15) The four basic financial statements are the ________.
A) income statement, balance sheet, statement of changes in shareholders’ equity, and cash
budget
B) income statement, balance sheet, cash budget, and statement of cash flows
C) income statement, balance sheet, statement of changes in shareholders’ equity, and statement
of cash flows
D) balance sheet, shareholders’ equity, statement of cash flows, and cash budget
16) In June, Team Shirts collected $2,250 from customers, paid $600 for T-shirts, and paid $500
for rent. Net cash from operations was ________.
A) $1,950
B) $1,650
C) $1,150
D) $2,250
17) Accounts receivable are classified as ________.
A) current assets
B) current liabilities
C) noncurrent assets
D) noncurrent liabilities
18) Accounts payable are classified as ________.
A) current assets
B) current liabilities
C) noncurrent assets
D) noncurrent liabilities
19) Equity ________.
A) represents shareholders’ claims to the assets of a business
B) represents capital contributions to the business by lenders
C) represents capital owed by customers
D) is equal to assets plus liabilities
20) A classified balance sheet shows subtotals for ________.
A) revenues and expenses
B) current assets, long-term assets, current liabilities, long-term liabilities and shareholders’
equity
C) operating activities, investing activities and financing activities
D) retained earnings, net income, and dividends
21) Contributed capital is also called ________.
A) paid-in capital
B) retained earnings
C) investments
D) non-current liabilities
22) Cash is ________.
A) part of retained earnings
B) found on the income statement
C) equal to net income on the income statement
D) found on the balance sheet
23) Team Shirts purchased $2,000 worth of T-shirts from a company in Guatemala. Team Shirts
recorded the value of the transaction in U.S. dollars. Which accounting rule applies to this
situation?
A) monetary-unit assumption
B) consistency
C) relevance
D) full-disclosure principle
24) The three basic elements of the balance sheet are ________.
A) operating activities, investing activities, and financing activities.
B) assets, liabilities, and shareholders’ equity
C) revenues, expenses, and net income or loss
D) retained earnings, net income, and dividends
25) The three basic elements of the statement of cash flows are ________.
A) operating activities, investing activities, and financing activities
B) assets, liabilities, and shareholders’ equity
C) revenues, expenses, and net income or loss
D) retained earnings, net income, and dividends
26) The three basic elements of the income statement are ________.
A) operating activities, investing activities, and financing activities
B) assets, liabilities, and shareholders’ equity
C) revenues, expenses, and net income or loss
D) retained earnings, net income, and dividends
27) South Seas reported the following items on its financial statements. Determine the amount of
the missing operating expenses.
Net income $ 50,000
Sales 250,000
Cost of goods sold 80,000
28) South Seas reported the following items on its financial statements. Determine the amount of
cost of goods sold.
Net income $ 50,000
Sales 250,000
Operating expenses 120,000
29) South Seas reported the following items on its financial statements. Determine the amount of
net income. Then calculate the ending balance for retained earnings.
Sales $ 300,000
Cost of goods sold 180,000
Operating expenses 40,000
Net income ??
Dividends 2,000
Beginning retained earnings 30,500
30) Jem’s Jewelers reported the following items on its financial statements. Determine the
amount of net income. Then calculate the ending balance for retained earnings.
Sales $ 250,000
Cost of goods sold 57,500
Operating expenses 25,000
Net income ??
Dividends 4,000
Beginning retained earnings 55,500
31) Analyze each of the following transactions and determine the effect on the accounting
equation.
1. Purchased three months’ worth of prepaid advertising for $300.
2. Paid $500 cash on an account payable.
3. Paid $100 for supplies.
4. Performed $4,000 of services on account.
32) River Runners, Inc. reported the following information in its financials for the year ended
December 31, 2012:
Dividends $ 3,000
Net Income 45,000
Total expenses 50,000
Retained earnings – beginning balance Jan. 1, 2012 30,000
Accounts receivable 20,000
1. What were the company’s revenues?
2. How much of the past profits have been kept by the company as of December 31?
3. How much do customers owe River Runners as of December 31, 2012?
33) Why is it necessary to adjust the books?
34) Beta Company reported the following information in its year ended December 31, 2012
financials:
Net income $ 15,000
Sales revenue 75,000
Retained earnings – beginning balance 16,000
Dividends 4,000
1. What were the company’s total expenses?
2. How much of the company’s profits have been kept by the company as of 1/1/12?
3. What is the balance of retained earnings at December 31, 2012?
35) Use the following information for DeltaCo for the year ended December 31, 2011 to answer
the questions below. Assume no new common stock was issued during the year.
Expenses for the year
$ 700
Net income
200
Retained earnings, December 31, 2010
600
Retained earnings, December 31, 2011
500
Total shareholders’ equity at December
31,2010
900
Total assets at December 31, 2010
1,200
Total assets at December 31, 2011
1,300
1. What were the total revenues for the year?
2. What was the dividend during the year?
3. What were the total liabilities on the balance sheet at December 31, 2011?
4. How much is contributed capital at December 31, 2011?
36) Match each of the accounts listed below with the appropriate balance sheet classification.
a. Assets
b. Liabilities
c. Shareholders’ equity
_____ 1. Accounts receivable
_____ 2. Retained earnings
_____ 3. Accounts payable
_____ 4. Cash
_____ 5. Contributed capital
_____ 6. Notes payable
_____ 7. Inventory
_____ 8. Common stock
37) Indicate with an “X” whether each item is an asset, liability or shareholders’ equity account.
There is only one correct answer for each.
Item:
Asset
Liability
Shareholders’ equity
1.
Dividends
2.
Accounts receivable
3.
Contributed capital
4.
Note payable
5.
Wages expense
6.
Wages payable
7.
Prepaid insurance
8.
Insurance expense
9.
Accounts payable
10.
Retained earnings
Item:
Asset
Liability
Shareholders’ equity
1.
Dividends
2.
Accounts receivable
3.
Contributed capital
4.
Note payable
5.
Wages expense
6.
Wages payable
7.
Prepaid insurance
8.
Insurance expense
9.
Accounts payable
10.
Retained earnings
38) Identify the appropriate financial statement for each of the items listed below. Some items
may be found on more than one financial statement.
a. Balance sheet
b. Income statement
c. Statement of changes in shareholders’ equity
d. Statement of cash flows
_____ 1. Cash paid for supplies
_____ 2. Net income
_____ 3. Sales revenue
_____ 4. Rent expense
_____ 5. Inventory
_____ 6. Retained earnings
_____ 7. Cash received from customers
_____ 8. Cash
39) Match each of the following terms with the appropriate definitions. Use each term only once.
a. prepaid insurance
b. accounts receivable
c. accounts payable
d. assets
e. current assets
f. liabilities
g. current liabilities
h. classified balance sheet
i. shareholders’ equity
j. contributed capital
k. adjusting the books
_____ 1. Name for the owners’ claims to the assets of the business which includes both
contributed capital and retained earnings
_____ 2. The economic resources of a company resulting from past transactions
_____ 3. Amounts customers owe a company for goods or services purchased on credit
_____ 4. Obligations the company has incurred to obtain the assets it owns
_____ 5. Insurance a business has purchased, but not yet used
_____ 6. Assets the company plans to turn into cash or use to generate revenue in the next fiscal
year
_____ 7. The amount the owners have put into their business
_____ 8. The process of making changes in the accounting records, at the end of an accounting
period to make sure that the amounts reflect the financial condition of a company as of that date
_____ 9. Financial statement which shows subtotals for current assets and current liabilities
_____ 10. Liabilities the company will pay off within the next fiscal year
_____ 11. Amounts the company owes its vendors
40) Indicate with an “X” the one financial statement where you would expect to find each line
item:
Income
Statement
Statement
of Cash
Flows
Balance
Sheet
1. Cash paid for insurance
2. Prepaid insurance
3. Insurance expense
4. Wages paid to employees
5. Wages payable
6. Wages expense
7. Accounts payable
8. Cost of goods sold
9. Inventory
10. Cash paid to vendors
Income
Statement
Statement
of Cash
Flows
Balance
Sheet
1. Cash paid for insurance
2. Prepaid insurance
3. Insurance expense
4. Wages paid to employees
5. Wages payable
6. Wages expense
7. Accounts payable
8. Cost of goods sold
9. Inventory
10. Cash paid to vendors
41) Classify each of the items below according to the section of a firm’s financial statements
where it would be reported. Some sections may be used more than once. Others may not be used
at all.
a. Current asset c. Current liability f. Revenue
b. Long-term asset d. Long-term liability g. Expense
e. Shareholders’ equity
_____ 1. Common stock _____ 6. Accounts payable
_____ 2. Notes payable (due in 2 years) _____ 7. Land
_____ 3. Prepaid insurance (2 months remaining) _____ 8. Inventory
_____ 4. Sales _____ 9. Service fees earned
_____ 5. Cost of goods sold _____10. Accounts receivable
42) Indicate with an “X” the one financial statement where you would expect to find each line
item:
Income
Statement
Statement
of Cash
Flows
Balance
Sheet
1. Interest payable
2. Interest expense
3. Notes payable
4. Cash paid for interest
5. Rent payable
6. Prepaid rent
7. Rent expense
8. Cash paid for rent
9. Sales revenue
10. Cash collected from customers
11. Accounts receivable
Answer:
Income
Statement
Statement
of Cash
Flows
Balance
Sheet
1. Interest payable
2. Interest expense
3. Notes payable
4. Cash paid for interest
5. Rent payable
6. Prepaid rent
7. Rent expense
8. Cash paid for rent
9. Sales revenue
10. Cash collected from customers
11. Accounts receivable
43) For each description, identify with an “X” whether the item is either an asset (A), liability (L)
or shareholders’ equity (SE) account on the balance sheet or a revenue (R) or expense (E) on the
income statement. There is only one correct answer for each description.
Income
Balance Sheet Statement
Description:
A
L
SE
R
E
1. Resources available for future use
2. Accounts payable
3. Amounts not yet collected from
customers
4. Cost of goods sold
5. Prepaid insurance
6. Past profits kept by the company
Learning Objective 2-4
1) Team Shirts purchased T-shirts in July. The T-shirts were sold to customers in August. Team
Shirts received the final cash payments in September. According to the revenue-recognition
principle, when should revenue be recorded?
A) July
B) August
C) September
D) both August and September
A
L
SE
R
E
1.
X
2.
X
3.
X
4.
X
5.
X
6.
X
2) Team Shirts ordered T-shirts from its supplier in June. The T-shirts were delivered in July.
Team Shirts paid the bill in August and sold the T-shirts in September. When should Team Shirts
recognize an expense using accrual accounting?
A) June
B) September
C) August
D) July
3) Accrual accounting is an accounting system in which ________.
A) measurement of income is NOT based on cash receipts and cash disbursements
B) measurement of income is based on cash receipts and cash disbursements
C) all businesses prepare reports required by the FASB
D) there are no timing differences
4) Clean Sweep performed cleaning services and billed the customer for $900. This transaction
includes ________.
A) revenue and an account payable
B) revenue and an account receivable
C) revenue and cash
D) revenue and retained earnings
5) During the year, Mega, Inc. had revenues of $400,000 of which $310,000 was collected from
customers. It also had expenses of $360,000 of which $280,000 was paid. The shareholders were
paid $20,000 in dividends. Net income for the year equals ________.
A) $10,000
B) $30,000
C) $40,000
D) $20,000
6) Team Shirts ordered T-shirts from its supplier in June. The T-shirts were delivered in July.
Team Shirts paid the bill in August and sold the T-shirts in September. When should Team Shirts
recognize an expense using cash-basis accounting?
A) June
B) September
C) August
D) July
7) During May, Team Shirts spent $4,000 to buy 800 T-shirts and sold 300 of them for $15 each.
Team Shirts should recognize ________ as expense for May.
A) $4,500
B) $1,500
C) $3,750
D) $4,000
8) During May, Team Shirts spent $4,000 to buy 800 T-shirts. In May, Team Shirts sold 300 of
them for $15 each. The rest were sold for cash of $12 each in June. Net income for May and
June was ________.
A) $4,500 in May and $6,000 in June
B) $3,000 in May and $3,500 in June
C) $1,500 in May and $2,500 in June
D) $500 in May and $6,000 in June
9) An accrual transaction is one in which ________.
A) the action comes before the cash
B) cash comes before the action
C) a company postpones recognizing cash transactions
D) the exchange of cash coincides with the economic substance of a transaction
10) A deferral transaction is one in which ________.
A) the action comes before the cash
B) cash comes before the action
C) a company postpones recognizing cash transactions
D) the exchange of cash coincides with the economic substance of a transaction
11) An account receivable is ________.
A) an accrual
B) a deferral
C) a cash sale to a customer
D) cash collected from a customer
12) Prepaid insurance is ________.
A) an accrual
B) a deferral
C) insurance expense
D) a liability
13) An accrual transaction is one in which revenue is earned before cash is received.
14) Cash-basis accounting is the preferred method of accounting according to the FASB.
15) On April 25, Team Shirts paid $1,000 for advertising for May and June. This transaction is a
deferral.
16) Accrual accounting is an accounting system in which the measurement of income is based on
cash receipts and cash disbursements.
17) Financial statements should be prepared using accrual accounting.
18) Nikki Okuma is going over the transactions for May. She is having fun running South Seas
and is eager to learn more about the accounting aspects of her business. Review the following
transactions and explain to Nikki the accounting rules that apply to each situation.
1. South Seas imports items from several Pacific island countries. All of them have different
currencies.
2. South Seas imported $10,000 worth of inventory in May and sold $3,000 of it in May.
3. Three customers paid $400 in advance deposits for some carvings to be ordered from Tahiti.
4. Nikki has a personal collection of Balinese puppets which is displayed in her store.
Answer:
19) Baby Boutique had $150 worth of supplies on hand at the beginning of June. During June,
the store paid $600 for more supplies. At the end of the month, a physical count showed $475 of
supplies left. How much supplies expense did Baby Boutique have during June?
20) Baby Boutique had $250 worth of supplies on hand at the beginning of July. During July, the
store paid $460 for more supplies. At the end of the month, a physical count showed $240 of
supplies left. How much supplies expense did Baby Boutique have during July?
21) Both Company A and Company B use accrual accounting. Both have $80,000 in sales
revenues and $50,000 in expenses for their first month of business. Company A allows cash sales
only. Company B sells to its customers on account and as of the end of the month its customers
owe $30,000. Show how Company A’s and B’s four financial statements compare by putting an
X under either the Same or Different column for each of the statements.
Same
Different
1. Income Statement
2. Statement of Changes in Shareholders’ Equity
3. Statement of Cash Flows
4. Balance Sheet
Same
Different
1. Income Statement
2. Statement of Changes in Shareholders’ Equity
4. Balance Sheet
22) Clean Sweep contracted to clean an office building in May for $2,000. The work was
completed in May and Clean Sweep received a payment of $1,800. The second payment was
received in June. How were these events reported on the May 31 financial statements?