cash

15,000

Total stockholders' equity

?

 

If the balance of the Buildings account was $85,000, what would be the total of liabilities and stockholders' equity?

a.   $170,000

b.   $175,000

c.   $135,000

d.   $125,000

 

Ans: B, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution: $5,000 + $85,000 + $15,000 + $35,000 + $35,000 = $175,000

(A/R + Bldg. bal. + cash + equip. + land)

 


166.     Notes to the financial statements include all of the following except

a.   descriptions of significant accounting policies used.

b.   explanations of uncertainties.

c.   projected accounting information.

d.   statistics needed to understand the statements.

 

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

167.     The management discussion and analysis (MD&A) section of the annual report covers all of the following aspects except the

a.   ability of the company to pay near-term obligations.

b.   certification criteria of the company's auditors.

c.   company's ability to fund operations and expansion.

d.   results of the company operations.

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

168.     An annual report includes all of the following except

a.   management discussion and analysis section.

b.   notes to the financial statements.

c.   an auditor’s report.

d.   salary information for all the executives.

 

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

169.     Which of the following clarifies information presented in the financial statements, as well as expanding upon it where additional detail is needed?

a.   Auditor’s report

b.   Management discussion and analysis section

c.   Notes to the financial statements

d.   President’s state of the company report

 

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

170.     The information needed to determine whether a company is using accounting methods similar to those of its competitors would be found in the

a.   auditor’s report.

b.   balance sheet.

c.   management discussion and analysis section.

d.   notes to the financial statements.

 

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

171.     In the annual report, where would a financial statement reader find out if the company’s financial statements give a fair depiction of its financial position and operating results?

a.   Notes to the financial statements

b.   Management discussion and analysis section

c.   Balance sheet

d.   Auditor’s report

 

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 


172.     Management’s views on the company’s short-term debt paying ability, expansion financing, and results of operations are found in the

a.   auditor’s report.

b.   management discussion and analysis section.

c.   notes to the financial statements.

d.   president’s state of the company report.

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

173.     Which of the following statements is true?

a.   Publicly traded U.S. companies must provide an annual report to their shareholders when operating conditions change significantly.

b.   An unqualified independent auditor’s report must be included in the annual report.

c.   Notes to the financial statements do not need to be included in the annual report because that information is only for internal users.

d.   None of these answer choices are correct.

 

Ans: D, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

174.     Notes to the financial statements

a.   are optional.

b.   help clarify information presented in the financial statements.

c.   are generally brief and few in number.

d.   need not be read in detail if an unqualified opinion accompanies the financial statements.

 

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

Answers to Multiple Choice Questions

41.   b           61.    a              81.    d            101.    c            121.    c            141.    b            161.    b

42.   c           62.    d              82.    c            102.    b            122.    c            142.    c            162.    d

43.   b           63.    b              83.    c            103.    b            123.    b            143.    d            163.    d

44.   d           64.    c              84.    c            104.    d            124.    b            144.    b            164.    d

45.   a           65.    c              85.    d            105.    d            125.    d            145.    c            165.    b

46.   a           66.    a              86.    d            106.    b            126.    b            146.    d            166.    c

47.   c           67.    b              87.    a            107.    c            127.    a            147.    d            167.    b

48.   c           68.    b              88.    d            108.    d            128.    b            148.    c            168.    d

49.   a           69.    c              89.    d            109.    b            129.    b            149.    b            169.    c

50.   c           70.    b              90.    b            110.    a            130.    c            150.    a            170.    d

51.   d           71.    a              91.    c            111.    c            131.    d            151.    b            171.    d

52.   c           72.    d              92.    d            112.    d            132.    b            152.    b            172.    b

53.   d           73.    c              93.    c            113.    d            133.    b            153.    d            173.    d

54.   c           74.    c              94.    a            114.    b            134.    a            154.    c            174.    b

55.   c           75.    b              95.    a            115.    a            135.    c            155.    b                     

56.   c           76.    a              96.    a            116.    b            136.    d            156.    d                     

57.   d           77.    b              97.    b            117.    c            137.    c            157.    c                     

58.   a           78.    d              98.    c            118.    c            138.    a            158.    b                     

59.   c           79.    b              99.    d            119.    b            139.    b            159.    a                     

60.   b           80.    c            100.    c            120.    b            140.    c            160.    d                     


BRIEF EXERCISES

Be. 175

Indicate in the space by letter whether each statement below applies to a sole proprietorship (S), partnership (P), or corporation (C). More than one answer may be appropriate.

 

____    a.   Simple to establish.

____    b.   Shared control.

____    c.   Easy to transfer ownership.

____    d.   No personal liability.

____    e.   Tax advantage.

____    f.    Easier to raise funds.

 

Ans: N/A, LO: 1, Bloom: C, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

Solution 175        (5 min.)

a.      S & P            d.      C

b.      P                   e.      S & P

c.      C                  f.       C

 

Be. 176

Indicate in the space provided by each item whether it would appear on the statement of cash flows as a(n): (O) operating activity, (I) investing activity, or (F) financing activity.

 

____    a.   Cash receipts from customers.

____    b.   Issuance of common stock for cash.

____    c.   Payment of cash dividends.

____    d.   Cash purchase of equipment.

____    e.   Cash payments to suppliers.

____    f.    Sale of old machine for cash.

 

Ans: N/A, LO: 2, Bloom: C, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 


Solution 176        (5 min.)

a.      O                  d.      I

b.      F                   e.      O

c.      F                   f.       I

 

Be. 177

Use the following information to calculate for the year ended December 31, 2017 (a) net income (net loss), (b) ending retained earnings, and (c) total assets.

 

Supplies                                      $ 1,500                    Service revenue                      $19,000

Other operating expenses            10,000                    Cash                                          15,000

Accounts payable                        11,000                    Dividends                                     6,000

Accounts receivable                      4,000                    Notes payable                             1,000

Common stock                            10,000                    Equipment                                   9,500

Retained earnings (beginning)       5,000

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 177        (5 min.)

(a) $9,000                               (b) $8,000                                           (c) $30,000

(Ser. rev. – Other oper. exp.)              (Beg. ret. earn. + Net inc. – dividends)           (Sup. + Acc. rec. + Cash + Equip.)

 

Be. 178

Use the following information to calculate for the year ended December 31, 2017 (a) net income (net loss), (b) ending retained earnings, and (c) total assets.

 

Supplies                                     $   1,000                    Service revenue                      $18,000

Other operating expenses            12,000                    Cash                                          15,000

Accounts payable                         9,000                    Dividends                                     1,000

Accounts receivable                      3,000                    Notes payable                             1,000

Common stock                             9,000                    Equipment                                 13,000

Retained earnings (beginning)       5,000

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution 178        (5 min.)

(a) $6,000                               (b) $10,000                                         (c) $32,000

(Ser. rev. – Other oper. exp.)             (Beg. ret. earn. + Net inc. – dividends)            (Sup. + Acc. rec. + Cash + Equip.)

 


Be. 179

Listed below in alphabetical order are the balance sheet items of Nolan Company at December 31, 2017. Prepare a balance sheet and include a complete heading.

 

      Accounts payable                                                                    $   11,000

      Accounts receivable                                                                      15,000

      Buildings                                                                                         65,000

      Cash                                                                                               11,000

      Common stock                                                                              80,000

      Land                                                                                               31,000

      Equipment                                                                                      10,000

      Retained earnings                                                                          41,000

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution 179        (5 min.)

NOLAN COMPANY

Balance Sheet

December 31, 2017

 

ASSETS

Cash                                                                                          $ 11,000

Accounts receivable                                                                     15,000

Equipment                                                                                    10,000

Buildings                                                                                       65,000

Land                                                                                              31,000

      Total assets                                                                                                                 $132,000

      (Acc. rec. + Build. + Cash + Land + Equip.)

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Liabilities

Accounts payable                                                                                                             $ 11,000

 

Stockholders’ equity

Common stock                                                                         $80,000

Retained earnings                                                                       41,000                           121,000

      Total liabilities and stockholders’ equity                                                                     $132,000

 


Be. 180

Indicate in the space provided by each item whether it would appear on the income statement (IS), balance sheet (BS), or retained earnings statement (RE):

 

a.   _____    Service Revenue                        g. ___               Accounts Receivable

 

b.   _____    Utilities Expense                          h.___               Common Stock

 

c.   _____    Cash                                            i.____               Equipment

 

d.   _____    Accounts Payable                       j.____               Advertising Expense

 

e.   _____    Supplies                                       k.___               Dividends

 

f.    _____    Salaries and Wages Expense     l.____               Notes Payable

 

Ans: N/A, LO: 3, Bloom: C, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

Solution 180        (5 min.)

a.   IS                                                         g.   BS

b.   IS                                                         h.   BS

c.   BS                                                       i.    BS

d.   BS                                                       j.    IS

e.   BS                                                       k.   RE

f.    IS                                                         l.    BS

 

Be. 181

Cesar Ruiz was reviewing his company’s activities at the end of the year (2017) and decided to prepare a retained earnings statement. At the beginning of the year his assets were $530,000, liabilities were $140,000, and common stock was $120,000. The net income for the year was $250,000. Dividends of $220,000 were paid during the year.

 

Prepare a retained earnings statement in good form.

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 


Solution 181        (5 min.)

CESAR RUIZ.COMPANY

Retained Earnings Statement

For the Year Ended December 31, 2017

      Retained Earnings, Beginning                                                                                 $270,000*

      Add: Net Income                                                                                                      250,000

                                                                                                                                         520,000

      Less: Dividends                                                                                                        220,000

      Retained Earnings, Ending                                                                                      $300,000

      (Beg. ret. earn + Net inc. – dividends)

 

*(Assets–liab. –com. stock)

 

Be. 182

From the following list of selected accounts taken from the records of Schmidt Clinic, identify those that would appear on the balance sheet.

 

            a.   Common Stock                                  f.    Accounts Payable

            b.   Service Revenue                                g.   Cash

            c.   Land                                                    h.   Advertising Expense

            d.   Salaries and Wages Expense             i.    Supplies

            e.   Notes Payable                                    j.    Utilities Expense

 

Ans: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

Solution 182        (5 min.)

a, c, e, f, g, i

Be. 183

Determine the missing items.

 

            Assets   =   Liabilities + Stockholders’ Equity

 

            $80,000          $56,000                (a)

                 (b)             $28,000            $34,000

            $84,000               (c)               $55,000

 

Ans: N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution 183        (5 min.)

a. $24,000                  b. $62,000                              c. $29,000

(Assets – Liab.)                    (Liab. + Stock. Equity)                         (Assets – Stock. Equity)


Be. 184

Determine the missing items.

 

            Assets   =   Liabilities + Stockholders’ Equity

 

            $66,000          $50,000                (a)

                 (b)             $18,000            $30,000

            $54,000               (c)               $40,000

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution 184        (5 min.)

a. $16,000                  b. $48,000                              c. $14,000

(Assets – Liab.)                    (Liab. + Stock. Equity)                         (Assets – Stock. Equity)

Be. 185

Identify which of the following accounts appear on a balance sheet.

 

(a) Service revenue

(b) Cash

(c) Common stock

(d) Accounts payable

(e) Rent expense

(f)   Supplies

(g) Land

 

Ans: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

Solution 185        (5 min.)

(b), (c), (d), (f), (g)

 


Be. 186

For the items listed below, fill in the appropriate code letter to indicate whether the item is an asset, liability, or stockholders’ equity item.

                                                                                    Code

                                    Asset                                          A

                                    Liability                                        L

                                    Stockholders’ Equity                 SE

 

______    1.    Rent Expense                            ______    6.    Cash

 

______    2.    Equipment                                  ______    7.    Accounts Receivable

 

______    3.    Accounts Payable                      ______    8.    Retained Earnings

 

______    4.    Common Stock                         ______    9.    Service Revenue

 

______    5.    Insurance Expense                    ______ 10.    Notes Payable

 

Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

Solution 186        (5 min.)

    1.     SE                             6.     A

    2.     A                                7.     A

    3.     L                                8.     SE

    4.     SE                             9.     SE

    5.     SE                           10.     L

 

Be. 187

Classify each of these items as an asset (A), liability (L), or stockholders’ equity (SE).

 

_____  1.   Accounts receivable

_____  2.   Accounts payable

_____  3.   Common stock

_____  4.   Supplies

_____  5.   Retained earnings

_____  6.   Cash

_____  7.   Notes payable

_____  8.   Equipment

 

Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

Solution 187        (5 min.)

1.    A                                                                          5.    SE

2.    L                                                                           6.    A

3.    SE                                                                        7.    L

4.    A                                                                          8.    A

 


Be. 188

At the beginning of the year, Gant Company had total assets of $660,000 and total liabilities of $300,000. Answer the following questions viewing each situation as being independent of the others.

(1)    If total assets increased $225,000 during the year, and total liabilities decreased $100,000, what is the amount of stockholders’ equity at the end of the year?

(2)    During the year, total liabilities increased $215,000 and stockholders’ equity decreased $130,000. What is the amount of total assets at the end of the year?

(3)      If total assets decreased $60,000 and stockholders’ equity increased $150,000 during the year, what is the amount of total liabilities at the end of the year?

 

Ans: N/A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution 188        (5 min.)

                         Total Assets                         Total Liabilities               Stockholders’ Equity

Beginning           $660,000                                 $300,000

Change              225,000                                 (100,000)

Ending                $885,000               -                 $200,000            =             $685,000 (1)

                                                                                                                                        (End. Tot. Assets – End. Tot. Liab.)

                         Total Assets                         Total Liabilities               Stockholders’ Equity

Beginning           $660,000                                 $300,000                           $360,000

Change                                                              215,000                           (130,000)

Ending                $745,000 (2)         =                $515,000            +             $230,000

                   (End. Tot. Liab – End. Stock. Equity.)

                         Total Assets                         Total Liabilities               Stockholders’ Equity

Beginning           $660,000                                 $300,000                           $360,000

Change                 (60,000)                                                                          150,000

Ending                $600,000               =                $ 90,000 (3)      +             $510,000

                                                                        (End. Tot. Assets – End. Stock. Equity.)

 

Be. 189

Reinhardt’s Carpet Cleaning has the following balance sheet items:

 

            Buildings                                              Notes Payable

            Accounts Payable                               Common Stock

            Cash                                                    Retained Earnings

            Supplies                                              Equipment

            Accounts Receivable

 

            Identify which items are    (1)  Assets

                                                      (2)  Liabilities

                                                      (3)  Stockholders’ Equity

 

Ans: N/A, LO: 3, Bloom: C, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 


Solution 189        (5 min.)

(1)   Assets—Buildings, Cash, Supplies, Accounts Receivable, Equipment

(2)   Liabilities—Accounts Payable, Notes Payable

(3)   Stockholders’ Equity—Common Stock, Retained Earnings

 

Be. 190

On June 1, 2017, Shaw Company prepared a balance sheet that shows the following:

 

            Assets (no cash) .........................................................................    $125,000

            Liabilities ......................................................................................        75,000

            Stockholders’ Equity....................................................................        50,000

 

Shortly thereafter, all of the assets were sold for cash.

 

How would the balance sheet appear immediately after the sale of the assets for cash for each of the following cases?

 

                  Cash Received for                     Balances Immediately After Sale                

                       the Assets                Assets        –      Liabilities      =     Stockholders’ Equity

Cash A            $135,000               $________            $________                  $________

 

Cash B              120,000                 ________              ________                    ________

 

Cash C              105,000                 ________              ________                    ________

 

Ans: N/A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

 

Solution 190        (5 min.)

                  Cash Received for                     Balances Immediately After Sale                

                       the Assets                Assets        -      Liabilities       =     Stockholders’ Equity

Cash A            $135,000                 $135,000                 $75,000             $60,000 (Assets – Liab.)

Cash B              120,000                   120,000                   75,000                45,000 (Assets – Liab.)

Cash C              105,000                   105,000                   75,000                30,000 (Assets – Liab.)

 

Be. 191

Compute the missing amount in each category of the accounting equation.

 

               Assets                      Liabilities                 Stockholders’ Equity

(a)           $243,000                     $     ?                                $ 91,000

(b)           $183,000                     $ 75,000                          $     ?     

(c)           $     ?                           $212,000                          $310,000

 

Ans: N/A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 


Solution 191        (5 min.)

(a)   $152,000: ($243,000 - $91,000 = $152,000).  (Assets – Stock. Equity)

(b)   $108,000: ($183,000 - $75,000 = $108,000).  (Assets – Liab.)

(c)   $522,000: ($212,000 + $310,000 = $522,000). (Liab. + Stock Equity)

 

 

EXERCISES

Ex. 192

Prepare an income statement and a retained earnings statement, for the month of October, 2017 and a balance sheet at October 31, 2017 for the medical practice of Linda Denny, MD, from the items listed below.

 

Retained earnings (October 1)                                                                                  $15,000

Common stock                                                                                                            30,000

Accounts payable                                                                                                          6,000

Equipment                                                                                                                    29,000

Service revenue                                                                                                          23,000

Dividends                                                                                                                       6,000

Insurance expense                                                                                                        3,500

Cash                                                                                                                             11,000

Utilities expense                                                                                                                700

Supplies                                                                                                                         2,800

Salaries and wages expense                                                                                         9,000

Accounts receivable                                                                                                    10,000

Rent expense                                                                                                                 2,000

 

LINDA DENNY, MD

Income Statement

For the Month Ended October 31, 2017

_____________________________________________________________________________

 

Revenues                                                                                                                       $

 

Expenses                                                                                                  $

     

 

 

                                                                                                                                      

      Total expenses                                                                                                        

                                                                                                                                                        

     

      Net income                                                                                                              $                 t

 


Ex. 192            (Cont.)

 

LINDA DENNY, MD

Retained Earnings Statement

For the Month Ended October 31, 2017

_____________________________________________________________________________

 

Retained Earnings, October 1                                                                                       $

Add:

                                                                                                                                                        

 

 

Less:

                                                                                                                                                        

 

                                                                                                                                      $                t

 

 

LINDA DENNY, MD

Balance Sheet

October 31, 2017

_____________________________________________________________________________

 

Assets

                                                                                                                                       $

 

 

Total assets                                                                                                                                     

                                                                                                                                       $                t

 

Liabilities and Stockholders’ Equity

Liabilities

                                                                                                                                       $

Stockholders’ Equity

                                                                                                                  $

                                                                                                                                                        

      Total liabilities and stockholders’ equity                                                                   $                t

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 


Solution 192        (15 min.)

LINDA DENNY, MD

Income Statement

For the Month Ended October 31, 2017

_____________________________________________________________________________

Revenues

      Service revenue ...............................................................................                            $23,000

Expenses

      Salaries and wages expense ............................................................        $9,000

      Insurance expense ...........................................................................          3,500

      Rent expense ....................................................................................          2,000

      Utilities expense ................................................................................             700

            Total expenses ............................................................................                             15,200

            Net income ...............................................................................................               $ 7,800

                                                                                                                                                                             (Ser. rev. – Tot. exp.)

 

LINDA DENNY, MD

Retained Earnings Statement

For the Month Ended October 31, 2017

_____________________________________________________________________________

Retained Earnings, October 1 ................................................................                            $15,000

Add: Net income .....................................................................................                               7,800

                                                                                                                                               22,800

Less: Dividends .......................................................................................                               6,000

Retained Earnings, October 31 ..............................................................                            $16,800

                                                                                                                                           (Beg ret. earn. + Net. inc. – dividends)

 

LINDA DENNY, MD

Balance Sheet

October 31, 2017

_____________________________________________________________________________

 

Assets

Cash ..........................................................................................................                         $11,000

Accounts receivable ...............................................................................                              10,000

Supplies ..................................................................................................                                2,800

Equipment ...............................................................................................                             29,000

      Total assets .......................................................................................                            $52,800

                                                                                                                                                     (Cash + Acc. rec. + Sup. + Equip.)

 

Liabilities and Stockholders’ Equity

Liabilities

      Accounts payable .............................................................................                            $ 6,000

 

Stockholders’ Equity

      Common stock..................................................................................      $30,000

      Retained earnings................................................................................... 16,800         46,800

      Total liabilities and stockholders’ equity ............................................                            $52,800

                                                                                                                                      (Acct. pay. + Com. stock + End. ret. earn.)


Ex. 193

Use the following accounts and information to prepare, in good form, an income statement and a retained earnings statement, for the month of August and a balance sheet at August 31, 2017 for Pierce Industries.

 

Accounts payable                        $ 1,100                  Dividends                                     $ 3,000

Accounts receivable                        5,400                  Insurance expense                         1,200

Buildings                                         63,000                  Supplies                                          1,400

Cash                                               18,600                  Notes payable                                3,300

Service revenue                           25,700                  Rent expense                                 3,400

Common stock                              52,000                  Salaries and wages expense      12,000

Retained earnings (beginning)       25,900                                                                                  

 

PIERCE INDUSTRIES

Income Statement

For the Month Ended August 31, 2017

_____________________________________________________________________________

Revenues

                                                                                                                                       $

 

Expenses

                                                                                                                  $                  

 

                                                                                                                                  

      Total expenses                                                                                                                          

      Net income                                                                                                              $              t

 

 

PIERCE INDUSTRIES

Retained Earnings Statement

For the Month Ended August 31, 2017

_____________________________________________________________________________

 

Retained Earnings, August 1                                                                                         $

Add:

                                                                                                                                                        

                                                                                                                                      

Less:

                                                                                                                                                        

 

Retained Earnings, August 31                                                                                       $                 t

 

 


Ex. 193            (Cont.)

PIERCE INDUSTRIES

Balance Sheet

August 31, 2017

_____________________________________________________________________________

Assets

                                                                                                                                       $

 

 

 

Total assets                                                                                                                                     

 

                                                                                                                                       $               t

 

Liabilities and Stockholders’ Equity

Liabilities

                                                                                                                     $

 

                                                                                                                                       $

Stockholders’ Equity

                                                                                                                     $

                                                                                                                                                          

      Total liabilities and stockholders’ equity                                                                   $                t

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution 193        (15 min.)

PIERCE INDUSTRIES

Income Statement

For the Month Ended August 31, 2017

_____________________________________________________________________________

Revenues

      Service revenue ...............................................................................                            $25,700

Expenses

      Salaries and wages expense ............................................................      $12,000

      Rent expense ....................................................................................          3,400

      Insurance expense ...........................................................................          1,200

            Total expenses ............................................................................                             16,600

            Net income .................................................................................                              $9,100

                                                                                                                                                                            (Ser. rev. – Tot. exp.)


Solution 193        (Cont.)

PIERCE INDUSTRIES

Retained Earnings Statement

For the Month Ended August 31, 2017

_____________________________________________________________________________

Retained Earnings, August 1 ..................................................................                            $25,900

Add: Net income .....................................................................................                                9,100

                                                                                                                                               35,000

Less: Dividends .......................................................................................                               3,000

Retained Earnings, August 31 ................................................................                            $32,000

                                                                                                                                                (Beg. ret. earn + Net inc. – dividends)

 

PIERCE INDUSTRIES

Balance Sheet

August 31, 2017

_____________________________________________________________________________

 

Assets

Cash …....................................................................................................                            $18,600

Accounts receivable ...............................................................................                               5,400

Supplies ..................................................................................................                               1,400

Buildings...................................................................................................                            63,000

      Total assets .......................................................................................                            $88,400

                                                                                                                                                   (Cash + Acc. rec. + Sup. + Build.)

 

Liabilities and Stockholders’ Equity

Liabilities

Accounts payable ...................................................................................      $ 1,100

Notes payable .........................................................................................        3,300

      Total liabilities.........................................................................................                          $4,400

Stockholders’ Equity

      Common stock..................................................................................      $52,000

      Retained earnings..............................................................................      32,000         84,000

      Total liabilities and stockholders’ equity ............................................                            $88,400

                                                                                                                   (Acct. pay. + Not. pay. + Com. stock + End. ret. earn.)

 

Ex. 194

At September 1, the balance sheet accounts for Kiner's Restaurant were as follows:

 

Accounts Payable                         $ 3,800            Land                                                   $33,000

Accounts Receivable                       1,600            Common Stock                                        ?

Buildings                                         66,000            Notes Payable                                     46,000

Cash                                                 5,000            Supplies                                                 3,600

Equipment                                      15,700            Retained Earnings                               45,200

The following transactions occurred during the next two days:

Stockholders invested an additional $20,000 cash in the business. The accounts payable were paid in full. (No payment was made on the notes payable.)

 

Instructions

Prepare a balance sheet at September 3, 2017.

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution 194        (10 min.)

KINER’S RESTAURANT

Balance Sheet

September 3, 2017

 

ASSETS

 

Cash                                                                                            $21,200

Accounts receivable                                                                       1,600

Supplies                                                                                           3,600

Equipment                                                                                     15,700

Buildings                                                                                        66,000

Land                                                                                               33,000

         Total assets                                                                                                           $141,100

                                                                                                (Cash + Acc. rec. + Sup. + Equip. + Build.)

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Liabilities

Notes payable                                                                                                                $ 46,000

 

Stockholders’ Equity

Common stock                                                                           $49,900

Retained earnings                                                                       45,200                          95,100

         Total liabilities and stockholders’ equity                                                                $141,100

 

Cash ($5,000 + $20,000 - $3,800) = $21,200

Accounts Payable ($3,800 - $3,800) = $0

Common Stock          Beginning balance ($124,900a - $95,000b)          $29,900

                                    Additional investment                                            20,000

                                    Ending balance (a–b) + add. invest.                    $49,900

a Acc. rec. + Build + Beg. Cash + Equip. + Land + Supp.

b Acc. pay. + Not. pay + Ret. earn.

Ex. 195

This information relates to Connor Co. for the year 2017.

 

Retained earnings, January 1, 2017 $59,000

Advertising expense                                         1,800

Dividends paid during 2017                              9,000

Rent expense                                                  10,400

Service revenue                                             52,000

Utilities expense                                                2,400

Salaries and wages expense                          25,000

 

Instructions

After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2017.

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

 

 

 

Solution 195        (10 min.)

CONNOR CO.

Income Statement

For the Year Ended December 31, 2017

_____________________________________________________________________________

Revenues

      Service revenue ...............................................................................                            $52,000

Expenses

      Salaries and wages expense ............................................................      $25,000

      Rent expense ....................................................................................        10,400

      Utilities expense ................................................................................          2,400

      Advertising expense .........................................................................          1,800

            Total expenses ............................................................................                             39,600

Net income .............................................................................................                            $12,400

                                                                                                                                                                          (Ser. rev. – Tot. exp.)

 

CONNOR CO.

Retained Earnings Statement

For the Year Ended December 31, 2017

_____________________________________________________________________________

Retained earnings, January 1 .................................................................                            $59,000

Add: Net income .....................................................................................                              12,400

                                                                                                                                               71,400

Less: Dividends .......................................................................................                               9,000

Retained earnings, December 31 ...........................................................                            $62,400

                                                                                                                                             (Beg. ret. earn. + Net inc. – dividends

 

Ex. 196

Here are incomplete financial statements for Brandon, Inc.

 

BRANDON, INC.

Balance Sheet

 

Assets                                                 Liabilities and Stockholders' Equity

Cash                                             $ 5,000                  Liabilities

Inventory                                        10,000                     Accounts payable                    $ 5,000

Buildings                                        40,000                  Stockholders' equity

Total assets                                  $55,000                     Common stock                            (a)

                                                                                       Retained earnings                      (b)  

                                                                                    Total liabilities and

                                                                                    stockholders' equity                 $55,000

 


Ex. 196            (Cont.)

Income Statement

Revenues                                      $80,000

Cost of goods sold                             (c)

Administrative expenses               10,000

Net income                                   $   (d)             

 

Retained Earnings Statement

Beginning retained earnings         $10,000

Net income                                        (e)

Dividends                                         5,000

Ending retained earnings              $24,000

 

Instructions

Calculate the missing amounts.

 

Ans: N/A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution 196        (10 min.)

 

First note that the retained earnings statement shows that (b) equals $24,000.

 

Accounts payable + Common stock + Retained earnings = Total liabilities and stockholders' equity

 

$5,000 + a + $24,000 = $55,000

a + $29,000 = $55,000

a = $26,000          Tot liab. & Stock Equity – (Acct. pay. + End. ret. earn)

 

Beginning retained earnings + Net income – Dividends = Ending retained earnings

 

$10,000 + e – $5,000 = $24,000

$5,000 + e = $24,000

e = $19,000          End. ret. earn. + div. – Beg. ret. earn

 

From above, we know that net income (d) equals $19,000.

 

Revenue – Cost of goods sold – Administrative expenses = Net income

 

$80,000 – c – $10,000 = $19,000

$70,000 – c = $19,000

c = $51,000          Rev. – Admin. exp. – Net inc.(e)

 


Ex. 197

Sleep Cheap is a private camping ground near the Boulder Peak Recreation Area. It has compiled the following financial information as of December 31, 2017.

 

Services revenues (from camping fees)   $132,000   Dividends                                   $   8,000

Sales revenues (from general store)             25,000    Notes payable                              50,000

Accounts payable                                          13,000    Administrative expenses            133,000

Cash                                                               13,500    Supplies                                          2,500

Equipment                                                   108,000    Common stock                             40,000

                                                                                      Retained earnings (1/1/2017)         5,000

 

Instructions

(a)    Determine net income from Sleep Cheap for 2017.

(b)    Prepare a retained earnings statement and a balance sheet for Sleep Cheap as of December 31, 2017.

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution 197        (10 min.)

(a)  Service revenue ...............................................................................    $132,000

      Sales revenue ...................................................................................       25,000

            Total revenue ..............................................................................      157,000

      Expenses ..........................................................................................     133,000

      Net income .......................................................................................    $ 24,000

                                (Tot. reven. – Admin. exp.)

 

(b)                                                              SLEEP CHEAP

Retained Earnings Statement

For the Year Ended December 31, 2017

___________________________________________________________________

 

Retained earnings, January 1 .................................................................      $ 5,000

Add: Net income .....................................................................................       24,000

                                                                                                                         29,000

Less: Dividends........................................................................................         8,000

Retained earnings, December 31............................................................     $21,000

                                (Beg. ret. earn. + Net inc. – dividends)

 

                                                                  SLEEP CHEAP

Balance Sheet

December 31, 2017

___________________________________________________________________

 

Assets

Cash ........................................................................................................     $ 13,500

Supplies ..................................................................................................         2,500

Equipment................................................................................................      108,000

      Total assets .......................................................................................    $124,000

                (Cash + Supp. + Equip.)


Solution 197        (Cont.)

Liabilities and Stockholders’ Equity

Liabilities

      Notes payable ...................................................................................      $50,000

      Accounts payable .............................................................................       13,000

            Total liabilities...............................................................................                          $ 63,000

Stockholders’ equity

      Common stock..................................................................................        40,000

      Retained earnings..............................................................................      21,000           61,000

            Total liabilities and stockholders’ equity ......................................                          $124,000

                                (Tot. liab. + Com. stock + End. ret. earn.)

 

Ex. 198

John Tate is the bookkeeper for Gabelli Company. John has been trying to get the balance sheet of Gabelli Company to balance. It finally balanced, but now he's not sure it is correct.

 

GABELLI COMPANY

Balance Sheet

December 31, 2017

 

Assets                                                 Liabilities and Stockholders' Equity

Cash                                             $12,500                  Accounts payable                       $18,000

Supplies                                           9,500                  Accounts receivable                   (12,000)

Equipment                                      50,000                  Common stock                             40,000

Dividends                                     13,000                  Retained earnings                      39,000

Total assets                                  $85,000                  Total liabilities and

                                                                                       stockholders' equity                 $85,000

 

Instructions

Prepare a correct balance sheet.

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution 198        (5 min.)

GABELLI COMPANY

Balance Sheet

December 31, 2017

_____________________________________________________________________________

 

Assets

Cash ........................................................................................................      $12,500

Accounts receivable ...............................................................................        12,000

Supplies...................................................................................................          9,500

Equipment................................................................................................      50,000

      Total assets .......................................................................................      $84,000

                (Cash + Acc. rec. + Supp. + Equip.)


Solution 198        (Cont.)

Liabilities and Stockholders’ Equity

Liabilities

      Accounts payable .............................................................................                            $18,000

Stockholders’ equity

      Common stock..................................................................................      $40,000

      Retained earnings..............................................................................      26,000*       66,000

            Total liabilities and stockholders’ equity ......................................                            $84,000

                                (Acc. pay. + Com. stock + Ret. earn. – div.)

 

*$39,000 – $13,000

 

Ex. 199

The summaries of data from the balance sheet, income statement, and retained earnings statement for two corporations, Bates Corporation and Wilson Enterprises, are presented below for 2017.

 

Bates Corporation               Wilson Enterprises

Beginning of year

Total assets                                       $110,000                               $130,000

Total liabilities                                        80,000                                      (d)

Total stockholders' equity                        (a)                                       70,000

End of year

Total assets                                             (b)                                     190,000

Total liabilities                                      120,000                                  65,000

Total stockholders' equity                     70,000                                      (e)

Changes during year in retained

         earnings

Dividends                                                 (c)                                         5,000

Total revenues                                    225,000                                      (f)

Total expenses                                   165,000                                   80,000

 

Instructions

Determine the missing amounts. Assume all changes in stockholders' equity are due to changes in retained earnings.

 

Ans: N/A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 

Solution 199        (10 min.)

 

(a)                Assets       =            Liabilities      +          Stockholders' Equity

                  $110,000     =            $80,000       +                      (a)

                       (a)          =                                                   $30,000 (Beg. tot. assets – Beg. tot. liab.)

 

(b)                Assets       =            Liabilities      +          Stockholders' Equity

                      (b)            =            $120,000     +                 $70,000

                      (b)            =            $190,000 (End. liab. + End. stock. equity)


Solution 199        (Cont.)

 

(c)  Beginning     +       Revenues       –      Expenses        –        Dividends         =       Ending

      Stockholders'                                                                                                           Stockholders'

      Equity                                                                                                                       Equity

      $30,000(a)   +       $225,000        –      $165,000         –               (c)              =       $70,000

                                    $90,000          –            (c)                                                 =       $70,000

                                                                        (c)                                                 =       $20,000

(Beg. stock. equity + Rev. – Exp.–End. stock. equity)

 

(d)                Assets       =        Liabilities         +          Stockholders' Equity

                  $130,000     =             (d)              +                    $70,000

                        (d)          =        $60,000 (Beg. tot. assets – Beg. stock. equity)

 

(e)                Assets        =        Liabilities          +          Stockholders' Equity

                  $190,000      =        $65,000           +                       (e)

                        (e)          =        $125,000 (End. tot. assets – End. tot. liab.)

 

(f)   Beginning    +        Revenues      –      Expenses        –        Dividends         =        Ending

       Stockholders'                                                                                                           Stockholders'

       Equity                                                                                                                      Equity

       $70,000       +              (f)            –       $80,000          –            $5,000           =        $125,000(e)

          (f)             =       $140,000         (End. stock. equity + Div. Exp. – Beg. stock equity)

 

Ex. 200

This information is for Campo Corporation for the year ended December 31, 2017.

 

Cash received from lenders                         $20,000

Cash received from customers                      65,000

Cash paid for new equipment                        30,000

Cash dividends paid                                         9,000

Cash paid to suppliers                                    28,000

Cash balance 1/1/17                                       12,000

 

Instructions

Prepare the 2017 statement of cash flows for Campo Corporation.

 

Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 


Solution 200        (10 min.)

 

CAMPO CORPORATION

Statement of Cash Flows

For the Year Ended December 31, 2017

_____________________________________________________________________________

Cash flows from operating activities

      Cash received from customers ........................................................      $65,000

      Cash paid to suppliers .......................................................................      (28,000)

      Net cash provided by operating activities .........................................                            $37,000

Cash flows from investing activities

      Cash paid for new equipment............................................................      (30,000)

      Net cash used by investing activities.................................................                             (30,000)

Cash flows from financing activities

      Cash received from lenders..............................................................        20,000

      Cash dividends paid...........................................................................       (9,000)

      Net cash provided by financing activities..........................................                              11,000

Net increase in cash (Cash from oper. act. –
      Cash from inv. act. + Cash from fin.act.).........................................                              18,000

Cash at beginning of period ....................................................................                             12,000

Cash at end of period .............................................................................                            $30,000

 

Ex. 201

One item is omitted in each of the following summaries of balance sheet and income statement data for three different corporations, A, B, and C.

 

Determine the amounts of the missing items, identifying each corporation by letter.

 

                                                                                                        Corporation                         

                                                                                      A                          B                        C    

Beginning of the Year:

      Assets                                                                $410,000            $150,000            $199,000

      Liabilities                                                               250,000              115,000              166,000

End of the Year:

      Assets                                                                  460,000              195,000              205,000

      Liabilities                                                               280,000                95,000              169,000

During the Year:

      Additional Investment by stockholders                     ?                     79,000                78,000

 

      Dividends                                                               70,000                83,000                 ?      

 

      Revenue                                                              195,000                 ?                     187,000

 

      Expenses                                                             155,000              113,000              183,000

 

Ans: N/A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting

 


Solution 201        (10 min.)

Corporation A        ($50,000)

      Beginning stockholders’ equity ($410,000 - $250,000)                                 $160,000

      Additional investments ($180,000 + $70,000 - $160,000 - $40,000)               50,000*

      Net income for year ($195,000 - $155,000)                                                    40,000

                                                                                                                               250,000

      Less dividends    70,000

      Ending stockholders’ equity ($460,000 - $280,000)                                      $180,000

*End. stock. equtiy + Div. + Rev. – Exp.–Beg. stock. equity

Corporation B        ($182,000)

      Beginning stockholders’ equity ($150,000 - $115,000)                             $   35,000

      Additional investments                                                                                   79,000

      Net income for year ($183,000 - $35,000 - $79,000)                                    69,000

            *[Revenues = $182,000 ($113,000 + $69,000)]                                     183,000

      Less dividends    83,000

      Ending stockholders’ equity ($195,000 - $95,000)                                     $100,000

*End. stock. equtiy + Div. – Add. invest. – Beg. stock. equity + Exp.

Corporation C       ($79,000)

      Beginning stockholders’ equity ($199,000 - $166,000)                               $ 33,000

      Additional investments                                                                                   78,000

      Net income for year ($187,000 - $183,000)                                                   4,000

                                                                                                                            115,000

      Less dividends ($115,000 - $36,000)                                                          79,000*

      Ending stockholders’ equity ($205,000 - $169,000)                                    $ 36,000

*Beg. stock. equtiy + Add. inv. + Rev. – Exp.

 

COMPLETION STATEMENTS

202.  A business organized as a separate legal entity owned by stockholders is a ___________.

 

Ans: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

203.  _______________ of accounting information are managers who plan, organize, and run a business.

 

Ans: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

204.  _________________ activities involve collecting the necessary funds to start the business.

 

Ans: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

205.  The ________________ reports the assets, liabilities, and stockholders’ equity of a business at a specific date.

 

Ans: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

206.  The claims of owners on the assets of a corporation are known as ________________.

 

Ans: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 


207.  The basic accounting equation is Assets = ____________ + _______________.

 

Ans: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Business Economics

 

208.  The primary purpose of a ________________ is to provide financial information about the cash receipts and cash payments of a business.

 

Ans: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

209.  The _________________ is prepared by an independent auditor stating the auditor’s opinion as to the fairness of the presentation of the financial statements.

 

Ans: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting

 

 

Answers to Completion Statements

202.    corporation                                                       206.    stockholders’ equity

203.    Internal users                                                    207.    Liabilities, Stockholders’ equity

204.    Financing                                                          208.    statement of cash flows

205.    balance sheet                                                   209.    auditor's report

 

MATCHING

210.    Match the items below by entering the appropriate code letter in the space provided.

 

      A.   Internal users                                                  F.    Corporation

      B.   Management discussion and analysis          G.    Assets

      C.  Annual report                                                 H.    Liabilities

      D.  Sole proprietorship                                          I.    Expenses

      E.   Dividends                                                        J.    Investing activities

 

____     1.  Distributions of cash from a corporation to its stock holders.

____     2.  Consumed assets or services.

____     3.  Ownership is limited to one person.

____     4.  Officers and others who manage the business.

____     5.  Creditor claims against the assets of the business.

____     6.  A separate legal entity under state laws.

____     7.  A report prepared by management that presents financial information.

____     8.  A section of the annual report that presents management’s views.

____     9.  Future economic benefits.

____   10.  Involves acquiring the resources necessary to run the business.

 

Ans: N/A, LO: 1,2,3, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting


Answers to Matching

1.    E                                         6.     F

2.    I                                           7.     C

3.    D                                         8.     B

4.    A                                         9.     G

5.    H                                       10.     J

 

SHORT-ANSWER ESSAY QUESTIONS

S-A E 211

What are the advantages to a business of being formed as a corporation? What are the disadvantages?

 

Ans: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Business Economics

 

Solution 211

Advantages of a corporation are limited liability (stockholders are not personally liable for corporate debts), easy transferability of ownership, and easier to raise funds. Disadvantages of a corporation are increased taxation and government regulations.

 

S-A E 212

Why would it be safer for a wealthy individual to set up his or her business as a corporation rather than as a proprietorship or partnership?

 

Ans: N/A, LO: 1, Bloom: C, Difficulty: Easy, Min: 3, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Business Economics

 

Solution 212

With a proprietorship or partnership, the owner(s) have unlimited liability. That is, they may be required to use personal assets to satisfy business debts. The liability of a corporate shareholder, however, is limited to his or her investment in the business. Therefore, it would be safer for a wealthy individual to set up his/her business as a corporation.

 

S-A E 213

Your friend, James, made this comment: “My major is biology and I plan to research for cures for major illnesses. Therefore, I have no need to study accounting.” What is your response to James?

 

Ans: N/A, LO: 1, Bloom: C, Difficulty: Easy, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Business Economics

 


Solution 213

James, you are entering a dynamic profession and you have the opportunity to make important contributions to society. While science will be your profession and major concern, you will not be able to escape the need to understand accounting. Accounting staff and professionals will always be available to assist you. Here are some areas that will directly affect you:

 

As a manager, you will need to review accounting information (both internal and external) and make decisions. Budgets will be an important part of your research activities. As an employee, you will be concerned about the financial information of your employer. Thus, you will need to be able to read the company’s financial statements. Also, as an investor, you will be interested in the financial statements of other companies.

 

You will probably not be a preparer of the financial statements, but you do need an understanding of how they are prepared. You also need a good understanding of how to interpret the information on the financial statements.

 

S-A E 214

The information needs of a specific user of financial accounting information depends upon the kinds of decisions that user makes. Identify the major users of accounting information and discuss what questions financial accounting information answers for each group of users.

 

Ans: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Reporting

 

Solution 214

The major users of accounting information are internal users and external users. Internal users are those who manage the business. External users are those outside the business who have either a present or potential financial interest.

 

Financial accounting information may answer the following questions for internal users:

1.   Is cash sufficient to pay our debts?

2.   Can we afford to give employee pay raises this year?

3.   What is the cost of manufacturing each unit of product?

4.   Which product line is the most profitable?

 

Questions answered by financial accounting information for external users include:

1.   Is the company earning satisfactory income?

2.   How does the company compare in size and profitability with competitors?

3.   Will the company be able to pay its debts as they come due?

 


S-A E 215

The statement of cash flows for Nyland Corporation reveals the following information:

Net cash used by operating activities                                     ($150,000)

 

Net cash used by investing activities                                      ($200,000)

 

Net cash provided by financing activities

            Issuance of common stock                $100,000

            Issued note payable                               250,000        $350,000

Net change in cash                                                                      0              

 

Provide three comments about this information. Make your comments concise yet thorough.

 

Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Business Economics

 

Solution 215

(1)  Operating activities represent the ongoing activities of the company and are a result of its reason for being in business. The fact that this is a negative cash flow is a cause of concern. This may be a new company and future cash flows from operations will be positive.

(2)  The cash that was used for operating and investing activities came from the stockholders (issuance of common stock) and creditors (borrowing with a notes payable). This is to be expected for a new company, or a company that is expanding, but should not be considered an ongoing way to finance the business. Cash from operating activities should be available to purchase assets and pay dividends to shareholders.

(3)  There is a concern that all proceeds raised from issuing stock have been used. If operating activities cannot generate positive cash flows, can the corporation issue additional stock to raise cash?

(4)  The corporation owes on the note payable. Will there be sufficient cash from operating activities to pay the interest and repay the principal?

(5)  Does the corporation need to acquire additional assets for use in the business? If so, will it be able to get the cash to pay for these future acquisitions.

 

The net of zero may be misleading. The reader may think that there are no potential problems because the cash flows netted to zero. The user of the Statement of Cash Flows needs to consider the activities of each of the sections – operating, investing, and financing.

 

S-A E 216

How are each of the following financial statements interrelated? (a) Retained earnings statement and income statement. (b) Retained earnings statement and balance sheet. (c) Balance sheet and statement of cash flows.

 

Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 3, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Reporting

 

Solution 216

(a)  Net income from the income statement is reported as an increase to retained earnings on the retained earnings statement.

(b)  The ending amount on the retained earnings statement is reported as the retained earnings amount on the balance sheet.

(c)  The ending amount on the statement of cash flows is reported as the cash amount on the balance sheet.

 


S-A E 217

Broadway Corporation’s stockholders’ equity equals one-fourth of the company’s total assets. The company’s liabilities are $270,000. What is the amount of the company’s stockholders’ equity?

 

Ans: N/A, LO: 3, Bloom: AN, Difficulty: Easy, Min: 2, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Reporting

 

Solution 217

$90,000: X = 270,000 + ¼X

 

S-A E 218

Which three items affect retained earnings, and how do they affect it?

 

Ans: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Business Economics

 

Solution 218

Net income increases retained earnings, whereas a net loss and dividends decrease it.

 

S-A E 219

The framework used to record and summarize the economic activities of a business enterprise is referred to as the accounting equation. State the basic accounting equation and define its major components. How are financial statements related to the accounting equation?

 

Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 3, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Business Economics

 

Solution 219

The basic accounting equation is expressed as follows:

Assets = Liabilities + Stockholders’ Equity

 

Assets are defined as resources owned by the business. Liabilities are creditors’ claims against the assets of the business; or simply put, liabilities are existing debts and obligations. Stockholders’ equity is the ownership claim on the total assets of the business; it is equal to total assets minus total liabilities.

 

The financial statements report the results and effects of transactions on the business' assets, liabilities, and stockholders’ equity. The balance sheet is a summary expression of the basic accounting equation.

 

S-A E 220

What types of information are presented in the notes to the financial statements?

 

Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 3, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Reporting

 

Solution 220

Information included in the notes to the financial statements clarifies information presented in the financial statements and includes descriptions of accounting policies, explanations of uncertainties and contingencies, and details too voluminous to be reported in the financial statements.


S-A E 221       (Ethics)

Joe Laramie owns and operates Joe's Burgers, a small fast food store, located at the edge of City College campus in Newton, Ohio. After several very profitable years, Joe's Burgers began to have problems. Most of the problems were related to Joe's expansion of the eating area in the restaurant without corresponding increases in the food preparation area. Joe does not have the cash or financial backing to expand further. He has therefore decided to sell his business.

William Sheets is interested in purchasing the business. However, he is located in another city and is unfamiliar with Newton. He has asked Joe why he is selling Joe's Burgers. Joe replies that his elderly mother requires extra care, and that his brother needs help in his manufacturing business. Both are true, but neither is his primary reason for selling. Joe reasons that William should not have asked him anyway, since profitable businesses don't come up for sale.

 

Required:

1.  Identify the stakeholders in this situation.

2.  Did Joe act ethically in not revealing fully his reasons for selling the business? Why or why not?

 

Ans: N/A, LO: 3, Bloom: E, Difficulty: Easy, Min: 5, AACSB: Ethics, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Reporting

 

Solution 221

1.   The stakeholders include:

      Joe Laramie                                              Students of City College and other customers

      William Sheets                                          City College

      Newton, Ohio                                            Persons financing the purchase of Don's Burgers

 

2.   Joe did not act ethically in not revealing fully his reasons for selling the business. Students might be of the opinion that a purchaser should investigate a business before purchasing it, rather than relying entirely on the seller's assertions. However, students should realize that Joe should have said something about his problems. He might ethically be allowed to put these in the best possible light, perhaps, but failure to disclose them at all is certainly unethical. This is especially true, since family concerns might well cause someone to sell a business that is otherwise doing well. Joe has shown an intent to deceive that is unethical, and might be actionable in court as well.

 

S-A E 222       (Communication)

Mary Baroni is a friend of yours from high school. She decided to become a beautician after leaving high school, rather than to attend college. She recently opened her own shop, and has contracted her services to a local hospital. She is paid a monthly fee for her services, and receives a small gratuity from each of the patients.

 

She has just received her first set of financial statements from her accountant. She is quite upset. The statements show a cash balance of $3,600 at the end of the month, but a net income of only $500. She has written you a letter, asking you whether such a situation is possible, or whether she should find another accountant.

 

Required:

Write a short letter to your friend. Use proper form. Answer her question completely, but briefly.

 

Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Business Economics


Solution 222

Answers will vary. The instructor's requirements concerning proper form should be followed. The letter may be either business or personal. At a minimum, the letter should be in a recognizable form, and proper grammar and spelling should be used. Neat erasures and corrections might be allowed. A suggested personal letter follows:

 

 

1245 Lily Lane

Buena Vista, AR 77661

(Date)

 

Dear Mary,

 

Congratulations on opening your business! I am sure you will do well, combining your creative genius with your talent for serving others.

 

You asked about your financial statements. Of course, you realize that I am just an accounting student, but I do know that it is possible to have a large cash balance and little net income. You may have had expenses that were not paid in cash yet. These expenses reduce your income, but not your cash.

 

I think that you should discuss the statements with the accountant who prepared them. He or she will be in the best position to explain the results.

 

Thanks for the question. It really made me think.

 

Sincerely,

(signature)

 

 


IFRS Questions

    1.     Which of the following is not a reason one set of international accounting standards are needed?

a.   Multinational corporation.

b.   Financial markets.

c.   Information technology.

d.   All of these answer choices are reasons one set of international accounting standards are needed.

 

Ans: D, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting

 

    2.     International standards are referred to as

a.   IFRS.

b.   GAAP.

c.   IASB.

d.   FASB.

 

Ans: A, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting

 

    3.     U.S. standards are referred to as

a.   IFRS.

b.   GAAP.

c.   IASB.

d.   FASB.

 

Ans: B, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting

 

    4.     International standards are developed by the

a.   IFRS.

b.   GAAP.

c.   IASB.

d.   FASB.

 

Ans: C, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting

 

    5.     U.S. standards are developed by the

a.   IFRS.

b.   GAAP.

c.   IASB.

d.   FASB.

 

Ans: D, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting

 

    6.     The United States and the international standard-setting environment are primarily driven by meeting the needs of

a.   investors and creditors.

b.   tax authorities.

c.   central government planners.

d.   academic researchers.

 

Ans: A, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting

 


    7.     The internal control standards applicable to Sarbanes-Oxley apply to?

a.   all U.S.and international companies.

b.   U.S. and international companies listed on U.S. exchange.

c.   International companies listed on U.S. exchange.

d.   U.S. companies listed on U.S. exchange.

 

Ans: D, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting

 

    8.     The concern about international companies adopting SOX-type standards centers on

a.   cost-benefit analysis.

b.   ethics issues.

c.   the governing authorities.

d.   comparability.

 

Ans: A, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting

 

    9.     Financial accounting ethics violations are

a.   not a problem in the U.S or internationally.

b.   much more common in the U.S than internationally.

c.   much more common internationally than in the U.S.

d.   a major problem both in the U.S and internationally.

 

Ans: D, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting

 

  10.     IFRS, compared to GAAP, tends to be more

a.   detailed.

b.   rules-based.

c.   principles-based.

d.   full of disclosure requirements.

 

Ans: C, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting

 

  11.     GAAP, compared to IFRS, tends to be more

a.   simple in accounting requirements.

b.   rules-based.

c.   principles-based.

d.   simple in disclosure requirements.

 

Ans: B, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting

 

  12.     The conceptual framework that underlines IFRS

a.   is very similar to that used to develop GAAP.

b.   does not define assets or liabilities.

c.   does not define equity.

d.   does not define income or expenses.

 

Ans: A, LO: 4, BT: K, Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FC: Reporting IMA: Reporting