Deck 2: Constructing Financial Statements

Question 1

Assets such as inventory and property, plant, and equipment are reported on the balance sheet at their current market value.

Answer 1

False

Question 2

If Howard, Inc. purchased inventory on credit from Roan Company, then the transaction recorded by Howard would include an increase in a liability and an increase in asset.

Answer 2

True

Question 3

Operating expenses include interest expense related to a company's financing activities.

Answer 3

False

Question 4

Accrual accounting recognizes revenues only when cash is received and expenses only when cash is paid.

Question 5

Under the matching principle, the cost of inventory should be reported as an expense in the income statement when it is purchased, even if it is purchased on credit and will not be paid until the next reporting period.

Question 6

If Umbrella Company paid $2,000 cash dividends to its shareholders, retained earnings would be reduced by $2,000.

Question 7

If stockholders' equity is $88,000 on January 1, 2016, and decreases to $64,000 on December 31, 2016, this could only be due to a net loss of $24,000.

Question 8

Which of the following is not shown in the statement of stockholder's equity?

A) Unearned revenue
B) Dividends
C) Retained earnings
D) Common stock

Question 9

What are probable future sacrifices called and how are they reported?

A) Assets on the balance sheet
B) Stockholders' equity on the balance sheet
C) Dividends on the statement of stockholders' equity
D) Liabilities on the balance sheet

Question 10

Account titles are commonly grouped into what five categories in the chart of accounts?

A) Current assets, Current liabilities, Noncurrent assets, Noncurrent liabilities, Stockholders' equity
B) Assets, Liabilities, Equity, Revenue, Expenses
C) Common stock, Additional paid-in capital, Treasury stock, Retained earnings, Accumulated other comprehensive income or loss
D) Cash, Marketable securities, Accounts payable, Long-term debt, Common stock

Question 11

Which one of the following does not impact retained earnings directly?

A) Net income
B) Net loss
C) Dividends
D) Stock issuances

Question 12

An income statement does not include which of the following?

A) Operating expenses
B) Cost of goods sold
C) Retained earnings
D) Sales

Question 13

An accrual of wages expense would produce what effect on the balance sheet?

A) Increase liabilities and decrease equity
B) Decrease liabilities and increase equity
C) Increase assets and increase liabilities
D) Decrease assets and decrease liabilities

Question 14

Hopewell Industries recorded and paid $1,800 advertising for the current month. Which occurred?

A) Current assets increase.
B) Gross profit decreases.
C) Operating income decreases.
D) Retained earnings increases.

Question 15

As inventory and PPE assets on the balance sheet are consumed, they are reflected:

A) As a revenue on the income statement
B) As an expense on the income statement
C) As common stock on the balance sheet
D) Assets are never consumed

Question 16

Which of the following will properly record the payment of a one-year insurance policy?

A) Increase assets and increase retained earnings
B) Increase liabilities and decrease retained earnings
C) Increase and decrease assets
D) Decrease assets and decrease liabilities

Question 17

Cash collected on accounts receivable would produce what effect on the balance sheet?

A) Increase liabilities and decrease equity
B) Decrease liabilities and increase equity
C) Increase assets and decrease assets
D) Decrease assets and decrease liabilities

Question 18

Which of the following is one effect of a purchase of $1,000 of inventory on credit?

A) It would increase liabilities by $1,000
B) It would decrease retained earnings by $1,000
C) It would decrease liabilities by $1,000
D) It would decrease cash asset $5,000

Question 19

The Cash t-account has a beginning balance of $64,000. During the year, $488,000 was debited and $498,000 was credited to the account.
What is the ending balance of cash?

A) ($10,000)
B) $74,000
C) $54,000
D) Cannot be determined from the information given.

Question 20

On January 1, 2016, Lorraine Company paid a $32,000 cash security deposit to rent office space.
Which of the following would be the correct journal entry to record this transaction?

A)
B)
C)
D)

Question 21

Which of the following statements is true regarding the current ratio?

A) A company with a high current ratio cannot have liquidity problems
B) A low current ratio suggests inefficient use of resources
C) The current ratio can be improved by paying creditors immediately prior to the preparation of financial statements
D) The current ratio presents a more conservative liquidity measure than does the quick ratio

Question 22

If Foster Toys has a current ratio of 2.5 and working capital of $2,200,000, which of the following will cause both the current ratio and working capital to decrease?

A) Paid accounts payable in the amount of $60,000
B) Recorded unpaid salaries in the amount of $160,000
C) Borrowed $200,000 from a bank to be repaid in 90-days
D) Purchased $30,000 of inventory on credit

Question 23

Which of the following is the justification of reporting certain assets at historical cost?

A) Executory
B) Reliability
C) Relevance
D) Accrual

Question 24

Compute the missing amounts in the table below:

Question 25

Prepare an income statement for the month ended July 31, 2016 for Bargain Books. Bargain's account balances for the month ending July 31, 2016 are:

Question 26

Prepare a statement of stockholders' equity for the month ended July 31, 2016 for Bargain Books. Assume no changes in contributed capital during the month. Bargain's account balances for the month ending July 31, 2016 are:

Question 27

Prepare a balance sheet for Bargain Books as of July 31, 2016. Bargain's account balances for the month ending July 31, 2016 are:

Question 28

Record the effects of each transaction or event in the table below:

Question 29

The following items and amounts are taken from the 2016 financial records of Retrieval Co.:
Prepare an income statement for the year ending December 31, 2016:

Question 30

The following items and amounts are taken from the 2016 financial records of Retrieval Co.:
Prepare a statement of stockholders' equity for Retrieval Co. for the year ending December 31, 2016. Assume no changes in common stock during the year.

Question 31

The following items and amounts are taken from the 2016 financial records of Retrieval Co.:
Prepare a balance sheet for Retrieval Co. for the year ending December 31, 2016.

Question 32

The records of Meadow Corp. show the following information after all transactions are recorded for 2016.
Meadow raised $24,000 cash through the issuance of additional common stock during the year. Based on this information, prepare Meadow's statement of stockholders' equity for the year ending December 31, 2016.

Question 33

On December 31, 2016, Sirius Corporation's records show the following selected amounts.
Prepare an income statement for Sirius for its year ending December 31, 2016.

Question 34

At the end of 2016, Lumos Company reported the following amounts on its balance sheet:
Answer each of the following independent questions:
A. Assume that Lumos' stockholders' equity on January 1, 2016 was $264,000. Lumos did not issue common stock during the year, but it paid $36,000 cash in dividends. How much is Lumos' net income or loss for 2016?
B. Assume that Lumos' stockholders' equity on January 1, 2016 was $236,000, and that Lumos issued additional common stock of $70,000 and paid $44,000 in cash dividends before the end of 2016. What was Lumos' net income or net loss for 2016?

Question 35

Lollipop, Inc. has $2,400 net working capital and $6,600 of current assets, what is the amount of the firm's current liabilities?

Question 36

Companies strive to reduce operating cycles (time between paying cash for goods and receiving cash from customers). List 2 ways by which companies can achieve this.

Question 37

Select from choices of its balance sheet classification. If the item should not appear on the balance sheet, select H.

-Cash

A) Current assets
B) Long-term investments
C) Long-term assets
D) Intangible assets
E) Current liabilities F. Noncurrent liabilities G. Equity H. Not appear on the balance sheet

Question 38

Select from choices of its balance sheet classification. If the item should not appear on the balance sheet, select H.

-Machine

A) Current assets
B) Long-term investments
C) Long-term assets
D) Intangible assets
E) Current liabilities F. Noncurrent liabilities G. Equity H. Not appear on the balance sheet

Question 39

Select from choices of its balance sheet classification. If the item should not appear on the balance sheet, select H.

-Income taxes payable in 30 days

A) Current assets
B) Long-term investments
C) Long-term assets
D) Intangible assets
E) Current liabilities F. Noncurrent liabilities G. Equity H. Not appear on the balance sheet

Question 40

Select from choices of its balance sheet classification. If the item should not appear on the balance sheet, select H.

-Utilities payable

A) Current assets
B) Long-term investments
C) Long-term assets
D) Intangible assets
E) Current liabilities F. Noncurrent liabilities G. Equity H. Not appear on the balance sheet

Question 41

Select from choices of its balance sheet classification. If the item should not appear on the balance sheet, select H.

-Note receivable due in 30 days

A) Current assets
B) Long-term investments
C) Long-term assets
D) Intangible assets
E) Current liabilities F. Noncurrent liabilities G. Equity H. Not appear on the balance sheet

Question 42

Select from choices of its balance sheet classification. If the item should not appear on the balance sheet, select H.

-Common Stock

A) Current assets
B) Long-term investments
C) Long-term assets
D) Intangible assets
E) Current liabilities
F)Noncurrent liabilities
G) Equity
H) Not appear on the balance sheet

Question 43

Select from choices of its balance sheet classification. If the item should not appear on the balance sheet, select H.

-Value of company logo

A) Current assets
B) Long-term investments
C) Long-term assets
D) Intangible assets
E) Current liabilities
F)Noncurrent liabilities
G) Equity
H) Not appear on the balance sheet

Question 44

Select from choices of its balance sheet classification. If the item should not appear on the balance sheet, select H.

-Wages expense

A) Current assets
B) Long-term investments
C) Long-term assets
D) Intangible assets
E) Current liabilities
F)Noncurrent liabilities
G) Equity
H) Not appear on the balance sheet

Question 45

Select from choices of its balance sheet classification. If the item should not appear on the balance sheet, select H.

-Value of land in excess of cost

A) Current assets
B) Long-term investments
C) Long-term assets
D) Intangible assets
E) Current liabilities
F)Noncurrent liabilities
G) Equity
H) Not appear on the balance sheet

Question 46

Select from choices of its balance sheet classification. If the item should not appear on the balance sheet, select H.

-Mortgage payable

A) Current assets
B) Long-term investments
C) Long-term assets
D) Intangible assets
E) Current liabilities
F)Noncurrent liabilities
G) Equity
H) Not appear on the balance sheet

Question 47

Based on the following list of transactions, indicate their effect on Divine Dogs assets, liabilities and equity for his one month of operations.
A. Divine buys a cooler and a George Foreman grill for $1,200 cash.
B. Divine takes out a loan for $3,200.
C. Divine buys 600 hot dogs at $0.50 each, 500 buns at $0.20 each, 800 cans of soft drinks at $0.50 each and a huge bottle of ketchup for $50.
D. Divine sells 160 hot dog / drink combos for $8 each.
E. Divine records the product cost for the sales in (D) above, including ketchup, at $1.50 each.
F. Divine pays his hot dog salesmen $800 for the month.
G. Divine pays $80 of his loan.

Question 48

Information concerning Nickolas' earnings for three years appears below.
Calculate the missing amounts.

Question 49

Compute the missing amounts for each of the last 3 years for West Suburban Inc.

Question 50

Identify the effects of the following transactions in the table below:

Question 51

Identify the effects of the following transactions in the table below:

Question 52

With few exceptions, why do we report most assets at their original acquisition price (historical cost) and not at current market value?

Question 53

Prepare a list of two possible undervalued assets on the balance sheet of a company. Indicate how these items can be undervalued.