Chapter 3 True/False
A business reports a retained earnings balance of $156,00. This figure represents the monetary amounts contributed to the business by its owners
False
A company gets $10,000 cash from its owners when it is started at the beginning of Year One. It gets another $15,000 from a bank loan. Revenues for that year were $70,000, expenses were $39,000, and dividends paid to the owners were $3,000. The retained earnings balance at the start of Year Two was $38,000.
False
A company is being sued because a product it made has apparently injured a few people. The company believes that it will win the lawsuit, but there is uncertainty. There is some chance (a 33 percent chance) that the company might lose $20,000. To arrive at fairly presented financial statements in connection with this uncertainty, this lawsuit should be reported on the income statement of this year as a $6,600 loss.
False
A gain is the amount of net income earned by a company over its life less any dividends it has paid
False
An increase in the net assets of a business that results from the sale of inventory is reported as a gain
False
Companies receive money each time their stock is sold on a stock exchange such as the New York Stock Exchange
False
Conservatism helps reporting companies look better to potential investors
False
If a business reports current assets of $300,000 and current liabilities of $200,000, it has working capital of $500,000
False
If a company has a possible loss, conservatism requires that this loss must always be reported
False
Near the end of the current year, a company spent $27,000 in cash on a project that the accountant believed had future economic benefit. The accountant reported it in that manner it in that manner. In truth, the project only has past economic benefit. The company went on to report net income of $200,000 for the current year along with total assets of $800,000. The company should have reported net income of $227,000 for the year and total assets of $773,000.
False
Sales revenue less cost of goods sold is referred to as net income
False
The Bagranoff Company has a current ratio of #:1. The company collects a $20,000 accounts receivable. The current ratio will rise as a result of this collection
False
The Clikeman Company has been in business for several years. The company starts the current year with net assets of $300,000 and ends the year with net assets of $430,000. For the current year, the company's net income less its dividends must have been $130,000
False
The Richmond Company has been in business for five years and now reports contributed capital as $310,000. This figure means that the owners put $310,00 worth assets (probably cash) into the business five years ago when it was created
False
The accounting equation identifies how retained earnings are calculated
False
The dividends paid balance is reported on the balance sheet
False
The income statement reports a company's revenues and expenses for one particular day of the year
False
A balance sheet must always balance
True
A company buys merchandise for $175,000 and sells it to carious customers for $240,000. The gross profit is $65,000.
True
A company has the following account balances: revenues—$120,000, salary payable—$7,000, cost of goods sold—$50,000, dividends paid—$3,000, rent expense—$12,000, gain on sale of land—$4,000, accounts receivable—$13,000, cash—$15,000, and advertising expense—$8,000. Reported net income for the period is $54,000.
True
A company needs money to build a new warehouse. Near the end of the current year (Year One), the company borrows $900,000 in cash from a bank on a ten-year loan. The company does not start the construction project until the next year (Year Two). On a statement of cash flows for Year One, a cash inflow of $900,000 should be reported as a financing activity
True
Assets and liabilities can be broken down into the categories of current and noncurrent
True
Assume the Albemarle Company buys inventory for $9,000. It pays 60 percent immediately and will pay the rest next year. The company then spends $900 in cash on advertising in order to sell 70 percent of the inventory for $14,000. Of that amount, it collects 80 percent immediately and will collect the remainder next year. The company pays a cash dividend this year of $2,000. As a result of just the operating activities, the company will report that its cash increased by $4,900 during the period.
True
Income tax expense is typically reported separately from other expenses
True
The Watson Corporation reported net income of $334,000. During the year, a $10,000 expenditure was erroneously recorded by this business as an asset when it should have been reported as an expense. For an error, $10,000 is not viewed as material by this company. Therefore, net income is fairly presented as reported at $334,000.
True
The purpose of the balance sheet is to report the assets and liabilities of a company on a specific date
True
The statement of cash flows is broken up into operating, investing, and financing activities
True