Chapter 2
79. The income statement for August indicates net income of $100,000. The corporation also paid $25,000 in dividends
during the same period. If the company is in operation for only one month and has no beginning balance in retained
earnings, what is the ending balance in retained earnings?
a.
$75,000
b.
$100,000
c.
$20,000
d.
$125,000
a
Moderate
Multiple Choice
False
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80. Anthony, Inc. buys land for $50,000 cash. The net effect on assets is:
a.
$50,000 increase.
b.
$0.
c.
$50,000 decrease.
d.
$25,000 increase.
Moderate
Multiple Choice
False
SACC.WARR.18.2-3 – LO: 02.03
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Bloom’s: Understanding
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7/19/2016 9:45 AM
Chapter 2
81. Declaring and paying cash dividends affects which account/ accounts?
a.
Cash only
b.
Common stock only
c.
Cash and retained earnings
d.
Cash and common stock
Multiple Choice
SACC.WARR.18.2-3 – LO: 02.03
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Bloom’s: Understanding
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10/28/2016 3:41 AM
82. Buying equipment for cash affects which account/ accounts?
a.
Cash only
b.
Retained earnings only
c.
Equipment and retained earnings
d.
Cash and equipment
Multiple Choice
SACC.WARR.18.2-3 – LO: 02.03
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Bloom’s: Understanding
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Chapter 2
83. Inventory is less liquid than:
a.
accounts receivable.
b.
land.
c.
plant and equipment.
d.
patents.
a
Easy
Multiple Choice
False
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Bloom’s: Understanding
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84. Paying expenses affects which financial statement elements?
a.
Assets only
b.
Stockholders’ equity only
c.
Assets and stockholders’ equity
d.
Assets and liabilities
c
Easy
Multiple Choice
False
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Chapter 2
85. Blue Inc. has the following transactions for the month of April:
Fees earned in cash
$640,000
Expenses paid
$300,000
Dividends paid
$50,000
As a result of these transactions, Blue Inc.’s profitability metric:
a.
increases by $340,000.
b.
decreases by $300,000.
c.
increases by $290,000.
d.
decreases by $640,000.
Multiple Choice
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11/2/2016 4:24 AM
86. Navy Inc. buys land for $500,000 cash in the month of March. In March, it also paid wages of $100,000. Which of the
following statements is true with regards to the above transactions?
a.
Navy Inc.’s profitability decreases by $500,000, and liquidity decreases by $100,000.
b.
Navy Inc.’s liquidity decreases by $600,000, and profitability remains unchanged.
c.
Navy Inc.’s liquidity and profitability decrease by $600,000.
d.
Navy Inc.’s liquidity decreases by $600,000, and profitability decreases by $100,000.
Multiple Choice
7/19/2016 9:45 AM
7/19/2016 9:45 AM
Chapter 2
87. The payment of a liability:
a.
decreases assets and stockholders’ equity.
b.
increases assets and decreases liabilities.
c.
decreases assets and increases liabilities.
d.
decreases assets and decreases liabilities.
Easy
Multiple Choice
False
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88. The first month of operation showed the net cash from operating activities to be $1,850, the net cash from investing
activities to be ($3,000), and the ending cash balance to be $1,600. The net cash from financing activities must be:
a.
$450.
b.
$2,750.
c.
$3,250.
d.
$6,450.
False
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Chapter 2
89. A common-sized income statement is prepared by expressing income statement amounts as a percent of _____.
a.
sales
b.
purchases
c.
total assets
d.
profit
a
Easy
Multiple Choice
False
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90. A common-sized balance sheet is prepared by expressing each liability item as a percent of:
a.
total sales.
b.
total stockholders’ equity.
c.
total liabilities.
d.
total liabilities plus stockholders’ equity.
Moderate
Multiple Choice
False
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Chapter 2
91. A common-sized balance sheet is prepared by expressing each asset as a percent of:
a.
total current assets.
b.
total assets.
c.
total long-term assets.
d.
total liabilities.
Multiple Choice
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92.
Year 2
Year 1
Sales
$170,000
$130,000
Cost of sales
135,000
105,000
Gross profit
$ 35,000
$ 25,000
Using the above information, calculate the percentage increase or decrease in cost of sales from Year 1 to Year 2?
Multiple Choice
SACC.WARR.18.2-6 – LO: 02.06
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Bloom’s: Remembering
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Chapter 2
a.
Increase of 2.1%
b.
Decrease of 1.4%
c.
Increase of 1.4%
d.
Decrease of 2.1%
Multiple Choice
SACC.WARR.18.2-6 – LO: 02.06
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Bloom’s: Applying
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93. What are the basic elements of a financial accounting system?
A set of rules for determining what, when, and the amount that should be recorded
A framework for preparing financial statements
Subjective Short Answer
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Chapter 2
94. The accounting equation “Assets = Liabilities + Stockholders’ Equity” is affected by transactions. Is it possible to have
a transaction that only impacts one financial element of the equation? Can a transaction impact two elements of the
equation? Give examples.
Subjective Short Answer
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Bloom’s: Understanding
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7/19/2016 9:45 AM
95. Letty’s Laundry and Dry Cleaning incorporated and started business on January 1, 2016.
1
Letty’s Laundry and Dry Cleaning began business by depositing $30,000 in a checking
account in the name of Letty’s Laundry and Dry Cleaning, Inc. for which common stock is
issued.
2
Borrowed $6,000 from City Bank.
3
Purchased equipment from Washers Wholesale, $16,200.
4
Purchased supplies costing $3,000 from Suds ‘n Stuff for cash.
5
Paid one month’s rent for business space in Pine Plaza, $1,000.
6
Services provided to customers during January totaled $13,400. All services were paid for in
cash.
7
Paid employees for January, $2,240.
8
Received and paid the utility bill, $500.
9
Received and paid the telephone bill, $250.
10
Paid dividends to the stockholders, $2,140.
Indicate the effect of each transaction on the accounting equation by listing the numbers identifying the transactions, (1)
through (10) in a vertical column, and inserting at the right of each number the appropriate letter from the following list:
a.
Increase in an asset, decrease in another asset.
b.
Increase in an asset, increase in a liability.
c.
Increase in an asset, increase in stockholders’ equity.
d.
Decrease in an asset, decrease in a liability.
e.
Decrease in an asset, decrease in stockholders’ equity
1.
2.
b
3.
b
4.
5.
6.
Chapter 2
96. Part A
Indicate the effect of each transaction during the month of October 2016 and the balances for the accounting equation
after all transactions have been recorded. No beginning balances exist in the accounts. An accounting equation has been
provided.
a.
Opened a business bank account for Jones, Inc., with an initial deposit of $45,000 in
exchange for common stock.
b.
Paid rent on the office building for the month, $2,000.
c.
Received cash for fees earned of $5,000.
d.
Purchased equipment, $7,000.
e.
Borrowed $20,000 by issuing a note payable.
f.
Paid salaries for the month, $1,000.
g.
Received cash for fees earned of $8,000.
h.
Paid dividends, $3,000.
i.
Paid interest on the note, $100.
Assets = Liabilities + Stockholders’ Equity
Cash
Equipment
Notes Payable
Common Stock
Retained Earnings
a.
b.
c.
d.
e.
f.
g.
h.
i.
Bal.
7.
e
8.
e
9.
e
10.
e
Moderate
Subjective Short Answer
False
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Chapter 2
Part B
Using the information from Part A, prepare (1) an income statement, (2) a statement of stockholders’ equity, (3) a balance
sheet, and (4) a statement of cash flows for the month of October.
Jones, Inc.
Income Statement
For the Month Ended October 31, 2016
Jones, Inc.
Statement of Stockholders’ Equity
For the Month Ended October 31, 2016
Jones, Inc.
Balance Sheet
October 31, 2016
Chapter 2
Jones, Inc.
Statement of Cash Flows
For the Month Ended October 31, 2016
Chapter 2
Chapter 2
97. Explain how the four financial statements are linked.
Chapter 2
98. How can a company earn a large net income and have a small balance in retained earnings?
The company may pay out most of its earnings in dividends.
Easy
Subjective Short Answer
False
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99. Calculate the following:
(a)
Determine the cash receipts for May based on the following data:
Cash payments during May
$42,500
Cash account balance, May 1
3,750
Cash account balance, May 31
6,000
(b)
Determine the cash received from customers on account during May based on the
following data:
Accounts receivable account balance, May 1
$11,500
Accounts receivable account balance, May 31
8,250
Fees billed to customers during May
28,000
(a)
$44,750 ($6,000 + $42,500 − $3,750)
Moderate
Subjective Short Answer
False
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Chapter 2
100. On May 1, the cash account balance was $72,600. During May, cash receipts totaled $345,600 and the May 31
balance was $95,230. Determine the cash payments made during May.
Cash payments = $322,970
Easy
Subjective Short Answer
False
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101. The following are included in Ace Auto Parts, Inc.’s December 31, 2016 balance sheet:
Accounts Receivable
$ 50,000
Building
100,000
Cash
60,000
Land
130,000
Accounts Payable
40,000
Notes Payable
70,000
(b)
$31,250 ($11,500 + $28,000 − $8,250)
Challenging
Subjective Short Answer
False
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Chapter 2
Stockholders’ Equity
?
Below are the balances for December 31, 2016:
Accounts Receivable
$ 90,000
Building
100,000
Cash
150,000
Land
130,000
Accounts Payable
60,000
Notes Payable
50,000
Stockholders’ Equity
?
Analyze the changes in these balances and determine net income for 2017, assuming that the only change to stockholders’
equity is from net income.
Bal. 12/31/2016
Bal. 12/31/2017
Stockholders’ Equity ending balance
Stockholders’ Equity beginning balance
Change – Net income
Challenging
Subjective Short Answer
False
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Chapter 2
102. Refer to Coke’s balance sheet and answer the following questions:
(a)
Did Coke issue any stock in 2008? If so, how many shares were issued and where might
this information be found?
(b)
Did Coke repurchase any common stock in 2008? If so, how many shares were
repurchased and where might this information be found?
(a)
No, for both 2008 and 2007, Coke had 3,519,000,000 shares issued. The information is
(b)
Chapter 2