Business accounting midterm Jinglin Jiang

Husky Company has provided the following information for its most recent year of operation: Cash collected from customers totaled $90,900. Cash borrowed from banks totaled $34,900. Cash paid to employees for salaries totaled $33,700. Cash received from selling Husky common stock to stockholders totaled $57,000. Cash payments to banks for repayment of money borrowed totaled $9,100. Cash paid to suppliers totaled $9,500. Land costing $35,000 was sold for $35,000 cash. Cash paid for dividends to stockholders totaled $4,900. How much was Husky's cash flow from financing activities? -$77,900 -$71,800 -$91,900 -$82,800

$77,900 $77,900 = $34,900 + $57,000 − $9,100 − $4,900

A landlord collected $5,500 cash from a tenant for December 2016's rent but the tenant's rent for December is $9,000. Which of the following is true with respect to the landlord's financial statements using generally accepted accounting principles? -$5,500 would appear on the balance sheet as prepaid rent. -$9,000 would appear on the income statement as rent revenue earned. -$9,000 would be reported on the statement of cash flows. -$9,000 would appear on the balance sheet as rent receivable.

$9,000 would appear on the income statement as rent revenue earned.

Credit

(Cr.) = Right-side Entry Every transaction must have at least one debit and at least one credit Debits must equal credits for all transactions No negative numbers are allowed

Debit

(Dr.) = Left-side Entry Every transaction must have at least one debit and at least one credit Debits must equal credits for all transactions No negative numbers are allowed

Which of the following statements is false when Mama June Pizza Company paid $47,000 cash on accounts owed to suppliers? -Operating income was not changed by the payment to the suppliers. -Accounts payable was debited for $47,000. -Supplies expense was increased by $47,000. -The cash account was credited for $47,000.

-Supplies expense was increased by $47,000.

Which of the following describes the amount of insurance expense reported on the income statement? -The amount of cash paid for insurance in the current period. -The amount of cash paid for insurance in the current period less any unpaid insurance at the end of the period. -The amount of insurance used up (incurred) in the current period to help generate revenue. -The amount of cash paid for insurance that is reported within the statement of cash flows.

-The amount of insurance used up (incurred) in the current period to help generate revenue.

Colby Corporation has provided the following information: Operating revenues from customers were $215,700. Operating expenses for the store were $127,000. Interest expense was $9,500. Gain from sale of plant and equipment was $4,500. Dividend payments to Colby's stockholders were $8,500. Income tax expense was $45,000. Prepaid rent expense was 5,500. How much was Colby's net income? $39,700 $43,700 $30,200 $38,700

$38,700 Net income = $38,700 = $215,700 - $127,000 - $9,500 + $4,500 - $45,000

The Soft Company has provided the following information after year-end adjustments: Allowance for doubtful accounts was $11,000 at the beginning of the year and $35,200 at the end of the year. Accounts receivable were $85,200 at the beginning of the year and $433,000 at the end of the year. Accounts written off as uncollectible totaled $26,500. Net sales totaled $2,830,000. Sales discounts were $113,000. What was the amount of Soft's bad debt expense for the year? $50,700. $26,500. $24,200. $2,300.

$50,700 Bad debt expense, $50,700 = Beginning balance in allowance for doubtful accounts, $11,000 + Bad debt expense, (X) - Write offs of uncollectible accounts, $26,500 = Ending balance in allowance for doubtful accounts, $35,200.

Flyer Company has provided the following information prior to any year-end bad debt adjustment: • Cash sales, $150,000 • Credit sales, $450,000 • Selling and administrative expenses, $110,000 • Sales returns and allowances, $30,000 • Gross profit, $490,000 • Accounts receivable, $110,000 • Sales discounts, $14,000 • Allowance for doubtful accounts credit balance, $1,200 Flyer estimates bad debt expense assuming that 1.5% of credit sales have historically been uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense is recorded? $7,950. $6,750. $5,550. $7,800.

$7,950. The allowance for doubtful accounts, $7,950 = Bad debt expense, (1.5% × $450,000) plus the allowance for doubtful accounts credit balance, $1,200.

Liabilities

A liability is a claim on assets by "creditors" (non-owners) that represents an obligation to make future payment of cash, goods, or services A liability is recognized when (2 criteria): The obligation is based on benefits or services received currently or in the past (i.e., transaction or exchange received in the past) The amount and timing of payment is reasonably certain (i.e., you can measure the amount of what the obligation is) E.g. borrow money from a bank (e.g., notes payable, mortgage payable)

8. Willie Company's retained earnings increased $20,000 during 2016. What was Willie's 2016 net income or loss given that Willie declared $25,000 of dividends during 2016? A. Net income was $45,000. B. Net income was $5,000. C. Net loss was $45,000. D. Net loss was $5,000. Hint: Changes of retained earnings (20,000)=Net income(loss)-Dividends (25,000)

A. Net income was $45,000.

Provide website design services to Acme Company, for $20,000 on account. We expect Acme to pay in the future

Accounts Receivable (+A) 20,000 Design Revenue (+R, +SE) 20,000

Purchase of supplies on account, $2,300

Accounts payable (+L) 2,300 Supplies (+A) 2,300

Temporary Accounts

Accumulate the effects of transactions for a period of time only Revenue and Expense accounts Closed out to retained earnings at the end of period

Permanent Accounts

Accumulate the effects of transactions over the entire life of business Balance sheet accounts (Assets, Liabilities, Contributed Capital, Retained Earnings)

Which of the following accounts is not a contra-revenue account? -Sales discounts -Credit card discounts -Sales returns and allowances -Allowance for doubtful accounts

Allowance for doubtful accounts

Asets

An asset is a resource that is expected to provide future economic benefits (i.e. generate future cash inflows or reduce future cash outflows (i.e., keep you from having to spend cash)) An asset is recognized when (2 criteria): It is acquired in a past transaction or exchange The value of its future benefits can be measured with a reasonable degree of precision E.g., buy a truck

18. Which of the following transactions will result in an increase in operating income as of the date of the transaction? A. Paying cash to suppliers for previously delivered inventories. B. Collection of cash from a customer for services to be provided at a later date. C. Providing a service to a customer on account. D. The receipt of cash dividends from an investment.

C. Providing a service to a customer on account.

Cash decreases by 10 and noncash Assets increase by 15. What is the change in Liabilities?

Cash (-10) + Noncash assets (+15) = Liabilities (X) + Stockholders' Equity (?) Not enough information

Pay salaries to workers, $2,800

Cash (-A) 2,800 Salary expense (-SE) 2,800

Purchase equipment with cash, $24,000

Cash (-A) 24,000 Equipment (+A) 24,000

Pay one year of rent in advance, $6,000

Cash (-A) 6,000 Prepaid Rent (+A) 6,000

Expenses increase by 60 and all other categories are unchanged, except Cash. What is the change in Cash?

Cash (X) + Non-cash assets (0) = Liabilities (0) + Contributed Capital (0) + Prior Retained Earnings (0) + Revenues (0) - Expenses (+60) - Dividends (0) answer=60

All noncash assets = 70, Total Liabilities = 60, Total Stockholders' Equity = 30. What is Cash?

Cash (X) + Noncash assets (70) = Liabilities (60) + Stockholders' Equity (30) Answer=20

3. How does the balance sheet tie to the statement of cash flows?

Cash on the balance sheet is equal to the ending cash reported on the statement of cash flows.

Statement of Stockholders' Equity

Changes in stockholders' equity over a period of time Including two major components: (1) the change in stocks; (2) the change in the retained earnings balance caused by net income and dividends during the reporting period

20. Colby Corporation has provided the following information: • Operating revenues from customers were $199,700. • Operating expenses for the store were $111,000. • Interest expense was $9,200. • Gain from sale of plant and equipment was $3,300. • Dividend payments to Colby's stockholders were $7,700. • Income tax expense was $36,000. • Prepaid rent expense was $5,000. How much was Colby's net income? A. $39,100. B. $48,300. C. $52,700. D. $46,800. Net income = $46,800 = $199,700 - $111,000 - $9,200 - $36,000+3,300

D. $46,800.

7. Which of the following statements is correct? A. Assets on the balance sheet include net income. B. Retained earnings includes common stock. C. The balance sheet equation states that assets equal liabilities. D. A corporation's net income does not necessarily equal its net cash flow from operations.

D. A corporation's net income does not necessarily equal its net cash flow from operations.

4. Which of the following best describes assets? A. Resources with possible future economic benefits owed by an entity as a result of past transactions. B. Resources with probable future economic benefits owned by an entity as a result of past transactions. C. Resources with probable future economic benefits owned by an entity as a result of future transactions. D. Resources with possible future economic benefits owed by an entity as a result of future transactions.

B. Resources with probable future economic benefits owned by an entity as a result of past transactions.

16. Boone's Cleaning Service performed cleaning services during December 2016, but had not collected any cash from its customers as of December 31, 2016. What impact did performing these services have on the accounting equation? A. The service increased assets and increased liabilities. B. The service increased assets and increased stockholders' equity. C. The service increased assets and decreased stockholders' equity. D. The service decreased liabilities and decreased stockholders' equity.

B. The service increased assets and increased stockholders' equity.

Inventories

Balance Sheet

14. At the end of year, a landlord collected $5,000 cash from a tenant for December 2016's rent but the tenant's rent for December is $8,000. Which of the following is true with respect to the landlord's financial statements using generally accepted accounting principles? A. $8,000 would be reported on the statement of cash flows. B. $8,000 would appear on the balance sheet as rent receivable. C. $8,000 would appear on the income statement as rent revenue. D. $5,000 would appear on the balance sheet as prepaid rent.

C. $8,000 would appear on the income statement as rent revenue

5. Which of the following accounts would be reported as assets on the balance sheet? A. Cash, accounts payable, and prepaid rent. B. Cash, retained earnings, and notes payable. C. Cash, accounts receivable, and inventories. D. Inventories, property and equipment, and common stock.

C. Cash, accounts receivable, and inventories.

19. Which of the following accounts normally have a credit balance? A. Unearned revenue; Prepaid rent; Sales revenue. B. Sales revenue; Expenses; Retained earnings. C. Sales revenue; Cash; Unearned revenue. D. Accounts payable; Retained earnings; Sales revenue.

D. Accounts payable; Retained earnings; Sales revenue.

1. What are the categories of cash flows that appear on a statement of cash flows? A. Cash flows from investing, financing, and service activities. B. Cash flows from operating, production, and internal activities. C. Cash flows from financing, production, and growth activities. D. Cash flows from operating, investing, and financing activities.

D. Cash flows from operating, investing, and financing activities.

11. Which of the following properly describes the impact on the financial statements when a company borrows $50,000 from a local bank? A. Net income increases $50,000. B. Assets decrease $50,000. C. Stockholders' equity increases $50,000. D. Liabilities increase $50,000. Hint: borrow money from bank results in increases in both Asset (Cash) and Liability (Notes Payable).

D. Liabilities increase $50,000.

9. Which of the following describes the impact on the balance sheet of purchasing supplies for cash? A. Current assets will decrease. B. Current assets will increase. C. Stockholders' equity will decrease. D. Total assets remain the same.

D. Total assets remain the same.

liabilities

Debts or obligations (claims to a company's resources) that result from a company's past transactions and will be paid with assets or services. Entities that a company owes money to are called creditors.

On December 15, Year 1, the company recorded $150,000 sales on credit.

Dec. 15 Accounts Receivable (+A) 150,000 Sales (+R, +SE) 150,000

On December 31, Year 1, the company estimated bad debt expenses of $15,000

Dec. 31 Bad Debt Expense (+E, -SE) 15,000 Allowance for Doubtful Accounts (+xA, -A) 15,000

The company had acquired equipment costing $40,000 on January 1 of the current year. Suppose that the depreciation on this equipment was calculated to be $2,000 for the current year.

Dec. 31 Depreciation Expense (+E, -SE) 2,000 Accumulated Depreciation (+xA, -A) 2,000

Dec. 31 Interest Receivable (+A) 1,200 Interest Revenue (+R, +SE) 1,200

Dec. 31 Income Tax Expense (+E, -SE) 26,110 Income Taxes Payable (+L) 26,110

Suppose Deana's had paid $6,000 for one year's insurance on June 1 of the current year.

Dec. 31 Insurance Expense (+E, -SE) 3,500 Prepaid Insurance (-A) 3,500

Investments owned by the company earned $1,200 in additional interest revenue for the year; the cash will be received in January

Dec. 31 Interest Receivable (+A) 1,200 Interest Revenue (+R, +SE) 1,200

Suppose Deana's had paid $12,000 for six months' rent on November 1 of the current year. As of December, 31 of the current year, two months' (November & December) prepaid rent has expired.

Dec. 31 Rent Expense (+E, -SE) 4,000 Prepaid Rent (-A) 4,000

On December 15 of the current year, the company declared a $750 dividend, payable January 15 of the following year.

Dec. 31 Retained Earnings (-SE) 750 Dividend Payable (+L) 750

Suppose Deana's had received a $1,800 shipment of supplies in September of the current year. When counting the supplies on December 31 of the current year, Deana's found only $800 worth of supplies on hand.

Dec. 31 Supplies Expense (+E, -SE) 1,000 Supplies (-A) 1,000

On December 1 of the current year, the company had sold $500 in gift certificates for decorating services to a customer. On December 31 of the current year, the accountant received an envelope containing $400 worth of redeemed gift certificates, not yet recorded in the company's books.

Dec. 31 Unearned Revenue (-L) 400 Decorating Revenue (+R, +SE) 400

Account Balance

Difference between sum of debits and sum of credits for the account

Dividends

Dividends are distributions (in the form of cash) of retained earnings to shareholders Not an expense (because they are not costs of generating revenue) Recorded as a reduction of retained earnings on the declaration date (creates a liability until payment date)

Dual effect

Each transaction will have a dual effect, affects at least two accounts If an economic event increases one side of the equation, then it also increases the other side of the equation by the same amount. The accounting equation must remain in balance after each transaction.

Assets

Economic resources with probable future benefits owned or controlled by the entity as a result of past transactions

Internal transactions:

Events that are not exchanges between parties but that have a direct and measurable effect on the company. E.g., Using up insurance (or rent) paid in advance, using equipment and buildings over several years.

External transactions:

Exchanges (give up something and receive something in return) of assets, goods, services, or promises to pay between the company and one or more parties (outsiders). E.g., Purchase of a machine from a supplier, sale of merchandise to customers, borrow cash from a bank, investment of cash in the business by owners.

Statement of Stockholders' Equity

Explains changes in stockholders' equity accounts (common stock and retained earnings) for a stated period of time. Beginning balance + Increases - Decreases = Ending balances Beginning Retained Earnings +Net Income - Dividends = Ending Retained Earnings

FEDS

Federal Reserve Bank

FASB

Financial Accounting Standards Board

adjusting entries

Four types of adjustments: Deferred revenues: cash was received in past; record revenues now. Need "Unearned revenue" to bridge the gap (serves as an intermediary account) Deferred expenses: cash was paid in past; record expense now. "prepaid expense" to bridge the gap Accrued revenues: cash will be received in future; record revenues now. "Receivables" to bridge the gap Accrued expenses: cash will be paid in future; record expenses now. "Payables" to bridge the gap

Which of the following is correct when bad debt expense is recorded at year-end? -Current assets will increase. -Gross profit will decrease. -Income from operations will decrease. -Current liabilities will decrease.

Income from operations will decrease

IRS

Internal Revenue Service

Closing entries

Internal transactions that "zero out" temporary accounts at the end of the accounting period Revenue and Expense account balances are transferred to Retained Earnings Revenues: Dr. Revenue Accounts (-R, -SE) Cr. Retained Earnings (+SE) Expenses: Dr. Retained Earnings (-SE) Cr. Expense Accounts (-E, +SE)

On January 12, Year 2, the company collected $100,000 worth of accounts receivable.

Jan. 12 Cash (+A) 100,000 Accounts Receivable (-A) 100,000

After many collection attempts, on June 15, Year 2, the company determined that it would not collect $10,000 in accounts receivables from Pendant Publishing. It decided to write-off this account.

Jun. 15 Allowance for Doubtful Accounts (-xA, +A) 10,000 Accounts Receivable (-A) 10,000

Assets

Liabilities + Contributed Capital + Prior Retained Earnings + Revenues - Expenses - Dividends

Which of the following properly describes the impact on the financial statements when a company borrows $30,000 from a local bank? -Assets decreased $30,000. -Net income decreased $30,000. -Liabilities increased $30,000. -Stockholders' equity increased $30,000.

Liabilities increased $30,000

Which of the following correctly describes the effects of initially recording deferred revenue when cash is received from a customer? -Revenue is increased. -Liabilities are not affected. -Retained earnings increases. -Net income is not affected.

Net income is not affected.

Willie Company's retained earnings increased $20,000 during 2016. What was Willie's 2016 net income or loss given that Willie declared $25,000 of dividends during 2016? -Net income was $5,000. -Net income was $45,000. -Net loss was $45,000. -Net loss was $5,000.

Net income was $45,000.

1. How does the income statement tie to the statement of stockholders' equity?

Net income, from the income statement, is a component in determining ending retained earnings on the statement of stockholders' equity

Income Statement

Reports the financial performance of the business during the current accounting period. (Revenues - Expenses) = Net Income

Balance Sheet

Reports the financial position of a business at a point in time. Assets = Liabilities + Stockholders Equity

Statement of Cash Flows

Reports the inflows (receipts) and outflows (payments) for a stated period of time. +/- Cash Flows from Operating Activities +/- Cash Flows from Investing Activities +/- Cash Flows from Financing Activities = Change in Cash + Beginning Cash = Ending Cash

Income Statement

Results of operations over a period of time using accrual accounting (i.e., recognition tied to business activities) i.e., reports the revenues less the expenses of the accounting period

Retained Earnings increase by 100, Dividends = 50. What is Net Income?

Retained Earnings = Prior Retained Earnings + Net Income - Dividends (Retained Earnings - Prior Retained Earnings) (100) = Net Income (X) - Dividends (50) answer=150

Lena Company has provided the following data (ignore income taxes): 2016 revenues were $80,000. 2016 expenses were $48,900. Dividends declared and paid during 2016 totaled $8,000. Total assets at December 31, 2016 were $188,000. Total liabilities at December 31, 2016 were $111,000. Common stock at December 31, 2016 was $30,000. Which of the following is not correct? -Total stockholders' equity at December 31, 2016 was $77,000. -Retained earnings on December 31, 2016 were $188,000. -Total liabilities and stockholders' equity at December 31, 2016 was $188,000. -2016 net income was $31,100.

Retained earnings on December 31, 2016 were $188,000.

Providing service to customers for cash

Revenue (+SE) Cash (+A)

Similarly, providing service to customers on account.

Revenue (+SE) Accounts receivable (+A)

Which of the following statements is false? -A liability is created when cash is received prior to delivery of the goods or services to a customer. -Revenue is recognized at the time of delivery of the goods or services to customers if cash is received. -Revenue is not recognized at the time of delivery of goods and services to customers if cash is received after delivery of the goods and services. -Collecting cash after delivery of a good or service to a customer does not create revenue on the income statement at the date of collection.

Revenue is not recognized at the time of delivery of goods and services to customers if cash is received after delivery of the goods and services.

Net Income =

Revenues - Expenses

SEC

Securities and Exchange Commission

Revenue is

an increase in shareholders' equity (not necessarily cash) from providing goods or services Revenue is recognized when both: It is earned (i.e. goods or services are provided) and It is realized (i.e. payment for goods or services received in cash or something that can be converted to a known amount of cash)

Expenses

are decreases in shareholders' equity (not necessarily cash) that arise in the process of generating revenues Expenses are recognized when either: Related revenues are recognized (product costs) or Incurred, if difficult to match with revenues (period costs and unusual events)

Accounts Receivable

balance sheet

Assets, liabilities, and stockholders' equity are all found within which of the following financial statements? -Balance sheet. -Income statement. -The investing activities section of the Statement of Cash Flows. -Statement of stockholders' equity.

balance sheet

Notes Payable

balance sheet

Property, Plant & Equipment

balance sheet

cash

balance sheet

Balance Sheet

capture what a firm is worth at a specific date, three components: assets, liabilities, and stockholders' equity

Revenues are recognized when

goods or services are provided

Marketing Expense

income statement

Expenses are recognized in

the same period as the revenues they helped to generate

Net revenues refer

to a company's total revenues less any amounts for credit card fees, discounts, returns, and allowances.

what are the four financial statements

1. Balance sheet 2. Income statement 3. Statement of cash flows 4. Statement of stockholders equity

Two categories in adjusting entries

1. Deferred Revenues and Expenses Update existing account balances to reflect current accounting values Cash flow in past; record revenue/expense now 2. Accrued Revenues and Expenses Create new account balances to reflect unrecorded assets or liabilities Record revenue/expense now; cash flow in future

Which of the following would most likely increase retained earnings? A. An increase in expenses. B. An increase in revenues. C. Distributing a cash dividend. D. Issuing additional common stock.

10. Which of the following would most likely increase retained earnings? A. An increase in expenses. B. An increase in revenues. C. Distributing a cash dividend. D. Issuing additional common stock.

T-Account

A record of all changes in an accounting quantity Debits are listed on the left side of the T Credits are listed on the right side of the T

Collect $18,000 from Acme Company on account.

Cash (+A) 18,000 Accounts Receivable (-A) 18,000

To generate cash from external sources, Eagle sells shares of common stock for $25,000

Cash (+A) 25,000 Common Stock (+SE) 25,000

Three Steps in the Adjustment Process

Ask: Was revenue earned or an expense incurred that is not yet recorded? Ask: Was the related cash received or paid in the past or will it be received or paid in the future? Compute the amount of revenue earned or expense incurred.

Assets = 100, Liabilities = 50. What is Stockholders' Equity?

Assets (100) = Liabilities (50) + Stockholders' Equity (X) answer=50

Liabilities increase by 100 and Stockholders' Equity is unchanged. What is the change in Assets?

Assets (X) = Liabilities (+100) + Stockholders' Equity (0) answer=100

Revenue increases by 100 and all other categories are unchanged, except Assets. What is the change in Assets?

Assets (X) = Liabilities (0) + Contributed Capital (0) + Prior Retained Earnings (0) +Revenues (+100) - Expenses (0) - Dividends (0) answer=100

Accounting equation

Assets = Liabilities + Shareholders' Equity

Which of the following correctly describes the impact of collecting cash from customers for services to be provided in the future? -Assets and stockholders' equity increase. -Assets and revenues increase. -Assets and liabilities increase. -Assets and operating income increase.

Assets and liabilities increase.

Change in Account Balance Equation:

Beginning Balance + Increases - Decreases = Ending Balance

Provide website design services for $40,000.

Cash (+A) 40,000 Design Revenue (+R, +SE) 40,000

13. Which of the following describes the amount of rent expense reported on the income statement? A. The amount of cash paid for rent in the current period. B. The amount of cash paid for rent in the current period less any unpaid rent at the end of the period. C. The amount of rent used up (incurred) in the current period to help generate revenue. D. The amount of cash paid for rent that is reported within the statement of cash flows.

C. The amount of rent used up (incurred) in the current period to help generate revenue.

17. A company purchases a delivery van by paying $5,000 cash and by signing a $25,000 note payable. Which of the following correctly describes the recording of the delivery van purchase? A. The delivery van account is debited for $25,000. B. Notes payable is debited for $25,000. C. The delivery van account is debited for $30,000. D. Cash is debited for $5,000. Hint: Dr. Van (+A) 30,000 Cr. Cash (-A) 5,000 Cr. Notes payable (+L) 25,000

C. The delivery van account is debited for $30,000.

15. Which of the following best describes operating revenues? A. They are increases in assets or increases in liabilities as a result of peripheral transactions. B. They are decreases in stockholders' equity as a result of central ongoing operations. C. They are increases in stockholders' equity as a result of central ongoing operations. D. They are decreases in assets or increases in liabilities as a result of peripheral transactions.

C. They are increases in stockholders' equity as a result of central ongoing operations.

Which of the following describes the primary objective of the balance sheet? A. To measure the net income of a business up to a particular point in time. B. To report the difference between cash inflows and cash outflows for the period. C. To report the financial position of the reporting entity at a particular point in time. D. To report how the market value of assets, liabilities, and stockholders' equity change over the period.

C. To report the financial position of the reporting entity at a particular point in time.

Sell a $1,000 gift certificate

Cash (+A) 1,000 Unearned Revenue (+L) 1,000

Seeking cash from another external source, Eagle borrows $10,000 from the bank and signs a note for it.

Cash (+A) 10,000 Notes payable (+L) 10,000

Stockholders' Equity =

Contributed Capital + Retained Earnings

2. Stimpleton Company engages in the following cash payments: Purchase equipment $4,000 Pay rent 525 Repay loan to the bank 4,400 Pay workers' salaries 650 What is the total amount of cash paid for operating activities? A. $5,050 B. $4,000 C. $8,400 D. $1,175

D. $1,175

6. Sparty Corporation has provided the following information for its most recent year of operation: Revenues earned were $97,000, of which $9,000 were uncollected at the end of the year. Operating expenses incurred were $39,000, of which $7,000 were unpaid at the end of the year. Dividends declared were $11,000, of which $3,000 were unpaid at the end of the year. Income tax expense is $17,400. What is the amount of net income reported on Sparty's income statement? A. $32,900. B. $39,300. C. $33,600. D. $40,600. Hint: NI=Revenue-Expenses=97,000-(39,000+17,400)

D. $40,600.

Cost of Goods Sold

Income Statement

Net Income

Income Statement, Statement of Cash Flows, Statement of Stockholders' Equity

Paid $3,000 insurance for next year in advance

Prepaid Expenses (+A) 3,000 Cash (-A) 3,000

Paid $9,000 rent for next six months in advance

Prepaid Expenses (+A) 9,000 Cash (-A) 9,000

On October 1, 2016, Adams Company paid $4,800 for a two-year insurance policy with the insurance coverage beginning on that date. As of December 31, 2016, which of the following account balances are correct after adjusting entries have been made? -Prepaid insurance $4,800, and Insurance expense $0. -Prepaid insurance $0, and Insurance expense $4,800. -Prepaid insurance $2,400, and Insurance expense $2,400. -Prepaid insurance $4,200, and Insurance expense $600.

Prepaid insurance $4,200, and Insurance expense $600.

Retained Earnings =

Prior Retained Earnings + Net Income - Dividends

Which of the following best describes liabilities? -Possible debts or obligations of an entity as a result of future transactions, which will be paid with assets or services. -Possible debts or obligations of an entity as a result of past transactions, which will be paid with assets or services. -Probable debts or obligations of an entity as a result of future transactions, which will be paid with assets or services. -Probable debts or obligations of an entity as a result of past transactions, which will be paid with assets or services.

Probable debts or obligations of an entity as a result of past transactions, which will be paid with assets or services.

Type 1: Deferred Expenses

Question: Are there any assets that have been "used up" this period and should be expensed? Examples: Prepaid Rent Prepaid Insurance Depreciation or amortization Journal Entry for prepaid case: Dr. Expense Cr. Prepaid Asset Result: reduce the asset balance to how much that's still prepaid, if any, at the end of the fiscal period

Type 2: Deferred Revenues

Question: Are there any liabilities that have been fulfilled by delivery of goods or services that should be recognized as revenue? Examples: Unearned revenue Deferred subscription revenue Journal Entry: Dr. Unearned Revenue Liability Cr. Revenue Result: reduce the liability balance because we fulfilled part of the obligation by delivering goods or services over the time period.

Type 3: Accrued Expenses

Question: Have any expenses accumulated during the period that have not yet been recorded? Examples: Income Taxes Payable Interest Payable Salaries and Wages Payable Journal Entry: Dr. Expense Cr. Payable Liability Result: recognize an expense and show that we have an obligation to pay for that expense in the future.

Type 4: Accrued Revenue

Question: Have any revenues accumulated during the period that have not yet been recorded? Examples: Interest Receivable Rent Receivable Journal Entry: Dr. Receivable Asset Cr. Revenue Result: recognize revenue that we haven't recognized so far. And then show that we have an asset for the cash that we expect to collect in the future. Note: these examples are about providing a service over time as opposed to delivering specific goods.

Statement of Cash Flows

Sources (inflows) and uses (outflows) of cash over a period of time In categories of operating, investing, and financing

The amount of cash collected from customers

Statement of Cash Flows

The amount of cash paid for equipment

Statement of Cash Flows

Common Stock

Statement of Stockholders' Equity, Balance Sheet

Dividends paid to stockholders

Statement of Stockholders' Equity, Statement of Cash Flows

Which of the following statements about stockholders' equity is false? -Stockholders' equity is the shareholders' residual interest in the company resulting from the difference in assets and liabilities. -Stockholders' equity accounts are increased with credits. -Stockholders' equity results only from contributions of the owners. -The purchase of land for cash has no effect on stockholders' equity.

Stockholders' equity results only from contributions of the owners

Post-closing trial balance

Summarizes balances of permanent accounts after closing entries All revenue and expense accounts have a zero balance

Received $250 telephone bill for previous month, to be paid next month

Telephone Expense (+E, -SE) 250 Accounts Payable (+L) 250

Which of the following transactions and events results in an increase in liabilities and a decrease in net income? -The accrual of wages expense at year-end. -Collecting cash from a customer for services to be provided in the future. -The accrual of revenue earned at year-end. -Adjustment of the unearned revenue account for revenue earned during the period.

The accrual of wages expense at year-end.

2. How does the statement of stockholders' equity stockholders' equity tie to the balance sheet?

The amount of ending retained earnings is then reported on the balance sheet.

Which of the following statements regarding the balance sheet is false? -Buildings and equipment are reported at book value. -Assets are reported in the order of liquidity. -Current liabilities are obligations to be paid with current assets. -The balance sheet reflects balances for a period of time.

The balance sheet reflects balances for a period of time.

stockholders equity

The financing provided by the owners and business operations, common stock and retained earnings

Which of the following statements is false? -The journal entry to record bad debt expense decreases current assets. -The journal entry to record bad debt expense decreases retained earnings. -The journal entry to write off an uncollectible account receivable decreases operating income. -The journal entry to write off an uncollectible account receivable does not affect current assets.

The journal entry to write off an uncollectible account receivable decreases operating income.

Which of the following transactions will not change a company's total stockholders' equity? -Reporting of net income. -Issuing stock to stockholders in exchange for cash. -The declaration of a cash dividend. -The purchase of a factory building.

The purchase of a factory building

Normal Balance

The type of balance (debit or credit) the account carries under normal circumstances

Which of the following best describes operating revenues? -They are increases in assets or increases in liabilities as a result of peripheral transactions. -They are decreases in assets or decreases in liabilities as a result of central ongoing operations. -They are increases in assets or decreases in liabilities as a result of central ongoing operations. -They are decreases in assets or increases in liabilities as a result of peripheral transactions.

They are increases in assets or decreases in liabilities as a result of central ongoing operations.

Which of the following best describes liabilities and stockholders' equity? -They are the sources of financing an entity's assets. -They are the economic resources used by a business entity. -They are reported on the income statement. -They both increase when assets increase.

They are the sources of financing an entity's assets.

Receive cash in advance from customers, $600.

Unearned revenue (+L) Cash (+A) NOTE: unearned revenue refers to service/goods owed to customers, e.g., sell a gift card but it's not redeemed yet.

Paid $500 utility bill for this month.

Utilities Expense (+E, -SE) 500 Cash (-A) 500

Cash (+A) 1,000 Unearned Revenue (+L) 1,000

Wage Expense (+E, -SE) 16,000 Cash (-A) 16,000