Financial Accounting Set 1

2.) Claims of creditors and owners on the assets of a business are called liabilities.

False. Liabilities are only the creditors' claims on assets. Not owner's claim.

3.) Long-term investments appear in the property, plant, and equipment section of the balance sheet.

False. Long-term investments is its own section under property plant, and equipment.

7.) Which of the following is not a current liability? a.) Salaries and Wages Payable b.) Accounts Payable c.) Taxes Payable d.) Bonds Payable

The answer is D. Bonds Payable.

4.) Stockholders' equity is divided into two parts: common stock and retained earnings.

True

2. These items are taken from the financial statements of Drew Corporation for 2014. Retained earnings (beginning of year) $33,000 Utilities expense 2,000 Equipment 56,000 Accounts payable 15,300 Cash 15,900 Salaries and wages payable 3,000 Common stock 13,000 Dividends 14,000 Service revenue 78,000 Prepaid insurance 3,500 Maintenance and repairs expense 1,800 Depreciation expense 3,300 Accounts receivable 14,200 Insurance expense 2,200 Salaries and wages expense 47,000 Accumulated depreciation—equipment 17,600 Instructions Prepare (an income statement) and a retained earnings statement for the year ended December 31, 2014 and a classified balance sheet as of December 31, 2014.

DREW CORPORATION Income Statement For the Year Ended December 31, 2014 ___________________________________________________________ Revenues Service revenue ... $78,000 Expense Salaries and wages expense $47,000 Depreciation expense ...... 3,300 Insurance expense .......... 2,200 Utilities expense .............. 2,000 Maintenance and repairs expense 1,800 Total expenses 56,300 Net income $21,700 DREW CORPORATION Retained Earnings Statement For the Year Ended December 31, 2014 ___________________________________________________________ Retained earnings, January 1, 2013 $33,000 Add: Net income 21,700 Less: Dividends 14,000 Retained earnings, December 31, 2014 $40,700 DREW CORPORATION Balance Sheet December 31, 2014 ___________________________________________________________ Assets Current assets Cash ................................................... $15,900 Accounts receivable ......................... 14,200 Prepaid insurance ........................... 3,500 ---------- Total current assets $33,600 Property, plant, and equipment Equipment ............................................ 56,000 Less: Accum. deprec.-equipment 17,600 38,400 ----------- ---------- Total assets $72,000 ====== Liabilities and Stockholders' Equity Current liabilities Accounts payable ................................ $15,300 Salaries and wages payable ................... 3,000 ----------- Total current liabilities $18,300 Stockholders' equity Common stock ...................................... 13,000 Retained earnings ................................. 40,700 ---------- Total stockholders' equity 53,700 ---------- Total liabilities and stockholders' equity $72,000 ======

9.) McKinney Corporation had beginning retained earnings of $2,242,000 and ending retained earnings of $2,499,000. During the year they issued common stock totaling $141,000. No dividends were paid. What was their net income for the year? a.) $257,000. b.) $116,000. c.) $398,000. d.) $323,000.

The answer is A. $257,000. $2,242,000 - 2,242,000 = $257,000.

4.) Jimmy's Repair Shop started the year with total assets of $200,000 and total liabilities of $160,000. During the year the business recorded $420,000 in revenues, $220,000 in expenses, and dividends of $40,000. Stockholders' equity at the end of the year was a.) $240,000. b.) $200,000. c.) $160,000. d.) $180,000.

The answer is B, $200,000. Total Assets of $200,000 + $420,000 of revenue -$160,000 liabilities, $220,000 in expenses and $40,000 dividends = $200,000.

3.) Dividends are reported on the a.) income statement. b.) retained earnings statement. c.) balance sheet. d.) statement of cash flows.

The answer is B, retained earnings statement.

10.) The most important information needed to determine if companies can pay their current obligations is the a.) net income for this year. b.) projected net income for next year. c.) relationship between current assets and current liabilities. d.) relationship between short-term and long-term liabilities.

The answer is C. relationship between current assets and current liabilities.

8.) These are selected account balances on December 31, 2014. Land $100,000 Land (held for future use) 1500,000 Building 800,000 Inventory 200,000 Equipment 450,000 Furniture 100,000 Accumulated Depreciation 300,000 What is the total amount of property, plant and equipment that will appear on the balance sheet? a.) $1,500,000. b.) $1,300,000. c.) $1,800,000. d.) $1,150,000.

The answer is D. $1,150,000. $100,00 Land + $800,00 Building + $450,000 Equipment + $100,000 Equipment -$300,000 Accumulated Depreciation=$1,150,000.

6.) In a classified balance sheet, assets are usually classified as a.) current assets; long-term assets; property, plant, and equipment; and intangible assets. b.) current assets; long-term investments; property, plant, and equipment; and common stocks. c.) current assets; long-term investments; tangible assets; and intangible assets. d.) current assets, long-term investments; property, plant, and equipment; and intangible assets.

The answer is D. current assets, long-term investments; property, plant, and equipment; and intangible assets.

5.) A merchandiser will earn an operating income of exactly $0 when a.) net sales equals cost of goods sold. b.) cost of goods sold equals gross margin. c.) operating expenses equal net sales. d.) gross profit equals operating expenses.

The answer is D. gross profit equals operating expenses.

2.) The financial statement which presents a picture on a particular date of what a business owns and owes is a(n): a.) income statement. b.) retained earnings statement. c.) balance sheet. d.) statement of cash flows.

The answer is C, balance sheet.

1. The following items are taken from the financial statements of Grove Company for 2014: Accounts payable $18,500 Accounts receivable 8,000 Accumulated depreciation-equipment 4,800 Bonds payable 18,000 Cash 24,000 Common stock 25,000 Cost of goods sold 27,000 Depreciation expense 4,800 Dividends 5,300 Equipment 44,000 Interest expense 2,500 Patents 7,500 Retained earnings, January 1 16,000 Salaries and wages expense 5,200 Sales revenue 50,500 Supplies 4,500 Instructions: (a) Prepare an income statement and a classified balance sheet for Grove Company. (b) Compute the following ratios and values: 1. Current ratio 2. Working capital

a.) GROVE COMPANY Income Statement For the Year Ended December 31, 2014 Sales revenue $50,500 Cost of goods sold 27,000 ________ Gross profit 23,500 Operating expenses Depreciation expense $4,800 Salaries and wages expense 5,200 10,000 ________ Income from operations 13,500 Other expenses and losses Interest expense 2,500 ________ Net income $ 11,000 GROVE COMPANY Balance Sheet December 31, 2014 Assets _______ Current assets Cash....................................................... $24,000 Accounts receivable.............................. 8,000 Supplies................................................... 4,500 _______ Total current asset......................... $36,500 Property, plant, and equipment Equipment.............................................. 44,000 Less: Accum. depreciation-equipment 4,800 39,200 _______ Intangible assets Patents..................................................... 7,500 _______ Total assets..................................... $83,200 ====== Liabilities and SHE _____________________ Current liabilities Accounts payable................................... $18,500 Long-term liabilities Bonds payable........................................ 18,000 _______ Total liabilities................................ $36,500 Stockholders' equity Common stock.................................. $25,000 Retained earnings............................ $21,700* 46,700 _________ _______ Total liabilities and SHE........... $83,200 ====== *Retained earnings = $21,700 ($16,000 + $11,000 - $5,300). b.) 1. Current ratio: $36,500÷$18,500=1.97:1 2. Working capital $36,500 - $18,500 = $18,000

1.) Acquiring assets necessary to operate the business is called a(n): a.) financing activity. b.) operating activity. c.) revenue activity. d.) investing activity.

The answer is D, investing activity.

1.) If the assets owned by a business total $150,000 and liabilities total $105,000 stockholders' equity totals $45,000.

True. Assets = Liabilities + Shareholders' Equity