1) Define a contingent liability. Provide three common examples. Under what
circumstances should a firm report a contingent liability?
2) A company received a utility bill of $600 but did not pay it. Indicate the amount of
increases and decreases in the accounting equation.
3) Court Casuals has 100,000 shares of common stock outstanding as of the beginning
of the year and has the following transactions affecting stockholders equity during the
year.
May 18Issues 25,000 additional shares of $1 par value common stock for $40 per share.
May 31Repurchases 5,000 shares of treasury stock for $45 per share.
July 1Declares a cash dividend of $1 per share to all stockholders of record on July 15 .
Hint: Dividends are not paid on treasury stock.
July 31Pays the cash dividend declared on July 1 .
August 10Reissues 2,500 shares of treasury stock purchased on May 31 for $46 per
share.
Record each of these transactions.
4) Explain how the accounting treatment differs between purchased and internally
developed intangible assets.
5) What is the link between the balance sheet and the statement of cash flows? Describe
the operating, investing, and financing sections of the statement of cash flows.
6) At the end of the year, a company has a balance in Allowance for Uncollectible
Accounts of $2,000 (credit) before any year-end adjustment. The balance of Accounts
Receivable is $180,000. The company estimates that 5% of accounts receivable will not
be collected over the next year. Record the adjustment for uncollectible accounts.
7) Accurate Reports has 50 employees each working 40 hours per week and earning
$25 an hour. Federal income taxes are withheld at 15% and state income taxes at 6%.
FICA taxes are 7.65% of the first $113,700 earned per employee and 1.45% thereafter.
Unemployment taxes are 3.8% of the first $7,000 earned per employee.
1> Compute the total salaries expense, the total withholdings from employee salaries,
and the actual direct deposit of payroll for the first week of January.
2> Compute the total payroll tax expense Accurate Reports will pay for the first week
of January.
8) Micro Manufacturing reports net income of $850,000. Depreciation Expense is
$60,000, Accounts Receivable increases $30,000 and Accounts Payable decreases
$10,000. Calculate net cash flows from operating activities using the indirect method.
9) Below is information related to retained earnings for five independent situations.
Calculate the answer to each.
1> A company reports an increase in retained earnings of $3,200 and net income of
$4,800. What is the amount of dividends?
2> A company reports beginning retained earnings of $1,800, net income of $1,200, and
$200 dividends. What is the amount of ending retained earnings?
3> A company reports an increase in retained earnings of $2,500 and dividends of
$1,500. What is the amount of net income?
4> A company reports ending retained earnings of $2,700, net income of $900, and
dividends of $500. What is the amount of beginning retained earnings?
5> A company reports an increase in retained earnings of $500 and net income of
$1,200. What is the amount of dividends?