Chapter 01 Practice

Patterson Corporation began the year with retained earnings of $325,000. During the year, the company issued $500,000 of common stock, recorded expenses of $1,500,000, and paid dividends of $90,000. If Patterson's ending retained earnings was $350,000, what was the company's revenue for the year?

$1,615,000 -- $350,000+$90,000+$1,500,000-$325,000=$1,615,000 NEW Retained Earnings + Paid Dividends + Expenses - OLD Retained Earnings = Revenue

If total liabilities increased by $95,000 and stockholders' equity increased by $45,000 during a period of time, then total assets must change by what amount and direction during that same period?

$140,000 increase -- $95,000 + $45,000 = $140,000. Liabilities Inc + SE inc = Assets Changed

Maxwell Flooring started the year with total assets of $160,000 and total liabilities of $75,000. During the year, the business recorded $250,000 in revenues, $100,000 in expenses, and dividends of $30,000. The net income reported by Maxwell Flooring for the year was

$150,000 -- Revenues - Expenses = Net Income

Smith Corporation began the year with retained earnings of $300,000. During the year, the company issued $500,000 of common stock, recorded expenses of $2,000,000, and paid dividends of $200,000. If Smith's ending retained earnings was $425,000, what was the company's revenue for the year?

$2,325,000 -- $425,000 + $200,000 + $2,000,000 - $300,000 = $2,325,000 NEW Retained Earnings + Paid Dividends + Expenses - OLD Retained Earnings = Revenue

Goodman Auto started the year with total assets of $300,000 and total liabilities of $175,000. During the year, the business recorded $475,000 in revenues, $275,000 in expenses, and dividends of $30,000. The net income reported by Goodman Auto for the year was

$200,000 -- $475,000 - $275,000 = $200,000 Revenues - Expenses = Net Income

C&R Lumber started the year with total assets of $300,000 and total liabilities of $180,000. During the year, the business recorded $375,000 in revenues, $240,000 in expenses, and dividends of $50,000. Stockholders' equity at the end of the year was

$205,000 -- Stockholders' equity = ($300,000 - $180,000) + ($375,000 - $240,000) - $50,000. SE = (Total Assets - Total Liabilities) + (Revenues - Expenses) - Dividends

If total liabilities decreased by $60,000 and stockholders' equity increased by $20,000 during a period of time, then total assets must change by what amount and direction during that same period?

$40,000 decrease -- ($60,000) + $20,000 = ($40,000)

A company has assets of $46,000 and stockholders' equity of $5,000. According to the basic accounting equation, its total liabilities are

$41,000

Taylor Company compiled the following financial information as of December 31, 2017. Service revenue: $625,000 Common stock: $150,000 Equipment: $100,000 Operating expenses: $400,000 Cash: $100,000 Dividends: $30,000 Supplies: $25,000 Accounts payable: $75,000 Accounts receivable: $95,000 Retained earnings, 1/1/17: $375,000 Taylor's retained earnings on December 31, 2017, are which of the following?

$570,000 -- $375,000 + ($625,000-$400,000) - $30,000 = $570,000 OLD Retained Earnings + (Service Revenue - Operating Expenses) - Dividends = NEW Retained Earnings

What is the difference between accounts receivable and accounts payable?

Accounts receivable is money owed to a company by customers, whereas accounts payable is money that the company owes to suppliers.

On May 31, 2016, Hughes Construction recorded $50,000 in bonds payable, $30,000 in notes payable, $9,000 in wages payable, $3,000 in accounts payable, and $1,450 in taxes payable. How are all of these accounts similar?

All of them represent liabilities that must be paid back at some specified point in the future.

Sullivan Lighting pays their employees on the last day of each month. Graham Music pays their employees every other Friday. When creating their financial documents on Wednesday, August 31, 2016, the accountant at Graham Music records wages payable, whereas the accountant at Sullivan Lighting does not. Why?

Graham Music owes wages to employees that have not been paid yet, whereas Sullivan Lighting has paid all of their employees in full.

In 2016, Alexander Industries had two major transactions involving stocks. The first transaction was a financing activity, and the second transaction was an investing activity. Which of the following transactions likely occurred?

In the first transaction, Alexander Industries sold company stock to investors. In the second transaction, Alexander Industries purchased stock of another company.

What section of a cash flow statement shows the cash spent on new equipment during the past accounting period?

Investigating section

Hefty Haulers Moving Company decided to use cash to purchase a second moving truck. How will this purchase affect Hefty Hauler's operating activities?

It will help increase their service revenue.

Coleman Camping Supplies decided to use cash to purchase a new tent sewing machine. It will effectively double their ability to produce tents. How will this purchase affect Coleman's operating activities

It will increase their finished goods inventory and hopefully increase revenue.

Jason and Hernando both decided to invest in the same company. Jason expects to be paid back in full for his investment plus some interest, whereas Hernando only expects to receive dividends from his investment. What is the difference between Jason's and Hernando's investments?

Jason invested in a debt security, whereas Hernando invested in an equity security.

Homeland Furniture wants to expand their company by opening a new store. The building they would like to purchase will cost them $480,000. They were unable to get a loan from the bank, but they prefer to use debt financing rather than equity financing to pay for the building. Which of the following would be their best option for raising $480,000?

Sell bonds to raise $480,000

At the end of the accounting period on December 31, 2016, Rose Industries records wages payable of $42,500. For the same accounting period, Romero Industries does not need to record wages payable. Why?

The end of the accounting period fell on a payday for Romero Industries but not for Rose Industries.

Resources that are owned by a company are called

assets

________ activities include obtaining cash to pay debts or to repay amounts the company has borrowed.

financing

Flex-Mat started the year with total assets of $160,000 and total liabilities of $90,000. During the year, the business recorded $210,000 in revenues, $120,000 in expenses, and dividends of $35,000. Stockholders' equity at the end of the year was

$125,000 -- ($160,000 - $90,000) + ($210,000 - $120,000) - $35,000 = $125,000. SE = (Total Assets - Total Liabilities) + (Revenues - Expenses) - Dividends

Paulson Company began the year with retained earnings of $500,000. During the year, the company issued $720,000 of common stock, recorded expenses of $2,000,000, and paid dividends of $80,000. If Paulson's ending retained earnings was $520,000, what was the company's revenue for the year?

$2,100,000 -- $520,000 + $80,000 + $2,000,000 - $500,000 = $2,100,000 NEW Retained Earnings + Paid Dividends + Expenses - OLD Retained Earnings = Revenue

Al's Automotive started the year with total assets of $250,000 and total liabilities of $180,000. During the year, the business recorded $375,000 in revenues, $200,000 in expenses, and dividends of $35,000. Stockholders' equity at the end of the year was

$210,000 -- Stockholders' equity = ($250,000 - $180,000) + ($375,000 - $200,000) - $35,000 SE = (Total Assets - Total Liabilities) + (Revenues - Expenses) - Dividends

Which of the following accounts are similar in that they represent liabilities that must be paid back at some specified point in the future? Select all that apply. A Russell Candies has $14,000 in wages payable. B Olson Grocers has $27,000 in accounts payable. C Snyder Drug Store has $96,000 in inventory. D Gibson Electronics has $32,000 in accounts receivable. E Ramos Automotive has $50,000 in notes payable. F Chavez Landscaping has $63,000 in service revenue

A Russell Candies has $14,000 in wages payable. B Olson Grocers has $27,000 in accounts payable. E Ramos Automotive has $50,000 in notes payable.

Watson Energy decided to borrow cash from the bank in order to build a new office building. The board of directors was arguing about which type of business activity this was. Diane stated that it was a financing activity, but Paul stated that it was an investing activity. Who was correct?

Both. Borrowing the cash is a financing activity, but building the new office building is an investing activity.

Mark and Sally both decided to invest in the same company. Mark does not like risk, so he purchased bonds from the company. Sally does not mind a little bit of risk, so she purchased stocks from the company. What is the difference between Mark's and Sally's expectations of the company?

Mark expects to be paid back for his investment with interest, whereas Sally only expects to receive dividends from her investment unless she decides to sell her stocks.

On July 29, 2016, Wagner Trucking recorded $24,000 in services that they had performed but had not yet been paid by the customer. On the same day, Dixon Trucking recorded $24,000 that they need to pay to their suppliers for gas and oil. What is the difference between how these two transactions will be recorded?

Wagner Trucking will record their transaction as an asset in accounts receivable, whereas Dixon Trucking will record their transaction as a liability in accounts payable.

A company purchases new manufacturing equipment using a loan from the bank. They plan to re-pay the loan over the next 10 years. The loan is an example of

a liability

Companies are most likely to use cash from financing activities to purchase

fixed assets

If Company B sells goods to a customer but does not receive cash immediately, Company B has a(n)

account receivable

To determine the retained earnings at the end of the period, the company

adds net income and deducts dividends.

Which of the following is required in order for a company to participate in investing activities?

adequate amounts of cash

Kim's Flowers decided to borrow $26,000 from the bank to purchase a new delivery vehicle. How should they categorize this business activity?

as both a financing activity and an investing activity

Jane gave money to a company with the specification that she would be repaid at the end of three months. Based on this information, Jane is an example of a(n)

creditor

Porter Veterinary Services recently purchased several new stock trailers for their equine and bovine clients. The stock trailers increased their long-term assets by 50%. Porter Veterinary Services most likely used cash obtained from ________ activities to purchase these trailers.

financing

A brick company calculated its stockholders' equity for the fiscal year 2017. Its overall revenues were $3.8 million, expenses were $2.4 million, and dividends paid were $500,000. The company experienced a net _________ of

income; $1.4 million. -- Net income or loss is measured by subtracting expenses from revenues. Dividends are not considered in calculating a net income or loss. $3.8 million - $2.4 million = $1.4 million income

Kramer Fabrications stockholders' equity at the beginning of July 2017 was $600,000. During the month, the company earned net income of $145,000 and paid dividends of $25,000. At the end of July 2017, what is the amount of stockholders' equity?

$720,000

In which of the following sequences are the financial statements usually prepared? Balance sheet, statement of cash flows, income statement and retained earnings statement Income statement, retained earnings statement, balance sheet, and statement of cash flows Balance sheet, retained earnings statement, statement of cash flows, and income statement Income statement, balance sheet, retained earnings statement, and statement of cash flows

-- Net income (from the income statement) is a required input for the retained earnings statement, ending retained earnings (from the retained earnings statement) is a required input for the balance sheet and the ending cash balance (from the balance sheet) is a required input for the statement of cash flows.

Brooks Flooring is a national supplier of all types of flooring. Their biggest customer is Jenkins Construction Company. On July 8, 2016, Brooks Flooring purchased 100 shares of Jenkins stock. Later that year, on November 14, 2016, Brooks decided to sell 1,000 shares of Brooks stock to investors. What is the difference between these two transactions involving stock?

The first transaction is an investing activity, whereas the second transaction is a financing activity.

A company records a liability in their accounting books when they

owe money to a bank, an investor, or another company.

Investors would be MOST interested in using the ________ to determine the company's policy toward dividends and growth.

retained earnings statement