HW Chp 3

Assets should be listed in order by ___________ on the balance sheet.

order of liquidity

The difference between the lifelong earnings of a specific company and its payments to owners is

retained earnings

If a company sells merchandise for an amount less than its carrying value on the date of sale, company should report a

loss for that sale

Business activities are categorized into operating, investing, and financing activities by the __________.

statement of cash flows

Gross profit is the difference between a company's revenues and total expenses.

false

Purchasing land is known as an operating activity.

false

You are the chief executive officer of Fisher Corporation. You are very concerned with presenting the best financial picture possible to the owners so you can get a big bonus at the end of this year. Unfortunately, Fisher has a lawsuit pending that could result in the company having to pay a large sum of money. Lawyers believe the company will win and pay nothing. However, they believe there is a 20 percent chance of a $100,000 loss and a 10 percent chance of a $300,000 loss. What amount should be reported?

$0

Determine the missing balance. Gross Profit= $101,345 Sales= $232,000 Advertising Expense= $9,120 Rent Expense= $13,446 cost of goods = ?

$130,655

A company reports total assets of $500,000 ($300,000 current and $200,000 noncurrent). The same company reports total liabilities of $350,000 ($75,000 current and $275,000 noncurrent). What is the amount of working capital?

$225,000

The following events occurred for Gingrich's Bike Shop in the current year.1. Received $360,000 in cash from customers.2. Paid $36,000 in rent in the current period.3. Paid employees $75,000 in salaries.4. Had $7,500 in salaries to be paid to employees at the end of the year.5. Borrowed $15,000 from State Bank during the year.6. Repaid $6,000 to the bank for funds previously borrowed.7. Sold equipment for $12,000. Equipment was purchased three years ago for $20,000.8. Sold stock in the company for $50,000.9. Paid stockholders $10,000 in dividends. What is the cash inflow from operating activities?

$360,000

A company has the following account balances: revenues—$126,000; 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. What is net income for the period?

$60,000

The Ramond Company has hired you to prepare financial statements for the year ending December 31, of the current year. On your first day of work, your assistant uncovers several items that could be classified as expenses or could be classified as assets. The assistant has asked for your help. Determine whether the following items should be recorded as an expense or an asset within the financial statements currently being prepared. 1. On December 31, Ramond paid $14,000 to rent office space for the next twelve months. 2. On July 1, Ramond purchased $27,000 in supplies, all of which were used by the end of the year. 3. On December 31, Ramond purchased $5,000 worth of supplies for the coming month. 4. On October 1, Ramond paid $40,000 for fire insurance that covered the company's property for the past quarter of the year.

1. asset 2. expense 3. asset 4. expense

MattBryan LLC reports the following: assets, $400,000; liabilities, $200,000; and retained earnings, $150,000. The balance of capital stock is $55,000.

False

In a statement of cash flows, paying salaries to employees for the year is classified as a(n) _________.

Operating activity

The Ohio Corporation has just produced a set of financial statements at the end of its fifth year of operations. On its balance sheet, it shows assets of $800,000 and liabilities of $200,000. The retained earnings balance within stockholders' equity is $100,000. Net income for the current year was reported as $90,000 with dividends of $50,000 distributed to the company's owners. Which of the following statements is not true?

The $800,000 in assets represents the cumulative earnings of the company since it began operations.

What is the primary purpose of a balance sheet?

To report a company's assets and liabilities at a particular point in time.

Tax expense is typically shown at the

bottom of the income statement

The statement of _____________ is one of the financial statements produced by the companies

cash flows

Drag the correct responses into the blanks to complete the sheet. dr. __________ 1. __________ 2. cr. __________ 3. __________ 4. interest payable 100 utility payable 300 interest expense 100 utility expense 300

dr. utility expense 300 1. interest expense 100 2. cr. utility payable 300 3. interest payable 100 4.

On the statement of cash flows, what would purchasing equipment be classified as?

investing activity

the difference between _________ and ________ equals working capital

current liabilities and current assets

Income tax expenses are not expected to help an organization in generating additional revenue in the future.

true

The current ratio and working capital are measures of a company's liquidity.

true

Compute the missing balances for each North Company. Assets = Liabilities + Capital Stock + Retained Earnings ?? = $111,000 + $99,000 + $240,000

$450,000

If a business reports current assets of $300,000 and current liabilities of $200,000, what is the company's working capital?

$100,000

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 $440,000. During the year, $45,000 of capital stock is issued to shareholders and $5,000 of cash dividends are declared and paid. For the current year, the company's net income less its dividends must have been ____________.

$100,000

During its first year of operations, Rowling Company reported net income of $84,000 and distributed an $11,000 dividend. In its second year of operations, Rowling Company reported $92,000 in net income and distributed a $13,000 dividend. What is the retained earnings balance at the end of year two?

$152,000

At the end of 2020, Tetris Inc. reported total assets of $269,000 and capital stock of $35,000. It also reported retained earnings at $78,000. What would the total liabilities be as of December 31, 2020?

$156,000

At the end of 2020, the Gary-Porter Corporation reported total assets of $1,309,000 and capital stock of $358,000. It also reported retained earnings at $780,000. The total liabilities as of December 31, 2020, would be

$171,000.

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. In truth, the project only had 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. What should the company have reported for net income and total assets, respectively?

$173,000; $773,000

On January 1, Year One, the Crossover Company was started when owners contributed $100,000 cash to start operations. During the first year, the company earned a reported net income of $23,000 and paid a $2,000 dividend. During the second year, the company earned another $31,000 and paid a $5,000 dividend. What is reported on the company's balance sheet as the total retained earnings at the end of Year One?

$21,000

The Shelby Corporation has been in business now for six years. At the end of its latest fiscal year, the company reported $560,000 in assets, $320,000 in liabilities, $100,000 in contributed capital, and $140,000 in retained earnings. What is the total of stockholders' equity?

$240,000

Anderson's Toy Shop has the following reported balances at the end of the current year: Sales—$240,000, Cost of Goods Sold—$140,000, Selling & Administrative Expenses—$65,000, and Dividends—$5,000. What is the net income reported on Anderson's current income statement?

$35,000

The Drexel Company began operations on January 1, Year One. In Year One, the company reported net income of $123,000 and, in Year Two, reported net income of another $131,000. In the current year of Year Three, the company reported net income of $137,000. Drexel paid no dividends in Year One but paid $10,000 in Year Two and $12,000 in Year Three. On the December 31, Year Three, balance sheet, what is reported as retained earnings?

$369,000

The Benjamin Walter Corporation purchases 10 watches for $50 each and sells them to customers for $90 each. What is their total gross profit?

$400

Rylant Corporation is a bookstore that buys and sells used books. In the current year, Rylant purchased $785,000 worth of used books to have as inventory in the store. In the same year, they sold all of the inventory for $826,000. What is the gross profit reported in the current year for Rylant Corporation?

$41,000

Used Corporation is a bookstore that buys and sells used books. In the current year, Used purchased $85,000 worth of used books to have as inventory in the store. In the same year, they sold all of the inventory for $126,000. What is the gross profit reported in the current year for Used Corporation?

$41,000

During its first year of operations, Rowling Company reported net income of $242,000 and distributed an $11,000 dividend. In its second year of operations, Rowling Company reported $192,000 in net income and distributed a $13,000 dividend. What is the retainedearnings balance at the end of year two?

$410,000

On January 1, Year One, the Crossover Company was started when owners contributed $100,000 cash to start operations. During the first year, the company earned a reported net income of $23,000 and paid a $2,000 dividend. During the second year, the company earned another $31,000 and paid a $5,000 dividend. What is reported on the company's balance sheet as the total retained earnings at the end of Year Two?

$47,000

Sofia Company has the following reported balances at the end of the current year: revenues—$100,000, rent expense—$40,000, dividends paid—$12,000, loss on sale of truck—$2,000, salary expense—$19,000, gain on sale of land—$9,000, and prepaid insurance—$8,000. What should be reported by this company as its net income for the year?

$48,000

Henderson Inc. reports the following: assets of $500,000, liabilities of $350,000, and capital stock of $100,000. What is the balance reported as retained earnings?

$50,000

Miller's Travel Agency has been in operations for the past 20 years, providing customers with leisure travel experiences around the world. During a recent trip to Southeast Asia, all of the luggage for the group was damaged or lost when it fell off of the vehicle which was transporting it. Prior to the trip, Miller's Travel Agency agreed to compensate passengers for any losses sustained during travel. They estimate there is a 75% chance the company will owe $65,000 in restitution. Additionally, there is a 25% chance the company could owe only $30,000. What amount should be reported as a loss on Miller's financial statements related to the lost luggage?

$65,000

Calculate the amount that correctly completes the following statement. If a company reports an annual net income of $100,000 and then pays a $20,000 dividend to its owners each year, it is growing in size at the rate of

$80,000 per year

The Farr Corporation has the following account balances for the month of April: Sales revenue $170,000 Gain on the sale of land 20,000 Equipment 125,000 Tax expense 14,000 Inventory 10,000 Dividends paid 7,000 Loss on lawsuit 24,000 Cost of goods sold 82,000 Advertising expense 15,000 Based on this information, what is the gross profit for April?

$88,000

Identify whether the following statements are true or false. 1. 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. 2. 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. 3. 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. 4. A business reports a retained earnings balance of $156,000. This figure represents the monetary amounts contributed to the business by its owners.

1. false 2. false 3. false 4. false

Identify whether the following statements are true or false. 1. 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. 2. 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. 3. If a business reports current assets of $300,000 and current liabilities of $200,000, it has working capital of $500,000. 4. The Bagranoff Company has a current ratio of 3:1. The company collects a $20,000 accounts receivable. The current ratio will rise as a result of this collection.

1. false 2. false 3. true 4. true

Identify whether the following statements are true or false. 1. 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. In truth, the project only had 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. 2. A company buys merchandise for $175,000 and sells it to various customers for $240,000. The gross profit is $65,000. 3. 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. 4. 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.

1. false 2. true 3. true 4. true

Twain Incorporated reports total assets of $872,000 ($330,000 current and $542,000 noncurrent). The same company reports total liabilities of $539,000 ($132,000 current and $407,000 noncurrent). What is the current ratio?

2.50 to 1.00

Morgan Computer Repair, Inc. repairs computers for businesses and individuals. Financial financial information for Morgan Computer Repair, Inc. for 2018 is: Service Revenue, $215,000; Expenses, $135,100; and Operating Income, $79,900. Financial financial information for Morgan Computer Repair, Inc. for 2017 is: Service Revenue, $202,500; Expenses, $127,950; and Operating Income, $74,550. Based on the operating income reported for Morgan's Computer Repair, Inc. in each year, determine the income tax expense assuming a 35% tax rate.

2018: $27,965; 2017: $26,093

Morgan Computer Repair, Inc. repairs computers for businesses and individuals. Financial financial information for Morgan Computer Repair, Inc. for 2018 is: Service Revenue, $205,000; Expenses, $135,100; and Operating Income, $69,900. Financial financial information for Morgan Computer Repair, Inc. for 2017 is: Service Revenue, $202,500; Expenses, $127,950; and Operating Income, $74,550. Based on the 35% tax rate, what is the amount of net income reported for each year?

2018: $45,435; 2017: $48,457

Lee, Inc. provides wilderness adventure guided tours. The 2017 and 2018 net assets for thecompany are shown below. Net Assets = Capital Stock + Retained Earnings 2017 50,000 = 15,000 + 35,000 2018 62,000 = 15,000 + 47,000 What percent of net assets were generated through contributed capital by owners in 2017?

30.00%

Lee, Inc. provides wilderness adventure guided tours. The 2017 and 2018 net assets for thecompany are shown below. Net Assets = Capital Stock + Retained Earnings 2017 50,000 = 15,000 + 35,000 2018 75,000 = 15,000 + 60,000 What percent of net assets were generated through operations in 2018?

80.00%

Miller's Travel Agency has been in operations for the past 20 years, providing customers with leisure travel experiences around the world. During a recent trip to Southeast Asia, all of the luggage for the group was damaged or lost when it fell off of the vehicle which was transporting it. Prior to the trip, Miller's Travel Agency agreed to compensate passengers for any losses sustained during travel. Assume the chances of Miller's Travel Agency owing $75,000 or $100,000 are equal (50% possibility for each outcome). What should be reported to readers in the financial statements?

A loss of $100,000

For Mega Company, liabilities are $27 million, assets are $75 million, capital stock is $11 million, and retained earnings $37 million.

Based on this information, Mega Company's total capital is $48 million

A company had a number of cash transactions this year. It paid $42,000 in dividends to its owners, borrowed $100,000 from a bank on a long-term loan, bought a building for $288,000, sold equipment for $23,000, sold inventory for $16,000, and issued capital stock to an investor for $35,000. On a statement of cash flows, what is the net amount to be reported as financing activities?

Cash inflow of $93,000

A company had a number of cash transactions this year. It paid $43,000 in dividends to its owners, borrowed $200,000 from a bank on a long-term loan, bought a building for $412,000, sold equipment for $61,000, sold inventory for $25,000, and issued capital stock to an investor for $85,000. On a statement of cash flows, what is the net amount to be reported as investing activities?

Cash outflow of $351,000

The Stafford Company has recently issued a set of financial statements. The company owns several restaurants that serve coffee and pastries. Each of the following balances appears in the company's financial statements. Which is not included in the company's reported income statement?

Cash—$9,000

The Valdese Corporation operates a restaurant and has sales revenue of $300,000, cost of goods sold of $170,000, other expenses of $50,000, and a gain on the sale of a truck of $14,000. Which of the following statements is true?

Gross profit is $130,000, and net income is $94,000

The Bright Light Electrical Supply Company has sales revenue of $335,000, cost of goods sold of $275,000, other expenses of $50,000, and a gain on the sale of a truck of $24,000. Which of the following statements is true?

Gross profit is $60,000, and net income is $34,000.

Maria Sanchez, an accountant by trade, earns extra cash by working in the evenings as a personal trainer at the local gymnasium. Maria is curious about her cash inflows and outflows from this extra work. The following is the information that she gathered for the month of February. Cash Paid for Supplies Inventory, $550 Cash Paid for Advertising, $400 Cash Paid for Equipment $900 Cash Received from Bank Loan $1,000 Cash Paid for Insurance $700 Cash Received from Customers $2,200 Cash Paid for Taxes $400 Cash Balance, Beginning of February $500 Based on this information, what is the overall change in cash for February?

Increase of $150

Rescue Records needs rescuing. The downloading of songs over the Internet is killing its business. Given the following account balances, what is the net income or a net loss during the current year that ended on December 31, Year One? Advertising Expense, $4,600Salary Expense, $25,470Cost of Goods Sold, $109,000Sales Revenue, $197,000Income Tax Expense, $3,800Loss on Sale of Land, $12,090Rent Expense, $35,000

Net income $7,040

Which of the following is an operating activity?

Paying the utility bill in cash.

Tankard Company has the following reported balances at the end of the current year: revenues - $100,000, rent expense - $40,000, dividends paid - $12,000, loss on sale of truck - $2,000, salary expense -$19,000, gain on sale of land - $9,000, and prepaid insurance - $8,000. Which two balances will not appear on the income statement?

Prepaid insurance and dividends

Rollins Corporation is a car dealer. A new car is received from the manufacturer during September at a cost of $33,000. This vehicle is sold in October to a customer for $42,000. In connection with this transaction, which of the following statements is correct?

The company will report cost of goods sold of $33,000.

The Kansas Corporation has just produced a set of financial statements at the end of its fifth year of operations. On its balance sheet, it shows assets of $700,000 and liabilities of $200,000. The retained earnings balance within stockholders' equity is $100,000. Net income for the current year was reported as $90,000 with dividends of $50,000 distributed to the company's owners. Which of the following statements is true?

Total income less dividends paid during the previous four years was $60,000.

A company sells a piece of merchandise for an amount more than its original cost. The company should report this as a gain rather than revenue.

false

At the end of 2020, BGMP Inc. reported total assets of $2,690,000 and capital stock of $395,000. It also reported retained earnings at $1,578,000. The total liabilities, as of December 31, 2020, would be $707,000.

false

Borrowing money from a bank is classified as a(n) _________ activity on the statement of cash flows.

financing

The cash flow statement is divided into three parts. They are cash flows from operating, investing, and

financing activities

Identify where each of the following accounts appears: on a balance sheet or income statement gain on sale of equipment accounts receivable rent payable capital stock

gain on sale of equipment = income statement accounts receivable = balance sheet rent payable = balance sheet capital stock = balance sheet

Select all of the options that correctly complete this sentence: The difference in revenue and cost of goods sold is often referred to as: gross profits gross margin markup net assets net liabilities gross assets

gross profits = yes gross margin = yes markup = yes net assets = no net liabilities = no gross assets = no

If a company pays dividends to shareholders, this is considered to be a financing activity.

true

If a company sells 13 merchandise items for $17 more than they paid for each item, they made a profit of $221.

true

In a financial statement, there is generally a formal structure provided in order to convey financial information to the decision-makers.

true