Chapter 01 – Accounting and Business
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(e)
Cash received from the sale of common stock
(f)
Cash received from the sale of a building
(g)
Borrowed cash from a bank
ANSWER:
(a)
Investing
(b)
Operating
(c)
Financing
(d)
Operating
(e)
Financing
(f)
Investing
(g)
Financing
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Remembering
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.01–05 – LO: 01–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.09 – Financial Statements
ACCT.ACBSP.APC.24 – Statement of Cash Flows
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/26/2017 4:27 PM
DATE MODIFIED:
10/16/2017 3:33 PM
214. For each of the following, determine the amount of net income or net loss for the year.
(a)
Revenues for the year totaled $71,300 and expenses totaled $35,500. The shareholders
purchased $15,000 of common stock during the year.
(b)
Revenues for the year totaled $220,500 and expenses totaled $175,000. The shareholders
were paid $40,000 dividends during the year.
(c)
Revenues for the year totaled $149,000 and expenses totaled $172,000. The shareholders
purchased $12,000 of common stock and were paid $16,000 in dividends during the year.
(d)
Revenues for the year totaled $198,150 and expenses totaled $174,200. The shareholders
were paid $35,000 dividends during the year.
ANSWER:
(a)
$35,800 net income ($71,300 − $35,500)
(b)
$45,500 net income ($220,500 − $175,000)
(c)
$23,000 net loss ($149,000 − $172,000)
(d)
$23,950 net income ($198,150 − $174,200)
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.01–05 – LO: 01–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.ACBSP.APC.09 – Financial Statements
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/26/2017 4:27 PM
DATE MODIFIED:
10/16/2017 3:33 PM
Add dividends ($1,500 × 12)
18,000
$288,000
Deduct sale of common stock
12,000
Net income
$276,000
215. The total assets and total liabilities of Paul’s Pools and Palaces at the beginning and at the end of the current fiscal
year are as follows:
Jan. 1
Dec. 31
Total assets
$280,000
$475,000
Total liabilities
205,000
130,000
(a)
Determine the amount of net income earned during the year. No additional common
stock was issued and no dividends were paid.
(b)
Determine the amount of net income during the year. The assets and liabilities at the
beginning and at the end of the year are unchanged from the amounts presented
above. However, the shareholders were paid $53,000 in cash dividends during the
year (no additional purchase of common stock).
(c)
Determine the amount of net income earned during the year. The assets and liabilities
at the beginning and at the end of the year are unchanged from the amounts presented
above. However, the shareholders paid for $35,000 of common stock in June of the
current fiscal year (no dividends).
(d)
Determine the amount of net income earned during the year. The assets and liabilities
at the beginning and at the end of the year are unchanged from the amounts presented
above. However, the shareholders paid for $12,000 of common stock in August of the
current fiscal year and were paid twelve monthly cash dividends of $1,500 each during
the year.
ANSWER:
(a)
Stockholders’ equity at end of year ($475,000 −
$130,000)
$345,000
Stockholders’ equity at beginning of year ($280,000 −
$205,000)
75,000
Net income
$270,000
(b)
Increase in stockholders’ equity as in (a)
$270,000
Add dividends
53,000
Net income
$323,000
(c)
Increase in stockholders’ equity as in (a)
$270,000
Deduct sale of common stock
35,000
Net income
$235,000
(d)
Increase in stockholders’ equity as in (a)
$270,000
Chapter 01 – Accounting and Business
Insurance expense
1,275
Supplies expense
Miscellaneous expense
Total expenses
Net income
Cash
Accounts receivable
Supplies
Land
Total assets
Liabilities
Accounts payable
Stockholders’ Equity
Common stock
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
ANSWER:
(a)
Richard’s Catering Company
Income Statement
For the Month Ended March 31
Fees earned
$64,950
Operating expenses:
Salary expense
$20,300
Rent expense
9,000
Utilities expense
2,800
Chapter 01 – Accounting and Business
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Page 87
Accounts receivable
1,500
Computer equipment
17,600
Common stock
10,000
Retained earnings (August 1)
4,320
Wages expense
4,800
Utilities expense
750
Office expense
420
ANSWER:
Bright Futures Company
Balance Sheet
August 31
Assets
Cash
$ 3,000
Accounts receivable
1,500
Supplies
140
Computer equipment
17,600
Total assets
$22,240
Liabilities
Accounts payable
$ 1,540
Stockholders’ Equity
Common stock
10,000
Retained earnings
10,700
Total stockholders’ equity
20,700
Total liabilities and stockholders’
equity
$22,240
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.01–05 – LO: 01–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.09 – Financial Statements
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/26/2017 4:27 PM
DATE MODIFIED:
12/7/2017 11:48 AM
221. The account balances of Awesome Travel Services at December 31 are listed below. There were no additional
investments or dividends by Awesome Travel Services during the year.
Accounts payable
$12,000
Retained earnings (Jan. 1)
$6,000
Accounts receivable
14,000
Supplies
1,000
Cash
18,000
Income taxes expense
1,300
Common stock
4,000
Utilities expense
8,000
Computer equipment
21,000
Wages expense
25,000
Fees earned
78,000
Supplies expense
1.700
Chapter 01 – Accounting and Business
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Page 88
Rent expense
10,000
Prepare an income statement, a statement of stockholders’ equity, and a balance sheet as of December 31.
ANSWER:
Awesome Travel Services
Income Statement
For the Year Ended December 31
Fees earned
$78,000
Operating expenses:
Wages expense
$25,000
Rent expense
10,000
Utilities expense
8,000
Supplies expense
1,700
Income taxes expense
1,300
Total expenses
46,000
Net income
$32,000
Awesome Travel Services
Statement of Stockholders’ Equity
For the Year Ended December 31
_____________________________________________________________
Common Retained
Stock Earnings Total
Balances, January 1 $4,000 $6,000 $10,000
Net income 32,000 32,000
Balances, December 31 $4,000 $38,000 $42,000
Awesome Travel Services
Balance Sheet
December 31
Assets
Cash
$18,000
Accounts receivable
14,000
Supplies
1,000
Computer equipment
21,000
Total assets
$54,000
Liabilities
Accounts payable
$12,000
Stockholders’ Equity
Common stock
$ 4,000
Retained earnings
38,000
Total stockholders’ equity
$42,000
Total liabilities and stockholders’ equity
$54,000
POINTS:
1
DIFFICULTY:
Challenging
Bloom’s: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.01–05 – LO: 01–05
Chapter 01 – Accounting and Business
Total liabilities $150,000 $105,000
ANSWER:
(a)
Dec. 31, Year 2 Dec. 31, Year 1
Total liabilities $128,250 $120,000
Total stockholders’ equity 95,000 80,000
Ratio of liabilities to stockholders’ equity 1.35 1.50
($128,250/$95,000) ($120,000/$80,000)
(b) Decreased
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.01–06 – LO: 01–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/26/2017 4:27 PM
DATE MODIFIED:
10/16/2017 3:33 PM
224. Company G has a ratio of liabilities to stockholders’ equity of 0.12 and 0.28 for Year 1 and Year 2, respectively. In
contrast, Company M has a ratio of liabilities to stockholders’ equity of 1.13 and 1.29 for the same period.
REQUIRED:
Based on this information, which company’s creditors are more at risk and why? Should the creditors of either company
fear the risk of nonpayment?
ANSWER:
Company M’s creditors are more at risk than are Company G’s creditors. The lower
the ratio of liabilities to owner’s equity, the better able the company is to withstand
poor business conditions and pay its obligations to creditors. Without additional
information, it appears that the creditors of either company are well protected against
the risk of nonpayment, because the ratios are relatively low for both. However, the
fact that both ratios are increasing over the period should be monitored for downturns
in business conditions.
POINTS:
1
DIFFICULTY:
Bloom’s: Analyzing
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.01–06 – LO: 01–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/26/2017 4:27 PM
DATE MODIFIED:
10/16/2017 3:33 PM
225. The following data were taken from Miller Company’s balance sheet: