Chapter 2—Corporate Financial Statements Key
1. Which of the following is not a form of a business entity?
2. In which of the following organization forms are the owners’ legal responsibility for the debt of the business
limited to the amount they invested in the business?
3. Which of the following best describes the term “current assets”?
4. Which one of the following items is a classification on the classified balance sheet?
5. Which of the following are noncurrent assets?
6. Short-term investments are:
7. IPOD CORPORATION
IPOD Corporation’s end-of-year balance sheet consisted of the following amounts.
Cash
$ 250,000
Accounts receivable
$500,000
Property, plant & equipment
900,000
Long-term debt
300,000
Capital stock
1,200,000
Accounts payable
100,000
Retained earnings
?
Inventory
450,000
Refer to the information provided for IPOD Corporation. What amount should IPOD report on its balance sheet for total assets?
8. IPOD CORPORATION
IPOD Corporation’s end-of-year balance sheet consisted of the following amounts.
Cash
$ 250,000
Accounts receivable
$500,000
Property, plant & equipment
900,000
Long-term debt
300,000
Capital stock
1,200,000
Accounts payable
100,000
Retained earnings
?
Inventory
450,000
Refer to the information provided for IPOD Corporation. What is IPOD’s retained earnings balance at the end of the current year?
9. Peck Company
The Peck Company reported the following items on its financial statements for the year ending December 31,
2012.
Sales
$1,560,000
Cost of sales
$1,400,000
Selling, general and
Other expenses
30,000
administrative expenses
40,000
Dividends
10,000
Income taxes
25,000
Refer to the information provided for Peck Company. The income statement for Peck will report net income for the current year in the amount of:
10. Peck Company
The Peck Company reported the following items on its financial statements for the year ending December 31,
2012.
Sales
$1,560,000
Cost of sales
$1,400,000
Selling, general and
Other expenses
30,000
administrative expenses
40,000
Dividends
10,000
Income taxes
25,000
Refer to the information provided for Peck Company. How much will be reported as retained earnings on its balance sheet at December 31, 2012, if
this is the first year of operations?
A. $45,000
11. Paradise Company reports the following information at December 31, 2012:
Sales
$18,000,000
Cash
3,000,000
Salaries payable
400,000
Dividends
1,000,000
Cost of sales
12,500,000
What is Natural Company’s Gross Profit?
12. Wing Company
Cash
$234,000
Accounts payable
$ 97,000
Inventories
121,000
Notes payable (due 2020)
211,000
Land
453,000
Accounts receivable
46,000
Refer to the information provided for Wing Company. Calculate current assets.
13. Wing Company
Cash
$234,000
Accounts payable
$ 97,000
Inventories
121,000
Notes payable (due 2020)
211,000
Land
453,000
Accounts receivable
46,000
Refer to the information provided for Wing Company. Calculate current liabilities.
14. Which one of the following is a source of equity?
15. Jarret Company
Cash
$125,000
Inventory
$215,000
Land
275,000
Unearned revenue
117,000
Equipment
350,000
Common stock
300,000
Refer to the information provided for Jarret Company. Calculate current assets.
16. Which of the following accounts are normally reported as current liabilities on a classified balance sheet?
17. Which one of the following is not categorized as a long-term assets?
18. Which of the following would not be considered an intangible asset?
A. Franchise rights
19. If assets are expected to be realized in cash, sold, or consumed within one year, how are they reported on a
classified balance sheet?
20. Which set of items below are classified as current assets?
21. Pacific Corporation
Inventory
$380,000
Accounts receivable
$190,000
Land
290,000
Accounts payable
180,000
Cash
129,000
Unearned revenue
110,000
Prepaid rent
33,000
Common stock
312,000
Retained earnings
220,000
Long-term notes payable
200,000
Calculate the total amount of current assets for Pacific Corporation.
22. Which of the following would appear on an income statement?
23. Gain and losses are reported on the multi-step income statement under which of the following
classifications?
24. A question asked by stockholders is, “How much gross profit did the company make?” What financial
statement would have the “gross profit” indicated as a separate line item?
25. On a multi-step income statement, subtracting total operating expenses from gross profit will equal:
26. The list below contains several items that appear on a multi-step income statement.
1.
Other incomes and expenses
2.
Income before income taxes
3.
Net income
4.
Operating expenses
5.
Gross margin
6.
Net sales
7.
Income from operations
Select the choice that lists the items in the order they would appear on a multi-step income statement.
27. Trump Company
Other revenues
$110,000
General and administrative
expenses
$250,000
Dividends
$120,000
Gross profit
$750,000
Selling expenses
$220,000
Income tax expense
$117,000
Refer to the information provided for Trump Company. What is Trump Company’s income from operations?
28. Trump Company
Other revenues
$110,000
General and administrative
expenses
$250,000
Dividends
$120,000
Gross profit
$750,000
Selling expenses
$220,000
Income tax expense
$117,000
Refer to the information provided for Trump Company. What is Trump Company’s net income?
29. Trump Company
Other revenues
$110,000
General and administrative
expenses
$250,000
Dividends
$120,000
Gross profit
$750,000
Selling expenses
$220,000
Income tax expense
$117,000
Refer to the information provided for Trump Company. By what amount will net income on a single-step income statement differ from net income
on a multi-step income statement if Trump Company prepares both formats?
30. As used in accounting, the “Notes to the Financial Statements” should be:
31. Which of the following items will be found in a corporate annual report?
32. Which one of the following items is least likely to be found in a corporate annual report?
33. Management’s discussion and analysis:
34. In which section of the annual report would you find: “The financial statements, in our opinion, present
fairly the financial position, operating results, and cash flows, in conformity with U.S. generally accepted
accounting principles”?
35. Which of the following represents one of the purposes of the auditor’s report?
36. Which of the following organizations is primarily responsible for establishing GAAP in the United States?
37. The Securities Exchange Commission (SEC) is concerned with:
38. Which organization has the power to set accounting rules for companies whose stock is publicly-traded in
the U.S. stock markets, but has delegated its power to another organization?
A. International Accounting Standards Board (IASB)
39. Most businesses in the United States are:
40. Which of the items below is a business entity?
41. An entity that is organized according to state or federal statutes and in which ownership is divided into
shares of stock is a:
42. Select the type of business that is most likely to obtain large amounts of resources by issuing stock.
43. The initials GAAP stand for:
44. Which of the following is not a characteristic of a corporation?
45. Presently, the dominant body in the development of accounting principles in the United States is the:
46. Which one of the following is the authoritative body having the primary responsibility for developing
accounting principles in the United States?
D. AICPA
47. Countries outside the U.S. use financial accounting standards issued by the:
48. The analysis that calculates both the absolute and percentage change in each account balance on a financial
statement is called:
49. An analysis in which all the components of an income statement are expressed as a percentage of net sales is
called:
50. Vertical analysis is also known as:
51. Which of the following below generally is the most useful in analyzing companies of different sizes?
52. The percent of fixed assets to total assets is an example of:
53. What type of analysis is indicated by the following?
Increase (Decrease)
2012
2011
Amount
Percent
Current assets
$ 450,000
$ 500,000
($ 50,000)
-10%
Fixed assets
1,800,000
1,500,000
300,000
20%
54. In a common-size financial statement, which of the following is given a percentage of 100 percent?
55. In performing a vertical analysis, the base for cost of goods sold is:
56. The independent auditor’s report does which of the following?
57. Bloom’s Garden Center Company
Selected data from the financial statements of Bloom’s Garden Center are provided below.
2012
2011
Accounts receivable
$ 70,000
$ 56,000
Inventory
15,000
20,000
Total assets
450,000
380,000
Net sales
400,000
300,000
Cost of goods sold
200,000
180,000
Refer to the selected data provided for Bloom’s Garden Center. Which of the following would result from a horizontal analysis of Bloom’s balance
sheet?
58. Refer to the selected data provided for Bloom’s Garden Center. Which of the following would result from a
horizontal analysis of Bloom’s income statement?
59. Refer to the selected data provided for Bloom’s Garden Center. Which of the following would result from a
horizontal analysis of Bloom’s income statement?
60. Refer to the selected data provided for Bloom’s Garden Center. Which of the following would result from a
vertical analysis of Bloom’s income statement?
61. Which of the following statements is true regarding vertical analysis?
62. Which of the following is one of the elements of stockholders’ equity?
63. The balance in the retained earnings account represents:
64. Which of the following statements is true regarding a corporation’s purchase of treasury stock?
65. Significant changes in stockholders’ equity are reported in:
66. All of the following are normally found in a corporation’s stockholders’ equity section except:
67. Stockholders’ equity:
68. Which one of the following financial statements shows how and why each equity account in the company’s
balance sheet changed from one year to the next?