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Exam 1: Financial Statements and Business Decisions

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Question 31

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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) C) and D)
F) B) and D)

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Question 32

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A company's retained earnings balance increased $50,000 last year; therefore, net income last year must have been $50,000.

A) True
B) False

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Question 33

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When would a company report a net loss on the income statement?

For each of the following items that appear on the balance sheet, identify each as an asset (A), liability (L), or element of stockholders' equity (SE). For any item that would not appear on the balance sheet, write the letter, N. $\begin{array} { | l | l | } \hline \text { Retained earnings } & \\\hline \text { Accounts payable } & \\\hline \text { Selling expense } & \\\hline \text { Common stock } & \\\hline \text { Accounts receivable } & \\\hline \text { Income tax expense } & \\\hline \text { Dividends } & \\\hline \text { Property and equipment } & \\\hline\end{array}$

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

The declaration of a $5,000 dividend by JLH Company would be reported on which of JLH's financial statements?

Which of the following accounts is not a liability on the balance sheet?

Which of the following statements is correct?

Revenue is recognized within the income statement during the period in which cash is collected.

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

Lena Company has provided the following data (ignore income taxes) : 2014 revenues were $99,000. 2014 expenses were $47,800. Dividends declared and paid during 2014 totaled $9,500. Total assets at December 31, 2014 were $177,000. Total liabilities at December 31, 2014 were $89,000. Common stock at December 31, 2014 was $28,000. Which of the following is not correct?

Which of the following best describes liabilities and stockholders' equity?

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

Rose Corporation began operations at the start of 2014. During 2014, it made cash and credit sales totaling $500,000 and collected $420,000 in cash from its customers. It purchased inventory costing $250,000, paid $15,000 for dividends and the cost of goods sold was $210,000. Also, the corporation incurred the following expenses during 2014: $\begin{array} { | l | r | } \hline \text { Salary expense } & \$ 80,000 \\\hline \text { Interest expense } & 5,000 \\\hline \text { Insurance expense } & 4,000 \\\hline \text { Supplies expense } & 6,000 \\\hline \text { Income tax expense } & 34,000 \\\hline\end{array}$ Requirements: 1. Prepare an income statement showing revenues, expenses, income before income taxes, income tax expense, and net income for the year ended December 31, 2014. 2. Based on the above information, what is the amount of accounts receivable on the balance sheet prepared as of December 31, 2014? 3. Based on the above information, what is the amount of retained earnings on the balance sheet prepared as of December 31, 2014?

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

Fulton Company was established at the beginning of 2014 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, 2014, 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 paid dividends of $25,000 to its stockholders during 2014. Requirements: 1. Based on the information above, prepare a balance sheet for Fulton Company as of December 31, 2014. 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, 2014. 3. What was the amount of Fulton's net income for 2014? 4. Was Fulton successful during its first year in operation? Explain your answer.

An examination of the financial statements of a business to ensure that they conform to generally accepted accounting principles is called

Cosmos Corporation was established on December 31, 2013, by a group of investors who invested a total of $1,000,000 for shares of the new corporation's common stock. During the month of January 2014, Cosmos provided services to customers for which the total revenue was $100,000. Of this amount, $10,000 had not been collected by the end of January. Cosmos recorded salary expense of $20,000, of which 90% had been paid by the end of the month; rent expense of $5,000, which had been paid on January 1; and other expenses of $12,000, which had been paid by check. On January 31, 2014, Cosmos purchased a van by paying cash of $30,000. There were no other transactions that affected cash. Requirements: 1. In which section of the statement of cash flows would the amount of cash paid for rent be reported? 2. In which section of the statement of cash flows would the amount of cash paid for the van purchase be reported? 3. By how much did Cosmos's cash increase or decrease during January 2014? 4. What was Cosmos's net income or net loss (after income tax expense) for the month of January 2014? The income tax expense was $18,900. 5. Explain why the net increase or decrease in cash for a business generally will be different than the net income, or net loss, for the same period.

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. How much was Laker's net cash flow from investing activities?

Which of the following would immediately cause a change in a corporation's retained earnings?