FE 644 Midterm 1 | Course Paper

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For each of the following accounts, indicate whether it is a balance sheet account or an

income statement account.

a.Balance sheet account

b.Income statement account

Income Taxes Payable

Several accounts from the financial statements of Madison Company are listed below.

In the two columns provided for answers, indicate the type of account and the normal

account balance. Use the following identification codes for your answers:

Type of Account Normal Balance

A) Prepaid Insurance _______ _______

B) Retained Earnings _______ _______

C) Dividends _______ _______

D) Capital Stock _______ _______

E) Accounts Payable _______ _______

F) Wages and Salaries Expense _______ _______

G) Interest Income _______ _______

H) Wages and Salaries Payable _______ _______

I) Investments _______ _______

J) Decorating Fees Earned _______ _______

Read the information on Parachute Country Club.

On which date did the country club collect an advance deposit?

a.August 2

b.August 3

c.August 5

d.August 7

Occasionally, companies engage in important investing and financing activities which

do not affect cash. If the amount of the transaction is significant, how should it be

disclosed when financial statements are prepared?

a.In the investing section if the amount of investing activities are greater than the

financing activities amount.

b.In the financing section if the amount of financing activities are greater than the

investing activities amount.

c.In a note to the financial statements or in a supplemental schedule.

d.The transaction does not need to be disclosed.

For each item listed, select the section of the balance sheet in which the item would be

reported.

a.Current Assets

b.Property. Plant, and Equipment

c.Current Liabilities

d.Long-term Liabilities

e.Stockholders’ Equity

Cash

For each of the following accounts, indicate whether it is a balance sheet account or an

income statement account.

a.Balance sheet account

b.Income statement account

Sales Revenue

If the direct method is used to prepare the Operating Activities category of the

statement of cash flows, the amount of cash paid to suppliers of inventory is shown as

an addition in this section of the statement.

a.True

b.False

Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1,

2015. The amounts below are related to the equipment purchase. Match the items below

and explain why each revenue expenditure is not capitalized.

a.This item should be included as part of the cost of the equipment.

b.This item should be considered a revenue expenditure.

A state agency required that a pollution-control device be installed on the equipment at

a cost of $5,000.

Because of its objective nature, historical cost is the attribute used to measure many of

the assets recognized on the balance sheet.

a.True

b.False

Indicate the type of each ratio listed below.

a.Liquidity ratio

b.Solvency ratio

c.Profitability ratio

Times interest earned ratio

Use the following codes to indicate how the cash flow effect, if any, of each transaction

would be reported on a statement of cash flows if the operating activities section is

prepared using the direct method.

a.Inflow from operating activity

b.Outflow from operating activity

c.Inflow from investing activity

d.Outflow from investing activity

e.Inflow from financing activity

f.Outflow from financing activity

g.Noncash investing and financing activity

h.Not reported on statement of cash flows

Paid interest on bonds.

Match the following choices to the listed situation.

a.a deferred expense

b.a deferred revenue

c.an accrued liability

d.an accrued asset

The cost of supplies used during the current year is determined and recorded

Use the selected data from the balance sheet and cash flow statements for Valance &

Company to answer the questions that follow.

Valance & Company

Statements of Cash Flow

(Selected Information)

(in millions)

Refer to the data for Valance & Company.

(1) What current liabilities appearing on the balance sheet do not appear in the

operating activities section of the statement of cash flows? Why?

(2) What current liabilities appear in the operating activities category of Valance’s

statement of cash flows? How

does the change for each year affect the cash flows from operating activities for that

year?

Use the selected data from the comparative financial statements for Auto Designs, Inc.

to answer the questions that follow.

Refer to the account information for Auto Designs, Inc.

(1) Calculate percentage changes in accounts payable and income taxes payable. Give a

possible explanation for the changes in these accounts.

(2) By how much did Auto Designs’ longterm and shortterm borrowings change from

2014 to 2015? Give a possible explanation for the change in debt. What other financial

statement would be useful in analyzing the change in borrowings? Why?

Four journal entries are presented below. Write an explanation for each entry in the

space provided below the entry.

Refer to the transactions for Terry Company.

Use the transactions incurred by the Terry Corporation to set up T accounts and post

each transaction to the T accounts.

Selected data from the financial statements of Ames Corporation for the years ended

December 31, 2015 and 2016 are presented below.

REQUIRED:

What is the amount of cash and cash equivalents at the end of 2016?

The amount recognized on the Income Statement as the cost of inventory will be

recognized as a(n)

_________________________.