38.
Which of the following is
not
a limitation of financial statements?
39.
Which of the following is
not
a limitation of financial statements?
2-21
40.
Which of the following is
not
included in a corporation’s annual report?
Essay Questions
2-22
41.
Listed below are a number of financial statement captions. Indicate in the spaces to the
right of each caption (1) the category of each item, and (2) the financial statement on
which the item can usually be found.
Category
Financial
Statement
Asset
A
Balance sheet
BS
Liability
L
Income statement
IS
Stockholders’
Equity
SE
Revenue
R
Expense
E
Gain
G
Loss
LS
(1)
(2)
Accounts
receivable
__________
__________
Cost of goods sold
__________
__________
Retained earnings
__________
__________
Interest income
__________
__________
Loss on sale of
building
__________
__________
Notes payable
__________
__________
Additional paid in
capital
__________
__________
Equipment
__________
__________
Short-term debt
__________
__________
General expense
__________
__________
2-24
42.
Listed below are a number of financial statement captions. Indicate in the spaces to the
right of each caption (1) the category of each item, and (2) the financial statement on
which the item can usually be found.
Category
Financial
Statement
Asset
A
Balance sheet
BS
Liability
L
Income statement
IS
Stockholders’
Equity
SE
Revenue
R
Expense
E
Gain
G
Loss
LS
(1)
(2)
Dividends payable
__________
__________
Selling expenses
__________
__________
Common stock
__________
__________
Long-term debt
__________
__________
Income tax expense
__________
__________
Gain on sale of land
__________
__________
Buildings
__________
__________
Accounts payable
__________
__________
Merchandise
inventory
__________
__________
Net income
__________
__________
Dividends payable
Selling expenses
Common stock
43.
Listed here are a number of accounts: Merchandise Inventory, Land, Common Stock,
Accounts Payable, Insurance Expense, Equipment, Cash, Cost of Goods Sold, Buildings,
Retained Earnings, Supplies, Long-term Debt, Sales, Accounts Receivable.
Required:
Which of the accounts listed above are not assets? How would you categorize each of
these nonasset accounts?
44.
Total assets were $24,000 and total liabilities were $13,500 at the beginning of the year.
Net income for the year was $4,000, and dividends of $1,500 were declared and paid
during the year.
Required:
45.
Stockholders’ equity totaled $41,000 at the beginning of the year. During the year, net
income was $6,000, dividends of $1,500 were declared and paid, and $5,000 of common
stock was issued at par value.
Required:
Calculate total stockholders’ equity at the end of the year.
2-28
46.
During the year, net sales were $750,000; gross profit was $300,000; net income was
$120,000; income tax expense was $30,000; and selling, general, and administrative
expenses were $132,000.
Required:
Calculate cost of goods sold, income from operations, income before taxes, and interest
expense.
47.
During the year, cost of goods sold was $320,000; income from operations was $304,000;
2-29
income tax expense was $64,000; interest expense was $48,000; and selling, general, and
administrative expenses were $176,000.
Required:
Calculate net sales, gross profit, income before taxes, and net income.
2-30
48.
From the data given below, calculate the Retained Earnings balance of December 31,
2016.
Retained earnings, December
31, 2017
$345,000
Increase in total liabilities during
2017
99,000
Gain on the sale of buildings
during 2017
42,000
Dividends declared and paid in
2017
27,000
Proceeds from sale of common
stock in 2017
96,000
Net income for the year ended
December 31, 2017
123,000
Prepare the retained earning portion of a statement of changes in stockholders’ equity for
the year ended December 31, 2017.
49.
From the data given below, calculate the Retained Earnings balance as of December 31,
2017.
Retained earnings, December 31,
2016
$840,000
Cost of equipment purchased
during 2017
250,000
Net loss for the year ended
December 31, 2017
86,000
Retained earnings, December
Add: Net income for the year
Less: Dividends for the year
Retained earnings, December
31, 2017
Dividends declared and paid in
2017
110,000
Decrease in cash balance from
January 1, 2017, to December 31,
2017
24,000
Decrease in long-term debt in
2017
134,000
Retained earnings, December 31,
2016
Retained earnings, December 31,
2017
50.
Volunteer, Inc. is in the process of liquidating and going out of business. The firm has
$69,820 in cash, inventory totaling $214,000, accounts receivable of $144,000, plant and
equipment with a $384,000 book value, and total liabilities of $614,000. It is estimated that
the inventory can be disposed of in a liquidation sale for 75% of its cost, all but 15% of the
accounts receivable can be collected, and plant and equipment can be sold for $420,000.
(a.) Calculate the amount of cash that would be available to the stockholders if the
accounts receivable are collected, the other assets are sold as described, and the
liabilities are paid in full.
(b.) Describe how the difference between book value and liquidation value would be
treated on the final income statement for Volunteer, Inc. with respect to the following
assets: inventory, accounts receivable, and plant and equipment. What income statement
accounts would be affected when these assets are sold or collected as described above?
51.
Ann Kimber is thinking about going out of business and retiring. Her firm has $50,000 in
cash, other assets totaling $71,400, and total liabilities of $51,000. The other assets can
be sold for an estimated $68,000 cash in a liquidation sale. Calculate the amount of cash
that would be available upon Ann’s retirement if the other assets were sold and the
liabilities were paid.
2-34
52.
Presented below is a statement of cash flows for Plum, Inc., for the year ended December
31, 2017. Also shown is a partially completed comparative balance sheet as of December
31, 2017 and 2016.
PLUM, INC.
Statement of Cash Flows
For the year ended December 31, 2017
Cash flows from operating
activities:
Net income
$27,000
Add (deduct) items not affecting
cash:
Depreciation expense
135,000
Decrease in accounts receivable
69,000
Increase in inventory
(21,000)
Increase in short-term debt
15,000
Increase in notes payable
36,000
Decrease in accounts payable
(18,000)
Net cash provided by operating
activities
$243,000
Cash flows from investing
activities:
Purchase of equipment
$(150,000)
Purchase of buildings
(144,000)
Net cash used by investing
activities
(294,000)
Cash flows from financing
activities:
Cash used for retirement of long-
term debt
$(75,000)
Proceeds from issuance of common
stock
30,000
Payment of cash dividends on
common stock
(9,000)
Net cash used by financing activities
(54,000)
Net decrease in cash for the year
$(105,000)
2-35
PLUM, INC.
Balance Sheets
December 31, 2017, and 2016
2017
2016
Assets
Current assets:
Cash
$
$264,000
Accounts receivable
219,000
Inventory
168,000
Total current assets
$
$
Land
120,000
Buildings and
Equipment
780,000
Less: Accumulated
depreciation
(369,000)
Total land, buildings
and equipment
Total assets
$
$
Liabilities
Current liabilities:
Short-term debt
$96,000
$
Notes payable
108,000
Accounts payable
87,000
Total current liabilities
$
$
Long-term debt
255,000
Stockholders’ Equity
Common stock
$120,000
Retained earnings
Total stockholders’
equity
$
$
Total liabilities and
stockholders’ equity
$
$
Required:
(a.) Complete the December 31, 2017 and 2016 balance sheets.
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(b.) Prepare a Statement of Changes in Retained Earnings for the year ended December
31, 2017.
