FA 3 Financial statements
Organize the accounts and amounts shown on the right into the current assets and non-current assets sections of the balance sheet for Cardullo's. Start building the sections according to US GAAP and then do it according to IFRS standards. You will have a chance to review both side by side before submitting your answer.
US GAAP Current Assets: cash accounts receivable inventory prepaid expenses other current assets Non-Current Assets: PPE other non current assets
Nominal accounts
COGS rent expense sales Selling, and general and admin expenses insurance expense income tax expense revenue
The income statement reflects a company's:
Financial performance over a given period of time.
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?
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%.
Organize the accounts and amounts shown on the right into the current assets and non-current assets sections of the balance sheet for Cardullo's. Start building the sections according to US GAAP and then do it according to IFRS standards. You will have a chance to review both side by side before submitting your answer.
IFRS Non-current Assets: other non current assets PPE Current Assets: other current assets prepaid expenses invenotry accounts receibable cash
Below operating income
INTEREST INCOME INCOME TAX EXPENSE GAIN ON FOREIGN CURRENCY INTEREST EXPENSE LOSS ON FINANCIAL INSTRUMENTS
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 -This is the correct answer! The concept of materiality states that a business is not required to report information on financial statements that would not impact the decision-making of the users of the financial statements.
Identify which of the following are permanent and which are temporary accounts and drag them to the correct section below.
Permanent Accounts: CASH AND CASH EQUIVALENTS RENT PAYABLE INVENTORY Temporary Accounts: COST OF GOODS SOLD SALES REVENUE RENT EXPENSE
Identify which of the following are real and which are nominal accounts and drag them to the correct section below.
Real: CASH AND CASH EQUIVALENTS ACCOUNTS RECEIVABLE UNEARNED REVENUE PREPAID RENT Nominal: ADVERTISING EXPENSE COGS
For the year 2013, West Corp. had Revenue of $500,000. Their income statement shows that Cost of Goods Sold (COGS) was $320,000, and Net Income was $80,000. What was West Corp.'s Gross Profit?
Revenue - COGS = Gross Profit Revenue of $500,000 minus COGS of $320,000 equals Gross Profit of $180,000. Net Income is not needed in this calculation.
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 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 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?
$0.4B 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 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?
$1,630,000 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 the year 2013, suppose Green Mountain Coffee Roasters had Net Revenue of $4.4 billion, $2.8 billion of Cost of Goods Sold (COGS) and $0.5 billion of selling and operating costs. What is GMCR's Gross Profit in the year?
$1.6 billion Net Revenue - COGS = Gross Profit Net Revenue of $4.4 billion minus COGS of $2.8 billion equals $1.6 billion Gross Profit. Selling and operating costs are not needed in this calculation.
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?
$190,000 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?
$2,045,000 The correct answer is $2,045,000 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?
$2,071,000 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.
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 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
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?
$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). $1,281,648 - $70,578 - $156,941 - $73,994 - $35,148 - $505,245 - $24,358 - $32,968 - $4,059 = $378,357
For the year 2015, McGuire's Auto had Operating Income of $320,000. It also had the following expenses: Salaries and Wages Expense $75,000 Building and Utilities Expense $86,000 Interest Expense $122,000 Income Tax Expense $84,000 Cost of Goods Sold (COGS) for the year was $440,000 What would McGuire's Auto's gross profit be for 2015?
$481,000 To get to Gross Profit from Operating Income, we must add back any Operating Expenses. In this case we start with $320,000 Operating Income and add back Salaries and Wages Expense of $75,000 and Building and Utilities Expense of $86,000, to get Gross Profit of $481,000.
For the year 2012, suppose Cardullo's Gourmet Shoppe had revenues of $1,100,000. Their income statement shows that Gross Profit was $500,000 and Other Expenses were $350,000. What was Cardullo's Cost of Goods Sold (COGS)?
$600,000 Revenue - COGS = Gross Profit Since we know Revenues were $1,100,000 and Gross Profit was $500,000, COGS must be $600,000. Other expenses is not needed in this calculation.
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?
$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
Identify which of the following items belong on a balance sheet and which belong on an income statement, and drag them to the correct section below.
BALANCE SHEET: PREPAID EXPENSE SALARIES PAYABLE DEFERRED REVENUE INCOME STATMENT INCOME TAX EXPENSE SALARIES EXPENSE SALES REVENUE
Above operating income
COST OF GOODS SOLD GENERAL & ADMIN EXPENSE SALES REVENUE DEPRECIATION OTHER OPERATING EXPENSES
Which of the following would be considered a long term liability account?
Mortgage Payable -Mortgage payable is a liability account that represents the unpaid balance related to a mortgage. This balance is the portion of the payable that is not due in a year or less. Therefore, it is a long-term liability account.
Which of the following are steps in the closing process? Select all that apply.
Nominal accounts are reset to zero. This is one of the correct answers. Accounts on the income statement are nominal accounts, which means that they are reset to zero as part of the closing process. Real accounts are reset to zero. Accounts on the balance sheet are real accounts, which means that their balances are carried forward and are not reset to zero as part of the closing process. Net income is transferred to the cash account on the balance sheet. Net income is transferred to the retained earnings account on the balance sheet. Net income is transferred to the retained earnings account on the balance sheet. This is one of the correct answers. The net balance of total revenues less total expenses (Net Income) is transferred to the retained earnings account. The retained earnings account is reset to zero. Retained earnings is a real account on the balance sheet, which means that the balance is carried forward and not reset to zero as part of the closing process.
Which of the following items represents the net income/(loss) for the year?
The difference between the revenues/gains and expenses/losses.
Real Accounts
PPE Common Stock Inventory other liabilities accounts receivable add paid in capital accounts payable cash and cash equivalents notes payable notes receivable retained earnings long term debt investments
For the year 2013, Darkeye Corp.'s Gross Profit was $600,000. Their income statement shows that Cost of Goods Sold (COGS) was $450,000, and Operating Expense was $180,000. What was Darkeye Corp.'s Sales Revenue for 2013?
The general formula is Revenue - COGS = Gross Profit Since we know COGS was $450,000 and Gross Profit was $600,000, Revenue must be $1,050,000. Operating expense is not needed in this calculation. In addition, since this question asks you to find Revenue, you can rearrange the formula to be: Revenue = Gross Profit + COGS, so 600,000 + 450,000 = 1,050,000
Which of the following is true regarding the trial balance? Select all that apply.
The trial balance includes all of the accounts needed to create the balance sheet and the income statement. This is one of the correct answers. The trial balance includes all of the accounts needed to create the balance sheet and the income statement. The trial balance is much less detailed than the balance sheet and income statement. The trial balance is much MORE detailed than the balance sheet and income statement. The accounting principle of materiality says that the information on the trial balance can be combined and simplified into more general reporting items. This is one of the correct answers. The accounting principle of materiality says that the information on the trial balance can be combined and simplified into more general reporting items. The accounting principle of money measurement says that the information on the trial balance can be combined and simplified into more general reporting items. 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 shows only nominal accounts. The trial balance includes not only the nominal accounts used to build the income statement, but also the real accounts used to build the balance sheet.
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 shows no balance in all nominal accounts because they were closed to retained earnings in the closing process. -This is the correct answer! During the closing process, the balance of all nominal accounts are closed to retained earnings and reset to zero.
not operating expenses
interest income loss on disposal income tax expense interest expense loss on foreign currency rental income
Real accounts
or permanent accounts, are asset, liability, and equity accounts, all of which end up on the balance sheet. They are considered permanent because they maintain a cumulative balance over time.
Nominal accounts
or temporary accounts, are revenue and expense accounts, all of which end up on the income statement. They are considered temporary because they only reflect activity for a given accounting period, then they are closed and reset to zero
Operating expenses
salaries and wages Selling and Gen and Adin expenses marketing expense depreciation research and development other operating expense utilities expense rent expense
