Chapter 1: Accounting as a Form of Communication
201. The following information comes from the records of Morton Corporation. Assume no additional investment by
owners when answering the following questions:
Assets
Liabilities
Owners’ Equity
January 1, 2016
$ 98,000
$ 54,000
$
December 31, 2016
131,000
84,000
A)
What is the amount of owners’ equity at January 1, 2016?
__________________
B)
What is the amount of liabilities at December 31, 2016?
__________________
C)
Assume that the company declared and paid dividends of $22,000 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?
A)
$44,000
($98,000 Assets – $54,000 Liabilities = $44,000)
B)
$47,000
($131,000 Assets – $84,000 Owners’ Equity = $47,000)
C)
$62,000
($44,000 Beginning Owners’ Equity + X – $22,000 Dividend = $84,000 Ending
Owners’ Equity)
(X = $106,000 – 44,000 = $62,000)
D)
Assuming that the increase in owners’ equity would come from net income, the
company would have to be considered profitable. Net income will increase retained
earnings which is a part of owners’ equity
Easy
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
202. Avery Corporation began the year with total assets of $800,000 and total liabilities of $620,000. Use the accounting
equation to answer the following questions. Assume no additional investment by owners when answering these questions.
A)
What was the amount of Avery’s total assets at the end of the year if liabilities decreased
by $60,000 and owners’ equity increased by $90,000?
B)
Was the company profitable? Explain your answer.
A) $830,000
Assets
Liabilities
Beginning of the year
$800,000
$620,000
Change during the year
30,000
(60,000)
End of the year
$830,000
$560,000
B) The company was profitable because the owners’ equity increased from the
beginning of the year to the end of the year.
Moderate
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
203. The beginning balance of retained earnings was $630,000, and the ending balance was $650,000. The company
declared and paid dividends of $60,000.
A) Determine the amount of net income for the year.
B) What information would one find on the income statement in addition to net income?
A)
$80,000
($650,000 Ending Retained Earnings – $630,000 Beginning Retained Earnings =
$20,000)
($20,000 + $60,000 Dividends = $80,000)
B)
The Income Statement will show the sources of amounts earned (Revenues) as well as
the amount and type of costs incurred by the company (Expenses) during the period.
Easy
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
204. The Trenton Corporation began 2016 with $390,000 in assets, $140,000 in liabilities, and $170,000 of retained
earnings. Net income for the year was $120,000, and dividends of $110,000 were declared and paid.
A)
Prepare a statement of retained earnings for 2016.
B)
What is the nature or purpose of the statement of retained earnings?
C)
What was the amount of capital stock for Trenton Corporation at the beginning of 2016?
D)
Identify what business events might occur in Trenton Corp.’s business operations that
would cause the two stockholders’ equity items to increase.
E)
How do you identify whether Trenton was profitable during 2016 by examining the
statement of retained earnings?
A)
Trenton Corporation
Statement of Retained Earnings
For the Year Ended December 31, 2016
Beginning balance
$170,000
Add: Net income for the year
120,000
Deduct: Dividends for the year
(110,000)
Ending balance
$180,000
B)
The statement of retained earnings explains the change in retained earnings during a
period.
C)
$80,000
($390,000 Total Assets – $140,000 Total Liabilities – $170,000 Beginning
Retained Earnings = $80,000)
D)
One way that the company can increase stockholders’ equity is to sell additional
by reporting net income for the period. If the company were to experience an
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
205. Below are several accounts from Costello Company’s accounting records. Answer the questions that follow.
Total liabilities, end of the year
$92,000
Total assets, end of the year
$143,000
Capital stock, end of the year
16,000
Retained earnings,
beginning of the year
15,000
Dividends declared and paid for the period
20,000
Net income
40,000
A)
How much is the balance of retained earnings at the end of the year?
B)
Show the accounting equation for Costello Company at the end of the year with the
respective dollar amounts.
C)
If stockholders’ equity increases during the year, does that mean that the company is
profitable? Explain your answer.
A)
$35,000
($15,000 Retained earnings, beginning of the year + $40,000 Net income – $20,000
Dividends for the period = $35,000) OR
($143,000 Total assets, end of the year – $92,000 Total liabilities, end of the
year – $16,000 Capital stock, end of the year = $35,000)
B)
$143,000 Total assets, end of the year = $92,000 Total liabilities, end of the
year + $51,000 Owners’ Equity, end of the year ($16,000 Capital stock,
end of the year + $35,000 Retained earnings, end of the year)
C)
This would depend upon what causes the stockholders’ equity to increase. If the
increase were due to an increase in retained earnings, then the company would have
been profitable for the period. But if the increase were due to an increase in the
amount of capital stock issued, this would not be a measure of profitability.
Moderate
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
206. Classify the following items according to the financial statement on which each belongs, either the income statement
(IS) or the balance sheet (BS). Also indicate whether each is a revenue (R), expense (E), asset (A), liability (L), or owners’
equity (OE) item.
Appears on Which Statement?
Type of Account
1.
Retained earnings
_________________
_________________
2.
Buildings
_________________
_________________
3.
Common stock
_________________
_________________
4.
Accounts payable
_________________
_________________
5.
Football ticket sales
_________________
_________________
6.
Salaries expense
_________________
_________________
7.
Accounts receivable
_________________
_________________
1.
BS
OE
2.
BS
A
3.
BS
OE
4.
BS
L
5.
IS
R
6.
IS
E
7.
BS
A
Easy
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Understanding
207. Several amounts from Duggard Company at December 31, 2016 are listed below. Answer the questions.
Service revenue
$245,000
Salaries expense
$109,000
Dividends declared and paid
15,000
Rent expense
36,000
Buildings
110,000
Land
100,000
Accounts payable
40,000
Accounts receivable
28,000
Capital stock
60,000
Retained earnings, Jan. 1, 2016
40,000
Utilities expense
19,000
Notes payable
30,000
Income tax payable
4,000
Income tax expense
11,000
A) Calculate net income for 2016.
B) How much is Duggard Company’s retained earnings at the end of 2016?
C) What primary asset account is missing?
A)
$70,000
($245,000 Service Revenue – $109,000 Salaries Expense – $36,000 Rent
Expense – $19,000 Utilities Expense – $11,000 Income Tax Expense = $70,000)
B)
$95,000
($40,000 Retained Earnings, Jan 1, 2016 + $70,000 Net Income – $15,000 Dividends
Paid = $95,000)
C)
The Cash account is missing.
Moderate
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
208. Gym Corporation reported the following information at December 31, 2016:
Accounts payable
$40,000
Dividends declared and paid
$10,000
Cash
75,000
Expenses
60,000
Inventories
18,000
Revenue
75,000
A) Calculate Gym Corporation’s total assets.
B) Calculate Gym Corporations’ net income for 2016.
C) Calculate Gym Corporation’s total stockholders’ equity at the end of 2016.
A)
$93,000
($75,000 Cash + $18,000 Inventories = $93,000)
B)
$15,000
($75,000 Revenue – $60,000 Expenses = $15,000)
C)
$53,000
($93,000 Total Assets – $40,000 Accounts Payable = $53,000)
209. Joseph is the president of Sunshine Enterprises. Sunshine Enterprises began business on January 1, 2016. The
company’s controller is out of the country on business. Joseph needs a copy of the company’s balance sheet for a meeting
tomorrow and asks his assistant to obtain the required information from the company’s records. She presents Joseph with
the following balance sheet. He asks you to review it for accuracy.
Sunshine Enterprises
Balance Sheet
December 31, 2016
ASSETS
LIABILITIES & STOCKHOLDERS’
EQUITY
Accounts payable
$ 30,600
Accounts receivable
$ 24,200
Building and equipment
177,300
Supplies
12,200
Cash
14,700
Capital stock
100,000
Cash dividends declared and paid
16,000
Net income for 2016
113,800
Required:
1. Prepare a corrected balance sheet.
2. Draft a memo explaining the major differences between the balance sheet Joseph’s assistant prepared and the one you
prepared.
1.
Sunshine Enterprises
Balance Sheet
December 31, 2016
Cash
Accounts payable
Accounts receivable
Capital stock
Supplies
Retained earnings
97,800*
equipment
177,300
$228,400
equity
$228,400
appear instead on the statement of retained earnings for the year.
210. The following items are available from the records of Ramos Corporation at the end of its fiscal year, June 30, 2016:
Accounts payable
$17,000
Advertising expense
4,600
Accounts receivable
5,700
Notes payable
50,000
Buildings
35,000
Office equipment
12,000
Inventory
12,100
Retained earnings (end of year)
26,300
Capital stock
25,000
Salary and wage expense
8,230
Cash
21,900
Sales revenue
14,220
Computerized grinders
25,800
Hand Tools
5,800
Required:
(1) Prepare a balance sheet.
(2) For each non-balance-sheet item, indicate where it should appear.
(1)
RAMOS CORPORATION
BALANCE SHEET
JUNE 30, 2016
Assets
Liabilities and
Stockholders’ Equity
Cash
$ 21,900
Accounts payable
$ 17,000
Accounts receivable
5,700
Notes payable
50,000
Inventory
12,100
Capital stock
25,000
Computerized
grinders
25,800
Retained earnings
26,300
Office equipment
12,000
Buildings
35,000
Hand tools
5,800
_______
Total assets
Total liabilities and
stockholders’ equity
$118,300
Sales revenue—income statement
Moderate
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
211. Tentco reported the following amounts in various statements included in its 2016 annual report. (All amounts are
stated in millions of dollars.)
Net income for 2016
$142
Cash dividends declared in 2016
15
Retained earnings, December 31, 2015
$ 95
Required:
(1) Prepare a Statement of retained earnings for the year ended December 31, 2016.
(2) Assume that Tentco presents a statement of stockholders’ equity rather than a statement of retained earnings in its
annual report. Explain how the information differs between the two statements.
(1)
Tentco
Statement of Retained Earnings
For the Year Ended December 31, 2016
(amounts in millions)
Retained earnings, beginning of year
$ 95
Add: Net income for the year
142
Deduct: Dividends for the year
(15)
Retained earnings, end of year
$ 222
(2) The statement of stockholders’ equity would include all changes in stockholders’ equity
such as issuances and retirements of stock in addition to the information normally provided in
a retained earnings statement.
Moderate
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
212. The following information is available from the records of Focus Seascapes, Inc. at the end of the 2016 calendar
year:
Accounts payable
$ 4,700
Service revenues
28,000
Accounts receivable
3,600
Office equipment
9,200
Capital stock
?
Rent expense
2,500
Cash
13,200
Retained earnings, beginning of year
10,500
Dividends declared and paid during the year
3,800
Salary and wage expense
14,000
Required:
(1) What is Focus’ net income for the year ended December 31, 2016?
(2) What is Focus’ retained earnings balance for the year ended December 31, 2016?
1. Revenue – Expenses = Net Income
$28,000 – ($2,500 + $14,000) = $11,500
2. Retained Earnings + Net Income – Dividends = Retained Earnings
(Beginning) (Ending)
$10,500 + $11,500 – $3,800 = $18,200
Moderate
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
213. The following information is available from the records of Focus Seascapes, Inc. at the end of the 2016 calendar
year:
Accounts payable
$ 4,700
Service revenues
28,000
Accounts receivable
3,600
Office equipment
9,200
Capital stock
?
Rent expense
2,500
Cash
13,200
Retained earnings, beginning of year
10,500
Dividends declared and paid during the year
3,800
Salary and wage expense
14,000
Required:
1. What is the total amount of Focus’ assets at December 31, 2016?
2. What is the total amount of Owners’ Equity at December 31, 2016?
3. What is the capital stock balance at December 31, 2016?
1. Total Assets:
Cash
$13,000
Accounts receivable
3,600
Office equipment
9,200
Total assets
$26,000
2. $26,000 – $4,700 = $21,300
3. $21,300 – $18,200 = $3,100
Moderate
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
214. Rogers Corporation starts the year with a Retained Earnings balance of $55,000. Net income for the year is $27,000.
The ending balance in Retained Earnings is $70,000. What was the amount of dividends declared and paid for the year?
If Rogers has $55,000 in Retained Earnings to begin the year and net income for the year of
$27,000, the ending balance in Retained Earnings would be $82,000 if no dividends were
declared and paid during the year. Because the ending balance in Retained Earnings is
$70,000, the company must have declared and paid $12,000 in dividends.
Easy
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FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing