60. Davis Construction Inc.
Davis Construction began operation on January 1, 2012, with an initial investment of $100,000 from each of its
three stockholders. During the year ending 2012 Davis Construction had net income of $125,000 and paid
dividends of $50,000.
Refer to the information provided for Davis Construction, Inc. and calculate its retained earnings balance at
December 31, 2012.
61. Davis Construction Inc.
Davis Construction began operation on January 1, 2012, with an initial investment of $100,000 from each of its
three stockholders. During the year ending 2012 Davis Construction had net income of $125,000 and paid
dividends of $50,000.
Refer to the information provided for Davis Construction, Inc. The dividends for the year:
62. Davis Construction Inc.
Davis Construction began operation on January 1, 2012, with an initial investment of $100,000 from each of its
three stockholders. During the year ending 2012 Davis Construction had net income of $125,000 and paid
dividends of $50,000.
Refer to Davis Construction. If Davis Construction’s revenues were $500,000 for the year ended December 31,
2012, how much were total expenses?
63. In order for accounting information to be useful in making informed decisions, it must be:
64. Which of the following qualitative characteristic of useful accounting information implies that only items
that meet or exceed certain thresholds will affect decisions?
A. Conservatism
65. The principle of conservatism is concerned with:
66. Mullins, Inc. manufactures furniture. Mullins has given you its most recent annual report in an effort to
obtain a sizeable loan. The company is very profitable and appears to have a strong financial position. However,
based on a news report you saw on television last night, you are aware that Mullins is a defendant in a class
action lawsuit related to defective products. Serious injuries were allegedly caused by Mullins’ infant high
chairs overturning. The television news report is an example of financial information that is:
67. If an investor can use accounting information for two different companies to evaluate the types and amounts
of expenses, the information is said to have the quality of:
68. PTG Enterprises purchases many small pieces of office furniture, such as trash cans, that cost less than $100
each. PTG accounts for these items as expenses when acquired rather than reporting them as property, plant,
and equipment on its balance sheet. The company’s accountant states that no accounting principle has been
violated. Justification for PTG’s policy of expensing these furniture items is based on cost vs. benefit
considerations as well as qualitative characteristic of accounting information of:
69. Scott Brothers, Inc. follows the qualitative characteristic of consistency. This means that:
70. Information that is material means that an error in recording the dollar amount of a transaction would:
71. An accountant is uncertain about the best estimate of an amount for a business transaction. If there are two
possible amounts that could be recorded, the amount least likely to overstate assets and earnings is selected.
Which of the following qualities is characterized by this action?
72. One of the qualitative characteristics of accounting information include:
73. Times Corporation
The accountant for the Times Corporation prepared the following list from the company’s accounting records
for the year ended December 31, 2012.
Retained earnings
?
Prepaid expenses
$ 70,000
Cash
$ 97,000
Common stock
500,000
Accounts payable
70,000
Accounts receivable
260,000
Sales revenue
1,075,000
Interest income
70,000
Cost of sales
780,000
Salary expense
220,000
Land
810,000
Income tax expense
60,000
Notes payable
520,000
Selling expense
75,000
Inventory
280,000
Salaries payable
55,000
Determine the following amounts for Times Corporation.
A)
Total assets at the end of 2012.
B)
Total liabilities at the end of 2012.
C)
Total equity at the end of 2012.
74. Times Corporation
The accountant for the Times Corporation prepared the following list from the company’s accounting records
for the year ended December 31, 2012.
Retained earnings
?
Prepaid expenses
$ 70,000
Cash
$ 97,000
Common stock
500,000
Accounts payable
70,000
Accounts receivable
260,000
Sales revenue
1,075,000
Interest income
70,000
Cost of sales
780,000
Salary expense
220,000
Land
810,000
Income tax expense
60,000
Notes payable
520,000
Selling expense
75,000
Inventory
280,000
Salaries payable
55,000
Determine the following amounts for Times Corporation:
A)
Total revenues for 2012.
B)
Total expenses for 2012.
C)
Net income for 2012.
A)
$1,145,000
$1,075,000 (Sales revenue) + 70,000 (Interest income) = $1,145,000
B)
$1,135,000
$780,000 (Cost of sales) + 220,000 (Salary expense) + 60,000 (Income tax expense) + 75,000 (Selling expense) = $1,135,000
A)
$97,000 (Cash) + 260,000 (Accounts receivable) + 280,000 (Inventories) + 70,000 (Prepaid expense) + 810,000 (Land) = $1,517,000
B)
$70,000 (Accounts payable) + 520,000 (Notes payable) + 55,000 (Salaries payable) = $645,000
C)
$1,517,000 (Total assets) – 645,000 (Total liabilities) = $872,000
75. Times Corporation
The accountant for the Times Corporation prepared the following list from the company’s accounting records
for the year ended December 31, 2012.
Retained earnings
?
Prepaid expenses
$ 70,000
Cash
$ 97,000
Common stock
500,000
Accounts payable
70,000
Accounts receivable
260,000
Sales revenue
1,075,000
Interest income
70,000
Cost of sales
780,000
Salary expense
220,000
Land
810,000
Income tax expense
60,000
Notes payable
520,000
Selling expense
75,000
Inventory
280,000
Salaries payable
55,000
Prepare an income statement for Times Corporation in a proper format.
76. Times Corporation
The accountant for the Times Corporation prepared the following list from the company’s accounting records
for the year ended December 31, 2012.
Retained earnings
?
Prepaid expenses
$ 70,000
Cash
$ 97,000
Common stock
500,000
Accounts payable
70,000
Accounts receivable
260,000
Sales revenue
1,075,000
Interest income
70,000
Cost of sales
780,000
Salary expense
220,000
Land
810,000
Income tax expense
60,000
Notes payable
520,000
Selling expense
75,000
Inventory
280,000
Salaries payable
55,000
Income Statement
For the Year Ending December 31, 2012
Revenues:
Sales revenue
$1,075,000
Interest income
70,000
$1,145,000
Expenses:
Cost of sales
$780,000
Salary expense
220,000
Selling expense
60,000
Income tax expense
75,000
1,135,000
Net income
$ 10,000
Prepare a Balance Sheet for the Times Corporation in a proper format.
77. Several amounts from GM Company at December 31, 2012, are listed below. Answer the questions.
Service revenue
$817,500
Salaries expense
$343,500
Dividends paid
75,000
Rent expense
129,000
Buildings
165,000
Land
150,000
Accounts payable
60,000
Accounts receivable
42,000
Capital stock
90,000
Retained earnings, Jan. 1, 2012
600,000
Utilities expense
28,500
Notes payable
45,000
Income tax payable
6,000
Income tax expense
165,000
A)
Calculate net income for 2012.
B)
How much is GM Company’s retained earnings at the end of 2012?
$600,000 (Retained earnings, Jan 1, 2012) + 151,500 (Net income) – 75,000 (Dividends paid) = $676,500
78. The following information comes from the records of America Corporation:
Assets
Liabilities
Equity
January 1, 2012
$750,000
$270,000
$________
December 31, 2012
905,000
_______
700,000
Times Corporation
Balance Sheet
As of December 31, 2012
Assets
Liabilities & Equity
Cash
$ 97,000
Accounts payable
$ 70,000
Accounts receivable
260,000
Salaries payable
55,000
Inventory
280,000
Notes payable
520,000
Prepaid expenses
70,000
Common stock
500,000
Land
810,000
Retained earnings
372,000
Total assets
$1,517,000
Total liabilities & equity
$1,517,000
A)
What is the amount of equity at January 1, 2012?
B)
What is the amount of liabilities at December 31, 2012?
C)
Assume that the company paid dividends of $310,000 during the year. How much net income did it earn during the year?
D)
Assume that the company paid no dividends during the year. Without looking at the income statement, how can you tell if the
company is profitable or not?
79. Cardinal Corporation reported the following information at December 31, 2012:
Accounts payable
$400,000
Dividends paid
$100,000
Cash
$100,000
Expenses
$600,000
Inventories
$700,000
Revenue
$750,000
A)
Calculate Cardinal Corporation’s total assets.
B)
Calculate Cardinal Corporations’ net income for 2012.
C)
Calculate Cardinal Corporation’s total equity at the end of 2012.
A)
$100,000 (Cash) + 700,000 (Inventories) = $800,000
B)
$750,000 (Revenue) – 600,000 (Expenses) = $150,000
C)
$800,000 (Total assets) – 400,000 (Accounts payable) = $400,000
A)
$750,000 (Assets) – 270,000 (Liabilities) = $480,000
B)
$905,000 (Assets) – 700,000 (Equity) = $205,000 (Liabilities)
C)
$480,000 (Beginning equity) + X (Net income) – 310,000 (Dividend) = $700,000 (Ending equity)
(X = $530,000)
D)
Assuming that the increase in equity would come from net income, the company would have to be considered profitable. Net income
80. Newton Corporation began operations on January 2, 2010, with a total investment of $150,000 by its
stockholders. Net loss for its first year of business was $20,000. During 2011 and 2012, net income increased to
$120,000 and $150,000, respectively. Newton paid $50,000 per year in dividends to its shareholders in 2011
and 2012.
A)
Prepare a statement of retained earnings for the year ended December 31, 2011.
B)
How much is total retained earnings at December 31, 2012?
C)
Explain the link between the statement of retained earnings and the balance sheet.
81. The beginning balance of retained earnings was $2,400,000, and the ending balance was $1,500,000. The
company paid dividends of $150,000.
A)
Determine the amount of net income (loss) for the year.
B)
What information would one find on the income statement in addition to net income?
A)
$1,500,000 (Ending retained earnings) – 2,400,000 (Beginning retained earnings) = ($900,000)
($900,000) (Decrease in retained earnings) + 150,000 (Dividends paid) = $750,000 (Loss)
A)
Statement of Retained Earnings
For the Year Ended December 31, 2011
Beginning balance, January 1, 2011
$(20,000)*
Add: Net income for 2011
120,000
Less: Dividends paid during the year
50,000
Ending balance, December 31, 2011
$ 50,000
*
$(20,000) (Net loss for 2010) – 0 (Dividends paid) = $(20,000) (Balance, January 1, 2011)
B)
Retained earnings at December 31, 2012 = $150,000
82. President Corporation started business at the beginning of the year, with assets of $2,000,000 and equity of
$1,130,000. By the end of the year, assets increased by $200,000 and liabilities decreased by $300,000. Other
than net income or loss, the only change in equity was dividends of $100,000.
A)
What was the amount of President Corporation’s equity at the end of the year?
B)
What was the amount of President Corporation’s net income or net loss for the year?
83. The financial statement in which you list revenues, starting with sales revenue (service revenue), is called
the ____________________.
84. The fundamental accounting equation is ____________________ = ____________________ +
____________________.
85. Both net income and dividends can be found on the financial statement called the ____________________.
86. Net income from the income statement increases ____________________.
87. The statement of cash flows classifies cash flow into ____________________, ____________________
and ____________________ activities.
A)
Beginning of year
$2,000,000
$870,000
$1,130,000
Change during year
+200,000
-300,000
+500,000
End of year
$2,200,000
=
570,000
$1,630,000
Change in equity
$ 500,000
Add: Dividends
100,000
Net income
$ 600,000
88. The type of business activity that relates to obtaining funds from either issuing stock or borrowing money is
called ____________________.
89. The names of the four basic financial statements are the ____________________, the
____________________, the ____________________, and the ____________________
90. The three financial statements in which net income can be found are the ____________________, the
____________________ and the ____________________.
91. Each of the situations in A through C below applies to one of the assumptions or principles included in the
conceptual framework of accounting. Identify which assumption or principles applies and explain why that
assumption or principle applies.
A)
Globall Inc. is a U.S. company that has divisions in several countries around the world. Each country has a currency different than
the U.S. dollar. Globall must include the financial data of its worldwide divisions in its financial statements.
B)
Cheetum & Howell operate a security business as a partnership. The partners are considering a change to the corporate form of
business organization.
C)
Yum Shops, Inc. is a locally owned and operated confectionary. The owners have decided to expand into nearby cities. Expansion
will require more capital, but management does not expect it will stay in business for more than one year or so regardless of its
expansion plans.
denominated in one currency.
B)
owners.
C)
92. What is the purpose of an income statement?
93. List the four financial statements. Explain the connection between these four statements.
1.
Balance Sheet
2.
Income Statement
3.
Statement of Retained Earnings
4.
Statement of Cash Flows
94. Paige Company claims that its financial information is useful. Mention any four qualities that must be
present in order to have “useful” accounting information? Explain these four qualities.
95. What is the difference between comparability and consistency?