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Exam 1: Financial Statements and Business Decisions

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Question 41

Multiple Choice

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Which of the following would not be reported on a statement of stockholders' equity?

A) Dividend payments.
B) Net income.
C) Beginning retained earnings.
D) Ending retained earnings.

E) A) and B)
F) B) and C)

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Question 42

Multiple Choice

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Which of the following statements pertaining to the audit function is incorrect?

A) The primary responsibility for the information in the financial statements lies with the auditors.
B) The audit report describes the auditor's opinion of the fairness of the financial statements.
C) An audit ensures that the financial statements conform to generally accepted accounting principles.
D) The auditor is a person who is independent of the reporting company.

E) A) and B)
F) A) and C)

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Question 43

Multiple Choice

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Which of the following statements is true?

Which of the following groups has primary responsibility for the information contained in the financial statements?

During 2019,Rock Company's cash balance increased from $57,000 to $94,300.Rock's net cash flow from operating activities was $26,900 and its net cash flow from financing activities was $13,700. Calculate Rock's net cash flow from investing activities.

A new accountant who prepared the financial statements for Saltech Company at the end of its first year of operations made several errors.For each of the following items,indicate whether the income statement and balance sheet are affected by the error,and also the amount by which the respective financial statement is affected.(For example,an error might cause revenues and net income on the income statement and retained earnings and accounts receivable and assets on the balance sheet to be overstated by x dollars).Ignore the effects of income taxes. Items to determine which financial statement is affected,the error amount,and whether the account is overstated or understated: a.The company had sales for cash of $3,000,000.It also had sales on account of $1,800,000 that had been collected by the end of the year,and sales on account of $200,000 that are expected to be collected early the following year.The accountant reported total sales revenue of $4,800,000. b.The company had total inventories of $600,000 at the end of the year.Of this amount,inventory reported at $30,000 was obsolete and will have to be scrapped.The balance sheet prepared by the accountant showed total inventories of $600,000. c.The company has a bank loan for which interest expense during the year of $10,000 will be paid early in January of the next year.The accountant recorded neither the interest expense nor the interest payable. d.An insurance policy was listed as an asset of $6,000 at the beginning of the year.The entire amount of the policy was for the current year and the policy has expired.The accountant took no action to recognize the expiration of the policy.

During the current year,Rock Company's cash balance increased from $79,000 to $91,300.Rock's net cash flow from operating activities was $37,300 and its net cash flow from financing activities was $11,100.How much was Rock's net cash flow from investing activities?

The statement of stockholders' equity explains the change in the retained earnings balance caused by stockholder investments and dividend declarations.

Describe the role of a company's management and the external auditors in the accounting communication process.

On January 1,2019,Miller Corporation had retained earnings of $8,000,000.During 2019,Miller reported net income of $1,500,000,declared dividends of $500,000,and issued common stock for $1,000,000.What were Miller's retained earnings on December 31,2019?

Why is the CPA's role in performing audits important to our economic system?

The balance sheet includes assets,liabilities,and stockholders' equity as of a point in time.

Which of the following transactions affects both retained earnings and net income?

Which of the following would be reported in the financing activities section of a cash flow statement?

The Financial Accounting Standards Board (FASB)has been given the authority by the Securities and Exchange Commission (SEC)to develop generally accepted accounting principles.

The financial statement that shows an entity's economic resources and claims against those resources is the balance sheet.

Which of the following statements is false?

Determine the missing amounts for each independent case below.Assume the amounts shown are at the end of the company's first year of operation.

What are the categories of cash flows that appear on a statement of cash flows?

During 2019,Winterset Company performed services for which customers paid or promised to pay a total of $587,000.Of this amount,$552,000 had been collected by year-end.Winterset paid $340,000 in cash for employee wages and owed the employees $15,000 at the end of the year for work that had been done but had not paid for.Winterset paid interest expense of $3,000 and $195,000 for other service expenses.The income tax rate was 35%,and income taxes had not yet been paid at the end of the year.Winterset declared and paid dividends of $20,000.There were no other transactions that affected cash. 1.What was the amount of the increase or decrease in cash during the year? 2.Prepare an income statement for Winterset for the year 2019. 3.At the beginning of 2019,Winterset's retained earnings were $90,000.Prepare a statement of stockholders' equity with only a column for retained earnings.