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177. Consulting revenues
178. Buildings
179. Interest expense
180. Capital stock
181. Land
182. Bonds payable
183. Income taxes payable
184. Service revenues
185. Wages payable
186. Cost of goods sold
From the following choices, select the answer that describes the effect on working capital as a result of the transaction.
a. Working capital will increase
b. Working capital will decrease
c. Working capital will not change
DIFFICULTY: Moderate
REFERENCES: pp. 62–64
LEARNING OBJECTIVES: FACC.PONO.18.02-04 – LO: 02–04
NATIONAL STANDARDS: United States – BUSPROG: Communications
ACCREDITING STANDARDS: ACBSP: APC-23 – Financial Statements
AICPA: FN-Reporting
KEYWORDS: Bloom’s: Understanding
187. Paid cash for supplies
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188. Purchased inventory on account
189. Purchased land for cash
190. Borrowed cash using a long-term note
191. Borrowed cash using a six-month note
192. Collected an account receivable
From the following list, select the proper section from the statement of cash flows in which it would be classified.
a. Operating Activities
b. Investing Activities
c. Financing Activities
DIFFICULTY: Moderate
REFERENCES: pp. 68–70
LEARNING OBJECTIVES: FACC.PONO.18.02-08 – LO: 02–08
NATIONAL STANDARDS: United States – BUSPROG: Communications
ACCREDITING STANDARDS: ACBSP: APC-24 – Statement of Cash Flows
AICPA: FN-Reporting
KEYWORDS: Bloom’s: Remembering
193. Purchased equipment for cash
194. Received cash from the sale of a building
195. Paid a cash dividend on capital stock
196. Received cash from bond issuance
197. Paid income taxes
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198. Received cash from selling goods to customers
199. Sold equipment no longer used in the business
200. Paid suppliers cash for inventory purchased
Chapter 2
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Subjective Short Answer
Smith Corporation
Listed below is information from the financial records of Smith Corporation at December 31, 2017:
Retained earnings $37,000 Notes payable—Due July 1, 2020 $12,000
Accumulated depreciation 13,000 Interest payable 1,000
Income taxes payable 24,000 Office supplies 2,000
Buildings 48,000 Accounts payable 46,000
Cash 11,000 Inventory 33,000
Accounts receivable 35,000 Land 50,000
Capital stock 60,000 Prepaid rent 4,000
201. Read the information about Smith Corporation.
Required:
Prepare the Current Liabilities section of the balance sheet for Smith Corporation at December 31, 2017. You may omit
the heading. If the amount of current liabilities were larger, what effect would this have on the current ratio?
Chapter 2
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202. Read the information about Smith Corporation.
Required:
Prepare the Long-Term Assets section of Smith Corporations’s balance sheet at December 31, 2017. You may omit the
heading. Why are these amounts classified as “long-term”?
203. Read the information about Smith Corporation.
Required:
Prepare the Current Assets section of the balance sheet for Smith Corporation at December 31, 2017. You may omit the
heading. How does the concept of liquidity apply?
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204. Read the information about Smith Corporation.
Required:
Calculate Smith’s current ratio at December 31, 2017. What does this ratio tell you about the “composition” of the current
assets?
205. Read the information below about Smith Corporation.
Required:
Calculate the amount of working capital at December 31, 2017 for Smith Corporation. What can you learn from the
current ratio that you cannot learn from the amount of working capital?
206. Harrison Company calculated the following amounts concerning its financial information for the years ending
December 31, 2018 and 2017:
Chapter 2
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2018 2017
Current ratio 3.1 to 1 2.0 to 1
Profit margin 22 % 18%
Required:
Examine Harrison’s ratios. Is the change in the current ratio favorable or not? Explain.
Fasoli, Inc.
The following balance sheet items from Fasoli, Inc. are listed for December 31, 2017:
Accounts payable $ 32,650
Interest payable 2,200
Accounts receivable 26,500
Land 250,000
Accumulated depreciation—buildings 40,000
Marketable securities 15,000
Merchandise inventory 112,900
Accumulated depreciation—equipment 12,500
Notes payable, due April 15, 2018 6,500
Office supplies 200
Notes payable, due December 31, 2021 251,630
Paid-in capital in excess of par value 75,000
Buildings 150,000
Patents 45,000
Capital stock, $1 par value 200,000
Prepaid rent 3,800
Cash 60,990
Retained earnings 113,510
Equipment 84,500
Salaries payable 7,400
Income taxes payable 7,500
207. Read the information about Fasoli, Inc.
Required
Prepare the Liabilities section of the classified balance sheet, including total liabilities balance.
Chapter 2
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208. Read the information about Fasoli, Inc.
Required
Present the Current Assets section (including the total) of a classified balance sheet.
209. Read the information about Fasoli, Inc.
Required
Prepare the Stockholders’ Equity section of the classified balance sheet, including the total stockholders’ equity amount.
Chapter 2
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210. Read the information about Fasoli, Inc.
Required
Present the Current Liabilities section (including the total) of a classified balance sheet.
211. Read the information about Fasoli, Inc.
Required
Compute Fasoli’s current ratio. On the basis of your answer, does Fasoli appear to be liquid? What other information do
you need to fully answer that question?
Chapter 2
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212. Read the information about Fasoli, Inc.
Required
Prepare the Assets section of the classified balance sheet.
Chapter 2
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213. Complete the December 31, 2017 (first year of operation) balance sheet for Lincoln Company using the following
information:
(a) Retained earnings at December 31, 2017 was $51,000.
(b) Total stockholders’ equity at January 1, 2017 was $139,000.
(c) On December 30, 2017, additional capital stock was sold for cash, $55,000.
(d) The land and building were purchased on December 30, 2017 for $150,000.
Lincoln Company
Balance Sheet
December 31, 2017
Assets Liabilities & Stockholders’ Equity
Cash $ 80,000 Liabilities:
Accounts receivable ? Notes payable ?
Land 112,000 Accounts payable 45,000
Building ? Total liabilities ?
Equipment 30,000 Stockholders’ equity:
Capital stock ?
Retained earnings ?
Total liabilities and
Total assets $ stockholders’ equity $ 390,000
Chapter 2
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214. Harrison Company calculated the following amounts concerning its financial information for the years ending
December 31, 2017 and 2016:
2018 2017
Current ratio 3.1 to 1 2.0 to 1
Profit margin 22 % 18%
Required
Suppose Harrison Company had a decrease in its cash account from 2017 to 2018. Would the other current asset amounts
have increased or decreased? Explain.
215. Read the information about Fellsmere Corporation.
Required
(A) Did Fellsmere’s current ratio increase or decrease from 2017 to 2018? Make any necessary calculations and explain
your answer. Which financial statement users are most concerned with this ratio?
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(B) The balance sheets show a large increase in retained earnings during 2018. Identify the possible reason(s) for this
increase.
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Page 75
216. Read the information about Fellsmere Corporation.
Required
(A) Explain the change in Fellsmere’s working capital from 2017 to 2018. Why do users believe the current ratio provides
more information than the dollar amount of working capital? Explain.
(B) Fellsmere Corporation’s creditors need to know whether its working capital position improved during the year. How
would you evaluate this?
Crystal, Inc.
Crystal, Inc. reported $52,000 of net income for 2017. Crystal’s balance sheet at December 31, 2017, includes the
following amounts:
Wages payable $ 1,000 Inventory $26,000
Prepaid rent 3,000 Land 40,000
Cash 15,000 Accounts receivable 22,000
Accounts payable 25,000 Capital stock 40,000
Retained earnings 29,000 Income taxes payable 11,000
Chapter 2
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217. Read the information about Crystal, Inc. Which item is most “liquid”? Why is liquidity important?
218. Read the information about Crystal, Inc. Has Crystal been profitable since it began operations? How do you know?
Chapter 2
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219. The balance sheet of Delray Inc. includes the following items:
Cash $ 21,500
Accounts receivable 12,400
Inventory 45,300
Prepaid insurance 1,800
Land 80,000
Accounts payable 49,000
Salaries payable 1,625
Capital stock 105,100
Retained earnings 5,700
Required
(1) Determine the current ratio and working capital.
(2) What does the composition of the current assets tell you about Delray’s liquidity?
(3) What other information do you need to fully assess Delray’s liquidity?
Chapter 2
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Huntington Corporation
Presented below are all of the items from Huntington Corporation’s income statement for the years ending December 31,
2018 and 2017.
December 31, 2018 December 31, 2017
Service fees $2,300,000 $2,100,000
General and administrative expenses 1,900,000 1,500,000
Other income, net 40,000 20,000
Income taxes 150,000 180,000
220. Read the information about Huntington Corporation.
Required
How much is net income for the year ended December 31, 2018? If Huntington Corporation had used a single-step
statement, by how much would net income be different? Explain.
Chapter 2
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221. Read the information about Huntington Corporation.
Required
Compare the profit margins for 2018 and 2017. Is the company becoming more or less profitable or staying the same?
What could be contributing to this?
Burke Company
The following income statement items are taken from the records of Burke Company for the year ended December 31,
2017:
Advertising expense $2,600
Commission expense 3,515
Cost of goods sold 29,200
Depreciation expense—office building 4,000
Income tax expense 190
Insurance expense—sales person’s auto 3,350
Interest expense 1,400
Interest revenue 2,340
Rent revenue 7,700
Salaries and wages expense—office 13,660
Sales revenue 50,300
Supplies expense—office 1,990
Chapter 2
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222. Read the information about Burke Company.
Required
Prepare a multiple-step income statement for the year ended December 31, 2017.