FA Module 3

The Mayflower, a seafood restaurant, had the following liabilities by the end of 2015: Accounts Payable $60,000 Wages Payable $100,000 Unearned Revenue $125,000 (60% will be earned in 2016) Notes Payable $140,000 ($45,000 payable in 2016) What is the amount that The Mayflower should report as Total Current Liability on its balance sheet as of December 31, 2015?

$280,000 (Accounts Payable + Wages Payable + 60 % of Unearned Revenue + 45,000 0f Notes payable The Total Current Liability reported would be the sum of Accounts Payable, Wages Payable, $75,000 of Unearned Revenue, and $45,000 of Notes Payable. 60,000 + 100,000 + 75,000 + 45,000 = $280,000

When Building Financial Statement (Consolidated Income Statement)

Above Gross Profit: Net Sales and Cost of Sales Above Total Operating Expense / Operating Income: Research & Development Sales, General, and Administrative Above Income before Taxes: Interest and Dividend Income Interest Expense Other Expense, Net Above Net income (less): Income Tax Expense

The income statement reflects a company's:

Financial performance over a given period of time.

Revenue - Cost Of Goods Sold = Gross Profit

Revenue - COGS = Gross Profit

At the end of the fiscal year, December 31, 2015, ProHealth Gym had the following revenue and expense accounts: What is the total value of all the expense accounts on January 1, 2016?

0

Suppose Hipzone had Net Income of $1,600,000 for the year 2011. They also had the following income and expenses: COGS $7,000,000 SG&A Expense $2,100,000 Other Non-Operating Income $100,000 Interest Income $20,000 Depreciation Expense $350,000 Income Tax Expense $150,000 What would the Operating Income be for the year 2011?

the income before taxes and interest The correct answer is $1,630,000 (Net Income + Tax Expense - other non-operating income - interest income) To get from Net Income to Operating Income, we need to add back the Tax Expense ($150,000) and eliminate the impact of any non-operating income or expenses ($20,000 Interest Income and $100,000 Other Income). $1,600,000 +150,000 - 20,000 - 100,000 = $1,630,000

Suppose Ven Inc's Operating Income for 2015 was $1,750,000. Their income and expenses during the year include the following: Sales, General, & Admin Expense $2,350,000 Interest Income $15,000 Income Taxes $215,000 Depreciation Expense $280,000 What was Ven's Income Before Taxes for 2015?

$1,765,000 Operating Income + Interest Income Income Before Taxes is equal to Operating Income adjusted for any non-operating activity. In this example, S,G,& A and Depreciation Expenses are operating expenses that have already been deducted to arrive at Operating Income. Income Taxes will be deducted after Income Before Taxes. To get to Income Before Taxes, simply add Interest Income to Operating Income: $1,750,000 + $15,000 = $1,765,000

Income Before Taxes

Operating Income adjusted for any non-operating activity.

Which of the following items represents the net income/(loss) for the year?

The difference between the revenues/gains and expenses/losses.

For the year 2015, suppose Rocky Inc., a pet supply store, had revenues of $896,000. Their income statement shows that Gross Profit was $200,000 and Other Expenses were $122,000. What was Rocky's Cost of Goods Sold (COGS)?

Revenue - COGS = Gross Profit Since we know Revenues were $896,000 and Gross Profit was $200,000, COGS must be $696,000. 'Other expenses' is not needed in this calculation.

Operating Income

the income before taxes and interest Operating Income = Gross Income - Operating Expenses

Suppose for the year 2015, Speedy Chef, a fast food restaurant, had a Gross Profit of $1,281,648. Speedy Chef had the following expenses: Cost of Goods Sold $1,251,167 Selling Expense $70,578 Rent Expense $156,941 Utilities Expense $73,994 Insurance Expense $35,148 Wages $505,245 General & Administrative $24,358 Miscellaneous $32,968 Interest Expense $4,059 Income Tax Expense $60,596 What would Speedy Chef's Income Before Taxes be for 2015?

$1,281,648 - $70,578 - $156,941 - $73,994 - $35,148 - $505,245 - $24,358 - $32,968 - $4,059 = $378,357 Income Before Taxes is calculated by subtracting Operating Expenses and Non-Operating Expenses from Gross Profit (note that Cost of Goods Sold has already been subtracted to get Gross Profit, and Income Tax Expense should not be subtracted to get Income Before Taxes so these two figures can be ignored in this case).

Suppose Green Mountain Coffee Roasters presents the following information in its 2013 financial statements: Net Sales $4.4 B Cost of Sales $2.8B Income Tax Expense $0.3B General and Admin Expenses $0.3B Selling and Operating Expenses $0.5B Interest Expense $0.1B What would be the Operating Income in this fiscal year?

0.8 Operating Income = Gross Income - Operating Expenses Operating Income is the profit before taxes and interest. In this example it is the Gross Profit (Net Sales - Cost of Goods Sold) minus Selling, Operating, General and Admin Expenses.

For 2015, suppose Field Enterprises had Gross Profit of $1,150,000 and the following expenses: Salaries and Wages Expense $400,000 Building and Utilities Expense $90,000 Other Operating Expenses $50,000 Interest Expense $25,000 Income Tax Expense $32,000 Cost of Goods Sold (COGS) $890,000 What would be Field's Operating Income for 2015?

610,000 (Gross Profit - Salaries / Wages - Building - Other Operating Expense) Operating Income is the profit before taxes and interest. In this example it is the Gross Profit minus the Salaries and Wages and the Building and Utilities Expenses and the Other Operating Expenses.

For the year 2015, Dark Horse Corp.'s sales revenue was $1,600,000. Cost of goods sold (COGS) was 40% of sales revenue. Their income statement shows that operating expense was $150,000. What was Dark Horse Corp.'s gross profit for 2015?

960,000 Gross Profit is equal to Sales Revenue minus Cost of Goods Sold, in this case $1,600,000 - $640,000 = $960,000. The Cost of Goods Sold of $640,000 is found by multiplying $1,600,000 by 40%.

The trial balance for a business at a given point in time typically has much more detailed information than what is depicted on the financial statements. What is the accounting concept that allows for the information from the trial balance to be condensed to what is displayed on the financial statements?

Materiality

Which of the following would be considered a long term liability account?

Mortgage Payable

Which of the following are steps in the closing process? Select all that apply.

Nominal accounts are reset to zero. Net income is transferred to the retained earnings account on the balance sheet.

Which of the following is true regarding the trial balance? Select all that apply.

The accounting principle of materiality says that the information on the trial balance can be combined and simplified into more general reporting items. The trial balance includes all of the accounts needed to create the balance sheet and the income statement.

Suppose Red Barn Outfitters presents the following information in its 2015 financial statements: Net Sales $6B Cost of Sales $4B Income Tax Expense $0.4B General & Admin Expenses $0.6B Selling & Marketing Expenses $0.5B Interest Expense $0.3B What would the Net Income be in this fiscal year?

The correct answer is $0.2B (Net sales - Cost of Sales - General and Admin - Income Tax Expense - Selling and Marketing and Interest Expense) To get Net Income, we need to subtract from Net Sales the Cost of Sales, all Operating and Admin Expenses as well as Interest and Tax Expense. The calculation would be: $6B - 4B - 0.4B - 0.6B - 0.5B - 0.3B = $0.2B

Suppose Green Mountain Coffee Roasters presents the following information in its 2012 financial statements: Net Sales $4.5B Cost of Sales $3B Income Tax Expense $0.2B General & Admin Expenses $0.4B Selling & Marketing Expenses $0.3B Interest Expense $0.2B What would the Net Income be in this fiscal year?

The correct answer is $0.4B (Net Sales - Cost of Sales, all operating and Admin expense and interest and tax expense - Income Tax Expense - Selling and Marketing - Interest Expense) To get Net Income, we need to subtract from Net Sales the Cost of Sales, all Operating and Admin Expenses as well as Interest and Tax Expense. The calculation would be: $4.5B - 3B - 0.4B - 0.3B - 0.2B - 0.2B = $0.4B

Suppose Pied Piper had Net Income of $1,600,000 for the year 2011. They also had the following income and expenses: COGS $7,000,000 SG&A Expense $2,100,000 Other Non-Operating Income $100,000 Interest Income $20,000 Depreciation Expense $350,000 Income Tax Expense $150,000 What would the Operating Income be for the year 2011?

The correct answer is $1,630,000 (Net Income + Tax Expense - Interest Income - Other Non-Operating Income) To get from Net Income to Operating Income, we need to add back the Tax Expense ($150,000) and eliminate the impact of any non-operating income or expenses ($20,000 Interest Income and $100,000 Other Income). $1,600,000 +150,000 - 20,000 - 100,000 = $1,630,000

For 2012, suppose Cardullo's had Gross Profit of $500,000 and the following expenses: Salaries and Wages Expense $200,000 Building and Utilities Expense $80,000 Other Operating Expenses $30,000 Interest Expense $15,000 Income Tax Expense $25,000 Cost of Goods Sold (COGS) $500,000 What would be Cardullo's Operating Income for 2012?

The correct answer is $190,000 (Gross Profit (500,000) - Salaries and Wages - Building and Utilities - Other Operating Expense) Operating Income is the income before taxes and interest. In this example it is the Gross Profit minus the Salaries and Wages and the Building and Utilities Expenses and the Other Operating Expenses.

Suppose Hipzone's Operating Income for 2014 was $2,042,000. Their income and expenses during the year include the following: Sales, General, & Admin Expense $2,397,000 Interest Income $3,000 Income Taxes $155,000 Depreciation Expense $374,000 What was Hipzone's Income Before Taxes for 2014?

The correct answer is $2,045,000 (Income + Interest income) Income Before Taxes is equal to Operating Income adjusted for any non-operating activity. In this example, S,G,& A and Depreciation Expenses are operating expenses that have already been deducted to arrive at Operating Income. Income Taxes will be deducted after Income Before Taxes. To get to Income Before Taxes, simply add Interest Income to Operating Income: $2,042,000 + $3,000 = $2,045,000

Suppose Hipzone's Operating Income for 2013 was $2,120,000. Their income and expenses during the year include the following: Sales, General, & Admin Expense $1,910,000 Interest Expense $14,000 Income Taxes $198,000 Depreciation Expense $420,000 Other Non-operating Expenses $35,000 What was Hipzone's Income Before Taxes for 2013?

The correct answer is $2,071,000 (Income - Interest Expense - Non-operating Expense) Operating Income adjusted for any non-operating activities results in Income Before Taxes. In this example, take Operating Income less Interest Expense less Other Non-Operating Expenses ($2,120,000 - 14,000 - 35,000 = $2,071,000). Selling, General, & Admin and Depreciation Expenses were already deducted to arrive at Operating Income, and Income Taxes will be deducted after Income Before Taxes.

For 2013, West Corp.'s Operating Income was $130,000. Income Tax Expense was $20,000. West Corp. had Operating Expense of $50,000 and Other Non-Operating Expense of $30,000. What was West Corp.'s Net Income for 2013?

The correct answer is $80,000 The Operating Expense has already been taken out to arrive at Operating Income. Operating Income minus Other Non-Operating Expense equals Income Before Taxes. Income Before Taxes minus Income Tax Expense equals Net Income. $130,000 - $30,000 - $20,000 = $80,000

Suppose MassTech (a new software company) provides the following financial information (in millions) for its fiscal year: Operating Income $130M Cost Of Goods Sold $70M Interest Expense $10M Product Development Expense $30M General Operating Expenses $30M Corporate Tax Rate of 30% What is the Net Income reported by the firm?

The correct answer is $84M. COGS, Product Development, and General Operating Expenses have already been deducted to get to Operating Income. All that needs to be done now is to deduct Interest Expense to get to Pretax Profit and then apply the tax rate and subtract the tax amount to get Net Income. Pretax Profit would be calculated as $130M - $10M = $120M Tax Expense would be calculated as $120M x 30% = $36M Net Income would be calculated as $120M - $36M = $84M

Suppose Green Mountain Coffee Roasters presents the following information in its 2014 financial statements: Net Sales $4.4B Cost of Sales $2.8B Income Tax Expense $0.3B General & Admin Expenses $0.3B Selling & Marketing Expenses $0.5B Interest Expense $0.1B What would the Income Before Taxes be in this fiscal year?

The correct answer is 0.7 (Net Sales - Cost of Sales - General & Admin Expense (bc it is after income tax expense) - Selling and Marketing - Interest Expense) Income Before Taxes equals Gross Profit minus Operating Expenses, Other Expense and Interest Expense. It is calculated as ($4.4B - 2.8 - 0.3 - 0.5 - 0.1) = $0.7B. Income Tax Expense will be deducted after Income Before Taxes.

Company A's accounting period goes from January 1 through December 31. Which of the following describes the difference between the trial balance on December 31, 2013 and the trial balance on January 1, 2014? The trial balance on January 1, 2014 does not balance because all nominal accounts were reset in the closing process. The trial balance on January 1, 2014 does not balance because the company has not yet earned any income for the period. The trial balance on January 1, 2014 shows no balance in all nominal accounts because they were closed to retained earnings in the closing process. The trial balance on January 1, 2014 shows no balance in all accounts because the accounting books were reset in the closing process.

The trial balance on January 1, 2014 shows no balance in all nominal accounts because they were closed to retained earnings in the closing process. (During the closing process, the balance of all nominal accounts are closed to retained earnings and reset to zero)

When Building Financial Statement (Consolidated Balance Sheet US GAAP)

Under Current Assets: Cash and Short term marketable securities Accounts receivable Net Inventories Other Current Assets Under Non-Current Assets: Long-term Marketable Securities Property, land, and Equipment Goodwill Acquired Intangible Assets Other Long-term assets Under Liabilities: Accounts payable Accrued Expense Deferred Revenue Under non-current liabilities: Deferred Revenue - non current long term debt other non-current liabilities Under Shareholder's Equity: Common Stock Retained Earnings Less Dividends and Stock Repurchase and others Capital Stock