Reference no: EM131208861
I. True/False – If the statement is FALSE, you must explain why or correct it to get credit
1. The balance sheet includes assets, liabilities, and stockholders’ equity as of a point in time.
True False
2. Revenue is recognized within the income statement during the period in which cash is collected.
True False
3. The stockholders’ equity section of a balance sheet includes both capital that has been contributed by owners as well as retained earnings.
True False
4. One example of an operating revenue would be the revenue created by the sale of an automobile at a car dealership.
True False
5. Purchasing supplies for cash results in an increase in total assets for the purchasing company.
True False
6. Revenue accounts typically have credit balances because they increase stockholders’ equity.
True False
7. Accrued expenses are initially recorded as assets and when they are later used, expenses will increase and assets will decrease.
True False
8. Closing the revenue and gain accounts at year-end requires that these accounts be debited.
True False
9. When a company sells equipment for cash at a loss, cash flows from investing activities decreases.
True False
10. The difference between the direct and indirect methods of cash flows statement preparation only affects how cash flows from operations are reported.
True False
II. Multiple Choice – Circle the correct answer.
11. Superior has provided the following information for its recent year of operation:
The common stock account balance at the beginning of the year was $20,000 and the year-end balance was $25,000.
The additional paid-in capital account balance increased $2,500 during the year.
The retained earnings balance at the beginning of the year was $75,000 and the year-end balance was $91,000.
Net income was $26,000.
How much were Superior’s Dividends during its most recent year of operations?
A) $10,000
B) $42,000
C) $26,000
D) The amount cannot be determined from the information provided.
12. Colby Corporation has provided the following information:
• Operating revenues were $199,700.
• Operating expenses were $111,000.
• Interest expense was $9,200.
• A gain from the sale of equipment was $3,300.
• Income tax expense was $36,000.
• Prepaid rent went up by $7,700 for the year.
How much was Colby’s Net Income?
A. $39,100
B. $48,300
C. $52,700
D. $46,800
13. On December 31, 2014, The Bates Company's revenues total $300,000 and expenses total $160,000 before consideration of the following:
Accrued wages total $11,000;
Accrued revenues total $36,000;
Depreciation expense is $17,000;
Rental revenue of $9,000 was earned;
The income tax rate is 40% of income before income taxes.
What is Bates' net income after consideration of the above information?
A. $94,200
B. $157,000
C. $140,000
D. $88,800
14. Which of the following transactions would not be reported within the investing section of the cash flow statement?
A. The cash sale of land at a gain.
B. The purchase of a building for cash.
C. The purchase of a stock investment for cash.
D. The cash receipt of a dividend from a stock investment.
15. Canadian Beer reported equipment sold for $222 million cash and new equipment purchased for $1,515 million cash. The equipment sold had a net book value of $150 million. Cash flow from investing activities would show:
A. An inflow of $222 million and an outflow of $1,515 million.
B. An inflow of $222 million and an outflow of $150 million.
C. Cash paid for equipment of $1,293 million.
D. A net outflow of $1,365 million.
16. Which of the following journal entries is created as the result of an accrual?
A. Deferred Revenue
Revenue
B. Interest Expense
Interest Payable
C. Cash
Deferred Revenue
D. Revenue Receivable
Unearned Revenue
17. At the beginning of April, Warren Corporation's assets totaled $240,000 and liabilities totaled $60,000. During April the following summarized transactions occurred:
Additional shares of stock were sold for $20,000 cash.
A building costing $95,000 was purchased using $10,000 cash and by signing an $85,000 long-term note payable.
Short-term investments costing $9,000 were purchased using cash.
$10,000 was paid to an employee as a loan; the employee signed a six-month note in exchange for the loan.
How much are Warren's total liabilities at the end of April?
A. $145,000
B. $155,000
C. $165,000
D. $135,000
18. Mama June Pizza Company sold land costing $39,000 for $51,000 cash. Which of the following statements concerning the land sale is correct?
A. The land account was credited for $51,000.
B. The revenue account was debited for $51,000.
C. Operating income increased $12,000.
D. Income before income taxes increased $12,000.
19. Smith Corporation has provided the following information:
Cash sales totaled $125,000.
Credit sales totaled $279,000.
Cash collections from customers for services yet to be provided totaled $38,000.
An $11,000 gain from the sale of property and equipment occurred.
Interest income totaled $7,700.
How much were Smith's operating revenues?
A. $404,000
B. $411,700
C. $442,000
D. $460,700
20. A company purchased a computer, office furniture, and office supplies by issuing a check for $5,000 and a note payable for $19,500. The combined sticker price of all the items was $26,300. The total value that will be recorded in the balance sheet for the items is:
A. $26,300
B. $19,500
C. $24,500
D. $31,300
III – Free Response Questions – Please answer each question as completely as possible.
Show your work for partial credit.
21) On December 31, 2015, Nelson Company had the following account balances:
Further, the company has the following additional adjustment information:
a) On July 1, the company had accepted a $10,000, 9-month, 10% (annual rate) note receivable from a customer. The interest is to be collected when the note is collected.
b) On August 1, the company had paid $3,000 for a 2-year insurance policy.
c) On September 1, the company had received 2 years of rent in advance ($4,320) for a portion of a building it is renting to Victoria Company.
d) On December 1, the company had issued a $7,200, 3-month, 12% (annual rate) note payable to a supplier. The interest is to be paid when the note is paid.
e) On January 1 (of 2015), the company purchased $1,000 of office supplies. A physical count on December 31 revealed that there are $400 of office supplies still on hand. No supplies were on hand at the beginning of the year.
Required:
Prepare the adjusting entries (from (a) through (e) above) necessary to bring the company’s accounts up to date on December 31, 2015 (2 points per journal entry).
From adjusting the $1000 in expenses already recorded to reflect that actual expense was only $600.
21. Sagaworth, Inc. reported the following information:
2015 Income Statement
Net loss $380,000
Depreciation expense 150,000
Amortization expense 25,000
Balance Sheet:
2015 2014
Accounts Receivable $200,000 $230,000
Inventory 140,000 160,000
Prepaid Expenses 40,000 30,000
Equipment, Net 85,000 45,000
Accounts Payable 190,000 180,000
Accrued Liabilities 50,000 45,000
Taxes Payable 10,000 20,000
Required:
Determine Sagaworth’s Net Cash Flow from Operating Activities for 2015 under the indirect method.
22. Mackley Company is completing the information processing cycle at the end of its annual accounting period, December 31, 2014. Four adjusting entries must be made to update the accounts. The following accounts, selected from the company's chart of accounts, are to be used for this purpose. They are coded to the left for easy reference.
A. Cash I. Unearned revenue
B. Notes receivable J. Prepaid insurance
C. Interest receivable K. Wage expense
D. Supplies expense L. Depreciation expense
E. Accumulated depreciation M. Interest expense
F. Notes payable N. Insurance expense
G. Interest payable O. Office supplies inventory
H. Wages payable P. Some other account not listed
In the table below, indicate the appropriate account code and amount for each of the required adjusting entries at December 31, 2014.
|
Transaction
|
Debits
|
Credits
|
|
Code
|
Amount
|
Code
|
Amount
|
|
A.
|
Wages of $5,800 have been earned, but not paid to employees at the end of the year
|
|
|
|
|
|
B.
|
Supplies in the amount of $2,000 were used during the year which are currently recorded in the office supplies inventory account.
|
|
|
|
|
|
C.
|
Depreciation on machinery in the amount of $9,000 needs to be recorded.
|
|
|
|
|
|
D.
|
On July 1, 2014, Mackley paid a two-year insurance premium, making the following entry:
Prepaid insurance 4,800
Cash 4,800
|
|
|
|
|
IV – Company Analysis– Instructions: Use Amazon’s 2013 annual report to answer the following questions. Its fiscal year ends December 31, 2013, and FY2013 refers to the fiscal year ended December 31, 2013. Treat each item below independently. Watch the dates on the statements. All numbers on the financial statements and in the problems are in millions (except per share data).
23. Did Amazon pay dividends in 2013? If yes, how much? If no, how do you know?
24. Using the Statement of Cash Flows, fill in the blanks below with the appropriate amounts from the statement. Remember to indicate whether the amount is positive or negative. Note that this is not a “trick” question – I am looking for your ability to find numbers of interest in a real statement.
A. Cash and cash equivalents, beginning of 2013:
B. Net cash provided by (used in) financing activities in 2013:
C. Net change in cash and cash equivalents in 2013:
D. Cash and cash equivalents, end of period in 2013:
25. Amazon’s unearned revenue increased during the year (see Note 1). Which was larger in 2013? [circle your answer]
b. Revenue earned in 2013 that corresponds to cash received in prior periods.
26. Note that Amazon wrote off accounts receivable of $135 in 2013 [See Note 1]. In that case, what was the amount of recognized bad debt expenses during 2013?
27. What was the total amount that Amazon reported for its depreciation and amortization expenses in 2013?
28. Assume that Amazon made the following mistake in preparation of its 2013 statements, and no adjustments were made:
Amazon inadvertently recorded the adjusting entry for accrued utilities twice in December, 2013.
What would be the effect of the error on the following amounts at year-end of 2013? Circle U/S for understate, O/S for overstate, or NE for no effect. Ignore income tax effects.
A) Total Liabilities US OS NE
B) Cash Flow from Financing Activities US OS NE
C) Total Assets US OS NE
D) Stockholders’ Equity at Year-End US OS NE