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Exam 1: Financial Statements and Business Decisions

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Question 51

True/False

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Assets are initially recorded on the balance sheet at the total cost paid to acquire the asset.

A) True
B) False

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Question 52

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Which of the following properly describes the impact on the financial statements when a company reports wage expense of $7,500,of which $2,500 remains unpaid?

A) Net income decreased $9,000.
B) Cash decreased $2,500.
C) Net income decreased $7,500.
D) Cash decreased $7,500.

E) A) and B)
F) A) and C)

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Question 53

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For Glad Rags Shops,the following information is available for the year ended December 31,2010: $\begin{array} { l r } \text { Sales revenue } & \$ 4,200,000 \\\text { Cost of goods sold } & 2,650,000 \\\text { Salaries expense } & 500,000 \\\text { Rent expense } & 300,000 \\\text { Administrative expense } & 250,000\end{array}$ Dividends declared 10,000 The income tax rate is 30%. Requirements: Prepare an income statement for Glad Rags Shops.

Lena Company has provided the following data (ignore income taxes) : 2010 revenues were $99,000. 2010 expenses were $47,800. Dividends declared and paid during 2010 totaled $9,500. Total assets on December 31,2010 were $177,000. Total liabilities on December 31,2010 were $89,000. Contributed capital on December 31,2010 was $28,000. Which of the following is correct?

As of January 1,2010,a corporation had assets of $340,000 and liabilities of $120,000.During 2010,assets increased $45,000 and liabilities increased $15,000.What was stockholders' equity on December 31,2010?

Baseline Corporation was formed two years ago to manufacture fitness equipment.It has been profitable and is growing rapidly.It currently has 150 stockholders and 90 employees; most of the employees own at least a few shares of Baseline's stock.The company has received financing from two banks.It will sell additional shares of stock within the next three months and will also seek additional loans and hire new employees to support its continued growth. Requirements: 1.Explain who relies on the information in financial statements prepared by Baseline Corporation. 2.Why is compliance with generally accepted accounting principles and accuracy in accounting important for Baseline? A new accountant who tried to prepare Baseline's financial statements at the end of the current year made several errors.For each of the following items,indicate how the income statement and balance sheet are affected by the error and the nature of the effect.(For example,an error might cause revenues and net income on the income statement and retained earnings and assets on the balance sheet to be overstated).Ignore the effects of income taxes. The company had sales for cash of $3,000,000.It also had sales on account of $1,800,000 that had been collected by the end of the year,and sales on account of $200,000 that are expected to be collected early the following year.The accountant reported total sales revenue of $4,800,000. 3.The company had total inventories of $600,000 at the end of the year.Of this amount,inventory reported at $30,000 was obsolete and will have to be scrapped.The balance sheet prepared by the accountant showed total inventories of $600,000. The company has a bank loan for which interest expense during the year of $10,000 will be paid early in January of the next year.The accountant recorded neither the interest expense nor the interest payable. An insurance policy was listed as an asset of $6,000 at the beginning of the year.The entire amount of the policy was for the current year and the policy has expired.The accountant took no action to recognize the expiration of the policy.

Which of the following would not be reported on a statement of retained earnings?

Lena Company has provided the following data (ignore income taxes) : 2010 revenues were $99,000. 2010 expenses were $47,800. Dividends declared and paid during 2010 totaled $9,500. Total assets on December 31,2010 were $177,000. Total liabilities on December 31,2010 were $89,000. Contributed capital on December 31,2010 was $28,000. Which of the following is not correct?

The amount of cash paid by a business for dividends would be reported on the statement of cash flows as an operating activity.

Which of the following would be reported in the investing section of a cash flow statement?

Which of the following statements is correct?

In the United States,the Securities and Exchange Commission (SEC)is considering the adoption of International Financial Reporting Standards (IFRS).

Which of the following has the legal authority to determine financial reporting in the United States?

Describe the elements of the balance sheet equation.

Laker Company has provided the following information for its most recent year of operation: Cash collected from customers totaled $99,300. Cash borrowed from banks totaled $42,700. Cash paid to employees totaled $23,300. Cash paid for interest totaled $3,100. Cash received from selling an investment in Husky stock totaled $73,000. Cash payments to banks for repayment of money borrowed totaled $9,700. Cash paid for operating expenses totaled $11,200. Land costing $75,000 was sold for $75,000 cash. Cash paid for dividend payments to stockholders totaled $7,700. How much was Laker's net cash flow from investing activities?

Which of the following best describes the purpose of an audit?

Which of the following groups has primary responsibility for the information contained in the financial statements?

The income statement is a measure of an entity's economic performance for a period of time.

Atlantic Corporation reported the following amounts at the end of the first year of operations: Contributed capital $200,000; sales revenue $800,000; total assets $600,000; dividends declared $40,000; and total liabilities $320,000.What are Atlantics' retained earnings at the end of the year and how much expenses were incurred during the year?

Which of the following accounts would not be reported on the balance sheet?