Homework 1

The following amounts were drawn from the records of JME Company: total assets = $1,200, total liabilities = $750, contributed capital = $600. Based on this information alone, retained earnings must be equal to:

-$150

Which of the following least accurately describes a correct use of double-entry accounting?

A decrease in a liability account may be balanced by a decrease in another liability account.

Which of the following is least likely to be an accrual for accounting purposes

Accumulated depreciaiton

Allowance for bad debts and investment in affiliates are most likely to be shown as what type of accounts?

Allowance for bad debts: Contra-asset Investment in affiliates: Asset

What is the fundamental balance sheet equation?

Assets = Liabilities + Stockholders' Equity (A = L + E)

Washburn Motors signs a contract to sell a $100,000 luxury sedan to be delivered next month, and receives a $20,000 cash down payment from the buyer. How will the transaction most likely affect Washburn's assets and liabilities?

Assets: Increase Liabilities: Increase

Which of the following is an analyst least likely to rely on as objective information to include in a company analysis?

Corporate press releases

Alpha Company reported the following financial statement information: December 31, 2006: Assets $70,000 Liabilities 45,000 December 31, 2007: Assets 82,000 Liabilities 55,000 During 2007: Stockholder investments 3,000 Net income ? Dividends 6,000 Calculate Alpha's net income for the year ended December 31, 2007 and the change in stockholders' equity for the year ended December 31, 2007.

Net Income: $5,000 Change in Stockholders' Equity: $2,000 increase

Which of the following would NOT require an explanatory paragraph added to the auditors' report? @ The statements that the financial information was prepared according to GAAP should be included in the regular part of the auditors' report and not as an explanatory paragraph. The other information would be contained in explanatory paragraphs added to the auditors' report.

Statements that the financial information was prepared according to GAAP.

Reading the footnotes to a company's financial statements and the Management Discussion and Analysis is least likely to help an analyst determine

The detailed information that underlies the company's accounting system.

Sergey Martinenko is an investment analyst with Profis, Martinenko and Verona. He is explaining to his new assistant, John Stevenson, why it is crucial for an investment analyst to read the footnotes to a firm's financial statement and the Management Discussion and Analysis (MD&A) before making an investment decision. Which rationale is Martinenko least likely to provide to Stevenson regarding the importance of analyzing the footnotes and MD&A?

The footnotes disclose whether or not the company is adhering to GAAP.

Beta Company reported the following financial statement information: December 31, 2006: Assets $58,000 Liabilities 28,000 December 31, 2007: Assets ? Liabilities 38,000 During 2007: Stockholder investments 15,500 Net income 18,000 Dividends 7,750 Calculate Beta's total assets and stockholders' equity as of December 31, 2007.

Total Assets: $93,750 Stockholders' Equity: $55,750

The purchase of equipment by paying $25,000 cash is most likely recorded as:

an increase in one asset account and a decrease in another asset account

Regarding the use of financial statements in security analysis and selection, it would be most accurate to say that:

analysts can use footnotes and Management's Discussion and Analysis to better understand assumptions used the financial statements.

In the financial statement analysis framework, using the data to address the objectives of the analysis and deciding what conclusions or recommendations the information supports is best described as:

analyzing and interpreting the data

Information about a company's financial position at a point in time is most likely found in the:

balance sheet

In the expanded form of the accounting equation, assets equal liabilities plus contributed capital plus

ending retained earnings

Prema Singh is the bookkeeper for Octabius industries. Singh has been asked by the CFO of Octabius to review all purchases that occurred between February 1 and February 8 to investigate an error on the receiving dock. Singh will most likely look at the:

general journal

A firm buys a machine that it will use in its factory for five years. The purchase is most appropriately classified as a(n):

investing activity

Accruals are best described as requiring an accounting entry:

when the earliest event in a transaction occurs