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Exam 1: Financial Statements and Business Decisions

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Question 21

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

A) True
B) False

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Question 22

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In what order would the items on the balance sheet appear?

A) Assets, retained earnings, liabilities, and common stock.
B) Common stock, retained earnings, liabilities, and assets.
C) Assets, liabilities, common stock, and retained earnings.
D) Common stock, assets, liabilities, and retained earnings.

E) None of the above
F) All of the above

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Question 23

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Laker Company has provided the following information for its most recent year of operation: Cash collected from customers totaled $99,300. Cash borrowed from banks totaled $42,700. Cash paid to employees totaled $23,300. Cash paid for interest totaled $3,100. Cash received from selling an investment in Husky stock totaled $73,000. Cash payments to banks for repayment of money borrowed totaled $9,700. Cash paid for operating expenses totaled $11,200. Land costing $75,000 was sold for $75,000 cash. Cash paid for dividend payments to stockholders totaled $7,700. Calculate Laker's net cash flow from operating activities.

Fulton Company was established at the beginning of 2016 when several investors paid a total of $200,000 to purchase Fulton common stock. No additional investments in common stock were made during the year. By December 31, 2016, Fulton had cash on hand of $45,000, office equipment of $40,000, inventory of $156,000, and accounts payable of $10,000. Sales for the year were $812,000. Of this amount, customers still owed $20,000. Fulton declared and paid dividends of $25,000 to its stockholders during 2016. Required: 1. Based on the information above, prepare a balance sheet for Fulton Company at December 31, 2016. In the process of preparing the balance sheet, you must calculate the ending balance in retained earnings. 2. Prepare a statement of stockholders' equity for the year ended December 31, 2016. 3. What was the amount of Fulton's net income for 2016? 4. Was Fulton successful during its first year in operation? Explain your answer.

Which of the following describes the amount of insurance expense reported on the income statement?

Which of the following is the amount of revenue reported on the income statement of a retail company?

Which of the following does not represent a professional accounting certification?

One of the advantages of a corporation when compared to a partnership is the limited liability of the owners.

Which of the following statements is false?

Which of the following are the components of stockholders' equity on the balance sheet?

Which of the following is not a consequence to a company resulting from the issuance of their financial statements?

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

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.

Describe the elements of the balance sheet equation.

Which of the following equations is the balance sheet equation?

Indicate on which financial statement you would expect to find each of the following. If an item can be found on more than one statement, list each statement.

Which of the following accounts would be reported as assets on the balance sheet?

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

Describe the roles of the Securities and Exchange Commission and The Financial Accounting Standards Board with respect to the development of Generally Accepted Accounting Principles.

Which of the following has primary responsibility to develop Generally Accepted Accounting Principles?