ESLSCA UNIVERSITY

INTERNATIONAL MBA

Accounting For Managers

EXERCISE SHEET-
FINANCIAL ACCOUNTING

Instructor
Dr. Maha Ramadan
Associate Professor of Accounting and Auditing
E-mail [email protected]
MOB 01001047652
TASK ONE
Match each account to its classification on the balance sheet:
Stockholders’
Account Asset Liability Equity
a. Notes Payable X

b. Cash X

c. Common Stock X

d. Inventories X

e. Accounts Receivable X

f. Accounts Payable X

g. Property, Plant & X

Equipment

h. Unearned Revenue X

i. Retained Earnings X

1
TASK TWO
The following is a list of financial statement items and amounts from a recent income
statement and balance sheet of Basic Corporation. All accounts have normal balances.
The company’s year ended on December 31, 2019.

For each financial statement item listed, indicate whether it appears on the income statement or
balance sheet.

Income Balance
Financial Statement Item Amount Statement Sheet
Revenues Assets
Expenses Liabilities
Equity
Accounts Payable $ 41,000 Liab
Accounts Receivable 262,000 Assets
Accrued Expenses Payable 37,000 Liab
Cash and Cash Equivalents 125,000 Assets
Common Stock ($10 par value) 100,000 Equity
General and Administrative Expenses 75,000 Exp
Income Tax Expense 32,000 Exp
Intangible Assets, 85,000 Assets
Inventory 167,000 Assets
Notes Payable (due In 2020) 433,000 Liab
Prepaid Expenses 31,000 Assets
Property, Plant and Equipment, Net 184,000 Assets
Retained Earnings 161,000 Equity
Sales and Service Revenues 943,000 Revenue
Selling Expenses 125,000 Expenses
Short-Term Investments 57,000 Assets

2
TASK THREE
Presented below is selected information related to Broadway Company at December 31,
2018. Broadway reports financial information monthly:

Accounts Payable $3,000 Salaries Expense $16,500

Cash 7,000 Notes Payable 25,000
Advertising Expense 6,000 Rent Expense 10,500
Service Revenue 54,000 Accounts Receivable 13,500
Equipment 29,000 Drawings 7,500
Required:

1. Determine the total assets of Broadway Company at December 31, 2018

Cash 7000 + 29000 +13500= 49500
2. Determine total liabilities of Broadway Company reported at December 31,2018
A/P 3000 + 25000 = 28000
3. Determine the owner's equity of Broadway Company at December 31, 2018
A= L + Equity 49500 = 28000 + Equity
O equity = 49500 -28000 = 21500
Determine the net income of Broadway Company reported for December 31, 2018
Net income = 54000 –[6000 + 16500 +10500]= 21000
TASK FOUR
National Shops, Inc. reported the following amounts on its balance sheet as of
December 31, 2014:

Inventory $325
Notes Payable 100
Cash 150
Capital Stock 750
Net property, plant and equipment 600
Accounts Receivable 30
Accounts Payable 45
Retained Earnings ?
Required:
1. What is the amount of National's total assets as of December 31, 2014?
Inventory 325 + Cash 150 + PPE 600 + A/R 30 =1105
2. Identify the items listed above that are liabilities.1
N/P 100 + A/P 45 = 145
3. Determine the amount of stock-holders' equity as of December 31, 2014
Assets = liabilities + Stockholder’s Equity
1105 = 145 + Stock holder’s Equity
Stock holder’s Equity = 1105 -145= 960
4-what is the amount of National's retained earnings as of December 31, 2014?
Stock holders’ Equity = common stock + retained earnings
960 = 750 +?
Retained Earnings = 960 - 750 = 210

3
TASK FIVE
The following information relates to Olga Co. for the year 2018

Olga, Capital , Jan 1, 2018 $48,000 Advertising Expense $1,800

Olga, Drawings during 2018 7,000 Rent Expense 12,000
Service Revenue 67,000 Utilities Expense 3,100
Salaries Expense 30,000
Required:
Prepare an income statement and an owner's equity statement for the year ending
December 31, 2018

Olga Co.
Income Statement
For the year ended December 31, 2018
Service Revenue 67000
Less: Expenses
Salaries Exp 30,000
Adv exp 1800
Rent exp 12,000
Utilities Exp 3100 (36100)
Net Income 20100
Owner’s Equity
For the year ended December 31, 2018
Olga Capital 1/1 48000
+ Net income 20100
Drawings - (7000)
Olga, Capital 31/12 61100

TASK SIX
The accounts of Mason Company at the end of the past year report the following
amounts:

Accounts Amount
Owner Withdrawals, G. Mason……. $15,500
Revenues…………………………… $97,000
Expenses……………………………. $43,800
Owner investments………………..... 2,000

If the beginning equity for the year was $173,000, calculate the ending equity for
Mason Company.

Beg O. Equity 173000 + Investments 2000 - - Drawings (15500) + Revenues 97000

-Expenses 43800 = O. Equity = 212700

4
TASK SEVEN
The records of Roadmaster Auto Rentals show the following information as of
December 31. The owner, Rob Fletcher withdrew $52,000 during the year for
personal expenses. Prepare a December income statement, a December statement of
owner's equity, and a December 30 balance sheet.

Accounts payable $36,000 Wages expense $75,000

Insurance expense 2,000 Advertising expense 22,000
Accounts receivable 24,000 Cash 11,000
R Fletcher, Capital,
January 1 150,000 Office Furniture 15,000
Airplanes 150,000 Maintenance expense 39,000
Notes payable 47,000 Revenues 217,000
Hangar 60,000

Income Statement

For the year ended December 31, 20xx

Revenues $217,000
- Expenses
Insurance Expense $2000
Wages Expenses 75,000
Advertising Expenses 22,000
Maintenance Expenses 39,000
Total Expenses (138000)
Net Income 79000

Owner’s Equity Statement

Fletcher, capital January 1 150,000

Add: Net income 79,000
Less: Drawings (52,000)
Fletcher, capital December 31, 20xx 177,000

Balance Sheet

At the year ended December 31, 20xx

Assets Liabilities and Equity

Cash $11,000 Liabilities
Accounts 24,000 Accounts Payable $36,000
Receivable
Office Furniture $15,000 Notes Payable 47,000
Airplanes 150,000 Owner’s Equity

5
Hangar 60,000 Capital December 31, 177,000
20xx
Total Assets 260,000 Liab and equity 260,000

6
TASK EIGHT
Assets = liabilities + Equity [+Revenue- expenses + Capital -Drawings]
Analyze each of the following transactions of World Wide Webster by performing each
of the following.
(a) Owners invested $10,000 cash to start the business.
1. Decide if a transaction took place. Yes

2. Identify the accounts affected and its direction Cash +10000 Capital +10,000

3. Classify each account affected. Assets Equity

(b) Borrow $15,000, using a note payable to the bank.

1. Decide if a transaction took place. Yes

2. Identify the accounts affected and its direction Cash +15000 N/P +15000

3. Classify each account affected. Assets Liabilities

(c) Purchased a truck for $20,000 in cash.

1. Decide if a transaction took place. Yes
Cash (A) – 20000
2. Identify the accounts affected and its direction
Truck (A)+ 20,000
3. Classify each account affected.

(d) Purchase $300 worth of supplies on credit. “On account”

1. Decide if a transaction took place.

Yes
2. Identify the accounts affected and its direction Supplies +300 +300 A/P

3. Classify each account affected. Assets liabilities

(e) Sign contract for first website design for $10,000.

1. Decide if a transaction took place. No

2. Identify the accounts affected and its direction

3. Classify each account affected.

(f) Company pays off $300 Accounts Payable.

1. Decide if a transaction took place. Yes

2. Identify the accounts affected and its direction Cash -300 -300 A/P

3. Classify each account affected. Assets Liabilities

7
(g) Company pays for and receives $600 worth of supplies.
1. Decide if a transaction took place. Yes
Cash – 600 Assets
2. Identify the accounts affected and its direction
Supplies + 600 Assets
3. Classify each account affected.

(h) Earned $9500 for services rendered, $3000 cash is received from customers and the
balance is billed to customers.
1. Decide if a transaction took place. Yes
Cash +3000
2. Identify the accounts affected and its direction Revenue +9500
A/Receivable +6500
3. Classify each account affected. +Assets Equity

(i)Paid employees salaries $2,200.

1. Decide if a transaction took place. Yes

2. Identify the accounts affected and its direction Cash - 2200 Salaries exp -2200

3. Classify each account affected. Assets Equity

(j) Received $4000 in cash from customers who were previously been billed.
1. Decide if a transaction took place. Yes
Cash +4000
2. Identify the accounts affected and its direction A/R -4000

3. Classify each account affected. Assets

(i)Withdrew $1000 cash for personal use

1. Decide if a transaction took place. Yes
Drawings +
2. Identify the accounts affected and its direction Cash -1000
1000
3. Classify each account affected. Assets - Equity -

8
TASK NINE
Tabor Hill Designers entered into the following transactions during February of the
current year. Analyze each of the following transactions
(a) Tober Hill provided website design services for $40,000 cash to its customers (no.
1 is shown as an example)
Ensure the equation still balances
Assets = Liabilities + Stockholders’ Equity
Cash 40,000 Revenues +40000 Cr
Dr+

(b) Provide website design services to Acme Company, for $20,000 on account. We
expect Acme to pay in the future.
Ensure the equation still balances
Assets = Liabilities + Stockholders’ Equity
Accounts +20,000 Dr Revenues +20,000 Cr
Receivable

(c) Collect $18,000 from Acme Company customers on account (from transaction b).
Ensure the equation still balances and debits = credits
Assets = Liabilities + Stockholders’ Equity
Cash +18000 Dr
Accounts -18000 Cr
Receivable
(d) Collected $1200 cash in advance from customers for services to be performed next
month
Ensure the equation still balances
Assets = Liabilities + Stockholders’ Equity
Cash +1200 Dr Unearned Revenue +1200 Cr
(e) Co Paid $16,000 cash for wages to employees.
Ensure the equation still balances
Assets = Liabilities + Stockholders’ Equity---
Cash -16000 Cr Wages exp 16000 Dr+

9
(f) Paid $3,600 a one year insurance policy for next year in advance.
Ensure the equation still balances

Assets = Liabilities + Stockholders’ Equity

Prepaid insurance +3600 Dr
Cash -3600 Cr
(g) Determined that two months of the insurance policy purchased in (f) has been
expired ins expired
Insurance expense per month = 3600/12 = 300
Insurance expired = 300x2= 600
Ensure the equation still balances
Assets = Liabilities + Stockholders’ Equity--
Prepaid Insurance -600 Cr Insurance +600 Dr
Expense

(h) The company provided one third of the revenues related to the cash collected in
advance ( d )
Ensure the equation still balances
Assets = Liabilities + Stockholders’ Equity+
Unearned Service Rev Service +400 Cr
- 400 Dr Revenue

(i) Received $250 telephone bill for month, to be paid next month
Ensure the equation still balances

Assets = Liabilities + Stockholders’ Equity

A/P + 250 Cr Telephone
Exp 250
Dr

10
TASK TEN
Using the following list of accounts and identification letters A through J, enter the
type of account and its normal balance into the table below. The first item is filled in
as an example:

Type of Account Normal Balance

Asset Liability Equity Debit Credit
Homer, Capital X X
Interest Payable X X
Land X X
Homer, Withdrawals X X
Fees Earned X X
Prepaid Rent X X
Advertising Expense X X
Unearned Rent Revenue X X
Commissions Earned X X
Notes Receivable X X

TASK ELEVEN
Rowdy Bolton began Bolton Office Services in October and during that month
completed these transactions:
a. Invested $10,000 cash and $15,000 of computer equipment in the business.
b. Paid $500 cash for an insurance premium covering the next 12 months.
c. Completed office services for a customer and collected $1,000 cash.
d. Paid $200 cash for office supplies.
e. Paid $2,000 for October's rent.
REQUIRED:
Prepare journal entries to record the above

Trans. # Accounts Debit Credit

a. Cash 10,000
Equipment 15,000
capital 25,000
b. Prepaid Insurance 500
Cash 500
c. Cash 1000
Service Revenue 1000
d. Office Supplies 200
Cash 200
e. Rent Expense 2000
Cash 2000

11
TASK TWELVE
Mary Sunny began business as Sunny Law Firm on November
1. Record the following November transactions by making entries directly to the
T-accounts provided. Next, prepare a trial balance as of November 30.
a) Mary invested $15,000 cash and a law library valued at $6,000.
b) Purchased $7,500 of office equipment from John Bronx on credit.
c) Completed legal work for a client and received $1,500 cash in full payment.
d) Paid John Bronx $3,500 cash in partial payment of the amount owed.
e) Completed $4,000 of legal work for a client on credit.
f) Mary withdrew $2,000 cash from the business for personal use.
g) Received $2,500 cash as partial payment for the legal work completed for the client
in (e).
h) Paid $2,500 cash for the secretary's salary.
Cash Law Library Equipment
15,000 3500 6000 7500
1500 2000
2500 2500
11000 6000 7500

Capital Accounts Payable Service Revenue

21000 3500 7500 1500
4000
21000 4000 5500

Accounts Drawings Salaries

Receivable Expense
4000 2500 2000 2500
1500 2000 2500

Cash 11000
Law Library 6000
Equipment 7500
capital 21000
Accounts Payable 4000
Service Revenue 5500
Accounts Receivable 1500
Drawings 2000
Salaries Expense 2500
Total 30,500

12
 EXCERCISES ON INCOME STATEMENT/COMPREHENSIVE
INCOME STATEMENT AND RETAINED EARNINGS

TASK ONE
The following is a partial trial balance for the Greenwich Corporation as of December
31, year 1:
Accounts Titles Debits Credits
Sales Revenues $1947,000
Interest Revenue 38,000
Gain on Sale of Investments 55,000
Cost of Goods Sold $746,031
Selling Expenses 165,785
General and Administrative Expenses 48,300
Interest Expense 46,500
Loss on Write Down (Obsolescence) 22,000
Income Tax Expense 134,400

There were 178,500 shares of common stock outstanding throughout year 1.

Required:
1. Prepare a single-step income statement for year 1, including EPS
disclosures, by inserting the amounts above into the appropriate section.
2. Prepare a multiple-step income statement for year 1, including EPS
disclosures, by inserting the amounts above into the appropriate section.

Single Step Income Statement

Sales Revenue $1947,000
Interest Revenue 38,000
Gain on sale 55,000
$2040,000
Less Expenses
GOGS 746031
Selling Expenses 165785
General and Administrative Exp 48300
Loss on write down of inventory 22000
Interest Expense 46500
Income tax Expense 134400 (1163016)
Net Income 876984
EPS $4.9

13
Multiple Step Income Statement
Sales Revenues 1947000
-COGS (746031)
Gross Profit 1200969
Less : Operating exp
Selling exp 165785
G&A 48300
Loss on Write off 22000 (236085)
Operating Income 964884
+Other Income (Expense)
Interest Revenue 38000
+ Gain on sale 55000
-Interest Expense (46500) 46500
Income before taxes 1011384
- Income taxes (134400)
Net Income 876984
EPS 4.9

14
TASK TWO
The following incorrect income statement was prepared by the accountant of the
Annette Corporation:
ANETTE CORPORATION
Income Statement
For the year ended December 31,Year 1
Revenues and Gains
Sales Revenues $597,000
Interest Revenue 35,500
Gain on Sale of Investments 80,000
Total Revenues and Gains 712,500
Expenses and Losses
Cost of Goods Sold $327,745
Selling Expenses 67,000
Administrative Expenses 82,000
Interest Expense 27,500
Restructuring Costs 63,000
Income Tax Expense 50,839
Total Expenses and Losses 618,084
Net Income 94,416
Earnings Per Share (EPS) $0.94

Required:
Prepare a multiple-step income statement for year 1 applying generally accepted
accounting principles. The income tax rate is 35%.

Multiple Step Income Statement

Sales Revenues $597,000

Less: COGS (327,745)
Gross Profit 269,255
Less: Operating Expenses
Selling Expenses 67,000
Administrative Expenses 82,000
Restructuring Costs 63,000 (212000)
Operating Income 57255
Other Income (Expense)
Interest Revenue 35500
Gain on sale of investments 80,000
_- Interest Expense (27500) 88000
Income before taxes 145255
_- Income tax exp (50839)
Net Income 94416

15
TASK THREE
The Filzinger Corporation's December 31, 2021 year-end trial balance contained the
following income statement items:

Account Title Debits Credits

Sales revenue 6,700,000
Interest revenue 70,000
Gain on sale of investments 52,000
Cost of goods sold 4,200,000
Selling expense 350,000
General and administrative expense 948,000
Interest expense 30,000
Research and development expense 600,000
Income tax expense 145,000

Required: Calculate the company's operating income for the year using a single-step
income statement format.

Answer:
Sales revenue $6,700,000
Less operating expenses:
Cost of goods sold $4,200,000
Selling expense 350,000
General and administrative expenses 948,000
Research and development expenses 600,000 6,098,000
Operating income $ 602,000

16
TASK FOUR
Emerald Comic Book Company had income before tax of $1,056,000 in year 1 before
considering the following material items:
1. Emerald sold one of its operating divisions, which qualified as a separate
component according to generally accepted accounting principles. The
before-tax loss on disposal was $324,800. The division generated before-
tax income from operations from the beginning of the year through
disposal of $464,000.
2. The company incurred restructuring costs of $75,000 during the year.
Required:
Prepare a year 1 income statement for Emerald beginning with income from continuing
operations. Assume an income tax rate of 25%. Ignore EPS disclosures.

Answer:

Income from continuing operations 1056000 – 75,000= 981000

Less : Income Taxes 981000 * 25%= (245250)
Income from Continuing operations 735750
Discontinued Operations
Loss on disposal (324800)
Income from operations 464000
Income from discontinued ops before taxes 139200
- Taxes (34800)
Income from discontinued ops net of tax 104400
Net Income 840150

17
TASK FIVE

The following books were taken from the books of Parnvik Corporation on December 31,
2019

Interest Revenue $86,000 Sales Returns and 150,000

Allowances
Loss on sale of plant 120,000 Selling Expense 194000
assets
Sales 1,280,000 Administrative and general 97,000
Interest Expenses 60,000 Sales Discount 45,000
Cost of Goods Sold 621,000 Retained Earnings 21,000

Assume that the total effective tax rate on all items is 34%

Required:
Sales 1280000
-SR&A (150000)
-Sales Discount (45000)
=Net Sales 1085000
-COGS (621000)
=Gross Profit 464000
-selling exp 194000
-Administrative exp 97000 (291000)=
={194000+97000}
Other Income (Expenses)
Interest Revenue +86000
Loss on sale of plant assets (120000) (34000)={ 86000-
120000}
Income from operations 139000
-Interest Expense (60000)
Income before taxes 139000- 79000
60000
Income Tax 79000x34% 26860
Net Income 79000-26860 52140
EPS 52140/100000=0.5214

18
TASK SIX
Presented below is information related to Brokaw Corp. for the year 2020.

Net Sales $1,200,000 Write off of inventory due to $80,000

obsolescence
Cost of Goods Sold 780,000 Depreciation Expense omitted by 40,000
accident in 2019 (net of tax)
Selling Expenses 65,000 Loss of impairment of plant assets 50,000
Administrative Expenses 48,000 Cash Dividends Declared 45,000
Dividends Revenue 20,000 Retained Earnings at December 300,000
31,2019 (=1/1/2020)
Interest Revenue 7,000 Effective tax rate 34% on all
items
Required

(a) Prepare a multiple-step income statement for 2020. Assume that 60,000 shares of
common stock are outstanding.
(b) Compute retained earnings statement for 2020.

Brokaw Corporation
Income Statement for the year ended December 31, 2010
Net Sales 1200,000
-Cost of Goods Sold (780,000)
Gross Profit 420000
Less: selling expenses 65000
Administrative expenses 48000
Write off inventory 80000
Impairment loss 50000 (243000)
Other income (expenses)
Interest revenue 7000
Dividends Revenue 20000 27000
Income before interest and taxes (EBIT) 204000
Interest exp - 0
Income taxes 204000x34%= (69360)
Net income 204000-69360 134640
EPS 134640/60000 2.24
Retained Earnings at 31/12/2019= 300,000 -Prior period adj 40,000 +Net Income
134640 – Dividends declared 45000=$349640

19
TASK SEVEN
The trial balance for Sunrise Corporation, a manufacturing company, for the year
ended December 31, year 1, included the following income accounts:
Account Title Debits Credits
Sales Revenue $2450,000
Cost of Goods Sold $1,200,500
Selling and Administrative Expenses 400,000
Interest Expense 45,500
Gain on debt Securities 88,000

The gain on debt securities is unrealized and classified as other comprehensive income.
The trial balance does not include the accrual for income taxes. Sumise’s income tax
rate is 25%. There were 1,000,000 shares of common stock outstanding throughout year
1.
Required:
Prepare an income statement and comprehensive income for year 1, including
appropriate EPS disclosures.
Sunrise Corporation
Income Statement
For the year ended December 31, Year 1
Sales Revenue 2,450,000
-Cost of Goods Sold (1200,500)
Gross Profit 1249,500
Selling and Administrative Exp (400,000)
Earnings before interest and taxes (EBIT) 849,500
- Interest Expense (45,500)
=Earnings before taxes 804000
Income taxes 804000 x 25% (201000)
Net Income 603000
EPS 603000/1000000 0.603
Total comprehensive income = 603000 + (88000 x 75%)= 669,000

20
21
TASK EIGHT
The Maven Consulting Group reported net income after taxes of $1,314,000 for its
fiscal year ended December 31, year 1. In addition, during the year the company
experienced a positive foreign currency translation adjustment of $252,000 and an
unrealized loss on debt securities of $84,500. The company’s effective tax rate on all
items affecting comprehensive income is 35%. Each component of other
comprehensive income is displayed before tax.
Required:
Prepare a separate statement of comprehensive income for year 1.

Net Income $1314000

Other Comprehensive Income
+ Foreign currency translation adjustment
$252,000 x 65% 163800
-Unrealized loss on debt securities
(-84500 x 65%) (54925)
Comprehensive Income 1422,875

22
TASK NINE
The controller of Shembri manufacturing corporation has asked for your help in
determining the appropriate treatment of the following transactions that also occurred
during 2019
1. Investments are sold during the year at a loss of $220.
2. Schembri had unrealized gains of $320 for the year on investments accounted
for as available for sale securities.
3. During the year, Shembri had decided to stop one of its operating divisions
that was considered a separate product line. The division incurred an operating
loss of $560 in 2019 prior to the sale and net assets of the divisions were sold
at a gain of $1400.
4. In 2019, the company’s accountant discovered that depreciation expense in
2018 for the office building was understated by $200.
5. Foreign currency translation losses for the year totaled $240.
6. Schembri sold one of its factories for $1,200,000. At time of sale, the factory
had a carrying value of $1100,000. The factory was not considered a
component of the entity.
.
Required: State where these items should be placed in the related statement of
income, retained earnings and comprehensive income statement: (specify the section
under which it is placed and the statement)

Answer:
1. Investments are sold during the year at a loss of $220. I/S [non operating
Income]
2. Schembri had unrealized gains of $320 for the year on investments accounted
for as available for sale securities. [OCI]
3. During the year, Shembri had decided to stop one of its operating divisions
that was considered a separate product line. The division incurred an operating
loss of $560 in 2019 prior to the sale and net assets of the divisions were sold
at a gain of $1400. I/S net gain 1400-560
4. In 2019, the company’s accountant discovered that depreciation expense in
2018 for the office building was understated by $200. Retained Earnings
5. Foreign currency translation losses for the year totaled $240. OCI
6. Schembri sold one of its factories for $1,200,000. At time of sale, the factory
had a carrying value of $1100,000. The factory was not considered a
component of the entity. I/S Non operating Income

23
TASK TEN
The following income statement items appeared on the adjusted trial balance of
Foxworthy Corporation for the year ended December 31, 2021 ($ in 000s): sales
revenue, $22,300; cost of goods sold, $14,500; selling expense, $2,300; general and
administrative expense, $1,200; dividend revenue from investments, $200; interest
expense, $300. Income taxes have not yet been accrued. The company's income tax rate
is 25% on all items of income or loss. These revenue and expense items appear in the
company's income statement every year. The company's controller, however, has asked
for your help in determining the appropriate treatment of the following nonrecurring
transactions that also occurred during 2021 ($ in 000s). All transactions are material in
amount.

1. Investments were sold during the year at a loss of $300. Foxworthy also had an
unrealized loss of $200 for the year on investments. The unrealized loss represents a
decrease in the fair value of debt securities and is classified as part of other
comprehensive income.
2. One of the company's factories was closed during the year. Restructuring costs
incurred were $2,000.
3. During the year, Foxworthy completed the sale of one of its operating divisions that
qualifies as a component of the entity according to GAAP regarding discontinued
operations. The division had incurred operating income of $800 in 2021 prior to the
sale, and its assets were sold at a loss of $1,800.
4. A positive foreign currency translation adjustment for the year totaled $600.

Required:
Prepare Foxworthy's single, continuous statement of comprehensive income for 2021,
including earnings per share disclosures. Use a multiple-step income statement
format. Three million shares of common stock were outstanding throughout the year.

24
Answer:
Foxworthy Manufacturing Corporation
Statement of Comprehensive Income
For the Year Ended December 31, 2021
($ in 000s)

Sales revenue $22,300

Cost of goods sold 14,500
Gross profit 7,800
Operating expenses:
Selling expense $2,300
General and administrative expense 1,200
Restructuring costs 2,000
Total operating expenses 5,500
Operating income 2,300
Other income (expense):
Loss on sale of investments (300)
Interest expense (300)
Dividend revenue 200
Total other income, net (400)
Income from continuing operations before income taxes 1,900
Income tax expense 475
Income from continuing operations 1,425
Discontinued operations:
Loss from operations of discontinued component
(including loss on disposal of $1,800) (1,000)
Income tax benefit 250
Loss on discontinued operations (750)
Net income 675
Other comprehensive income (net of tax):
Loss on debt securities (150)
Foreign currency translation adjustment 450
Total other comprehensive income 300
Comprehensive income $ 975

Earnings per share:

Income from continuing operations $0.475
Discontinued operations (0.250)
Net income $0.225

25
 LECTURE THREE
(BALANCE SHEET AND CASH FLOW STATEMENT)

TASK ONE
Presented below are a number of balance sheet items for Santana, Inc., for the current year

Good will $110,000 Accumulated Depreciation- 292,000

equipment
Payroll taxes payable 177,591 Inventories 239,000
Bonds Payable 290,000 Rent payable-short term 45,000
Discount on Bonds 15,000 Taxes Payable 195,991
Payable
Cash 260,000 Long term rental obligations 480,000
Land 450,000 Common stock, $1 par value 250,000
Accounts Receivable 600,000 Preferred Stock, $10 par value 150,000
Notes Payable to Banks 265,000 Prepaid Expenses 87,920
Accounts Payable 690,000 Equipment 1,470,000
Retained Earnings ????? Marketable Securities (Short 81,000
term)
Allowance for Doubtful 54,300 Accumulated Depreciation- 170,000
Accounts building
Notes Payable (long term) 1,600,000 Building 1,640,000
Treasury Stock 50,000

Instructions
Prepare a classified balance sheet in good form. Common stock authorized was 400,000
shares, 300,000 shares and 50000 shares repurchased as treasury stocks at par and
preferred stock authorized was 20,000 shares and 15000 shares are issued. Assume that
notes receivable and notes payable are short-term, unless stated otherwise. Cost and fair
value of marketable securities are the same.

Assets Liabilities
Current Assets Current Liabilities
Cash 260,000 Taxes Payable 195,991
Marketable Securities 81,000 Accounts Payable 690,000
Accounts Receivable 600,000 Notes Payable to Banks 265,000
Less: Allowance for Doubtful Rent payable short term 45,000
Accounts AFDA (54,300) 545,700
Inventories 239,000 Payroll tax payable 177,591
Prepaid Expenses 87,920 Total Current Liabilities 1373,582
Total current Assets 1213,620 Long term Liabilities
Property, Plant and Bonds Payable 290,000
Equipment
Land 450,000 Less: Discount on Bonds
Payable (15,000) 275,000
Building 1640,000 Long term rental obligations 480,000

26
 Less Accumulated Notes payable (Long term) 1,600,000
Depreciation:
Building (170,000) 1470,000
Equipment 1470,000 Total Long term liabilities 2355,000
Less: Accumulated Dep. Stockholders' Equity
Equipment (292,000) 1,178,000
Total property plant and 3098,000 Common stock, $1 par value, $300,000*
equipment authorized 400,000 shares,
300000 shares issued and
250,000 outstanding
Intangible Assets Preferred Stock, $10 par value. 150,000
Authorized 20,000 shares.
Issued and outstanding 15000
shares
Good will 110,000 Treasury Stocks (50,000)
Retained Earnings 293038

Total Assets 4,421,620 Total Liabilities and 4421,620

Stockholders' equity

• 300,000 = number of shares issued 300,000 x par value per share [$1]
• Note that the common stock value is determined based on number of shares issued
not authorized
• The 250,000 outstanding is determined by subtracting the 50,000 shares of treasury
from the issued

27
TASK TWO
The calendar year-end adjusted trial balance for Blessinger Co. follows:

BLESSINGER CO.
Adjusted Trial Balance
December 31

Cash $ 112,000
Accounts receivable 27,000
Prepaid rent 15,000
Prepaid Insurance 9,000
Office supplies 3,300
Office equipment 38,000
$ 3,200
Accumulated depreciation–Equipment 3,200
Building 288,000
Accumulated depreciation–Building 42,000
Land 700,000
Accounts payable 25,800
Salaries payable 14,500
Interest payable 2,500
Long-term note payable 72,000
P. Blessinger, Capital 910,000
P. Blessinger, Withdrawals 200,500
Service fees earned 430,800
Salaries expense 90,000
Insurance expense 5,200
Rent expense 5,000
Depreciation expense–Equipment 800
Depreciation expense–Building 7,000
Totals $1,500,800 $1,500,800
Required:
(a) Prepare a classified year-end balance sheet. (Note: A $9,000 installment on the
long-term note payable is due within one year.)

28
Answer:

Assets Liabilities and Stock holders’

Equity
Current Assets Liabilities
Cash 112000 Current Liabilities
Accounts Receivable 27000 Accounts Payable 25800
Supplies 3300 Salaries Payable 114500
Prepaid Rent 15,000 Interest Payable 2500
Prepaid Insurance 9,000 Total Current 42800
liabilities
Total Current Assets 166300
Non Current Assets Non current
Property, Plant and Liabilities
Equipment
Land 700,000 Long term N/P 72,000
Office Equipment 38000 Total Liabilities 114800
Less Accumulated (3200) 34800 Owner’s Equity
Depreciation
Building 288000 Capital 1032300
Accumulated (42000) 246000
Depreciation
Non Current Assets 980800
Total Assets 1147100 Liabilities and 1147100
Equity
Net Income= 430800 – [90,000 +5200+5000 +800 +7000}= 322,800
Capital at end of the year= 910,000 +322800-200500= 1032300

29
TASK THREE
Bruno Company has decided to expand its operations. The bookkeeper recently
completed the balance sheet presented on the current page in order to obtain
additional funds for expansion.
Assets
Current assets
Cash $260,000
Accounts receivable (gross) 357,000
Inventories at lower of average cost or market 401,000
Trading securities—at cost (fair value $120,000) 140,000
Property, plant, and equipment
Building (net) 570,000
Office equipment (net) 160,000
Land held for speculation 175,000
Intangible assets
Goodwill 80,000
Cash surrender value of life insurance 90,000
Prepaid expenses 12,000
Liabilities and stockholders’ Equity
Current liabilities
Accounts payable 135,000
Pension obligation 82,000
Rent payable 49,000
Long-term liabilities
Bonds payable 500000
Notes payable (due next year) 125,000
Stockholders’ equity
Preferred Stock and Common stock (each $10.00 par,
10,000 shares preferred and 19,000 shares common) 290,000
Additional paid-in capital 180,000
Treasury Stocks 90000
Retained earnings 80000

Additional Information
1. The cash balance is net of a bank overdraft of $20000 from a different bank where
the cash account is deposited
2. The accumulated depreciation balance for the buildings is $160,000 and for the
office equipment, $105,000.
3. The allowance for doubtful accounts has a balance of $17,000.
Required
1. Indicate your criticisms of the above statement of financial position (mention 10
mistakes) and briefly explain the proper treatment of the item being criticized.
2. Calculate the correct amount of current assets and current liabilities
3. Compute the company’s working capital

30
Solution:
1.………………………………………………………………………………………
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2.………………………………………………………………………………………
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3.………………………………………………………………………………………
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4.………………………………………………………………………………………
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5.………………………………………………………………………………………
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6.………………………………………………………………………………………
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7.………………………………………………………………………………………
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8.………………………………………………………………………………………
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9.………………………………………………………………………………………
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10………………………………………………………………………………………
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31
First: Mistakes in the balance sheet and their corrections
1. Cash overdraft should not be deducted from the cash balance, correct cash balance
should be 280,000 and the bank overdraft should be recorded in the current liabilities
section
2. Buildings should be recorded at their cost (730,000) less accumulated depreciation not
at the book value (570,000). Equipment should be recorded at their cost (265,000) less
accumulated depreciation not at the book value (105,000).
3. Accounts Receivables should be recorded at their gross value (277,000) less Allowance
for Doubtful Accounts not at their net realizable value [ Or a note could be added beside
A/R that it is reported net of AFDA of 17000].
4. Trading securities should be recorded at fair value of 120,000 not at cost.
5. Land held for speculation should be recorded as a long term investment.
6. Cash surrender value of life insurance policy should be recorded as a long term
investment
7. Prepaid expenses should be recorded as a current asset
8. Pension obligations should be recorded as a long term liability
9. Notes payable (due next year) should be recorded as a current liability
10. Preferred stocks should be recorded separately from common stocks
Preferred Stocks should equal 10 *10,000
Common Stocks should equal 10* 19,000
11. Treasury Stocks should be deducted
Second
Current Assets = Cash (280,000) +Short term investments (120,000) + Accounts
Receivable (340,000) + Inventories (401,000) + Prepaid Expenses (12,000) = 1153,000
Current Liabilities= Bank overdraft (20,000) + Accounts payable (135,000) + Rent
Payable (49,000) + Notes payable (125,000) = 329,000
Third: Working Capital= Current Assets- Current liabilities
Working Capital= 1153,000 - 329,000 = 822,000

TASK FOUR
The bookkeeper for Angeles Ochoa Company has prepared the
following balance sheet as of July 31, 2016
Angeles Ochoa Co.
Balance Sheet
As of July 21, 2016
Cash $69,000 Notes and $44,000
Accounts Payable
Accounts 40,500 Long term 75,000
Receivable Liabilities
Inventories 60,000 Stockholder equity 155,500
Equipment 84,000
Patents 21,000
Total $274,500 Total $274,500

The following additional information is provided

1. Cash includes $1200 in a petty cash fund and $9000 in a bond sinking fund.

32
 2. The net accounts receivable balance comprises the following three items:
accounts receivable debit balance $50,000, accounts receivable credit balance
$6,000 and AFDA $3,500
3. Merchandise inventory costing $5,300 was shipped out on consignment on July
31, 2016. The ending inventory balance does not include the consigned goods.
Receivables in the amount of $5,300 were recognized on the consigned goods.
4. Equipment had a cost of $98,000 and an accumulated depreciation balance of
$14,000.
5. Taxes payable of $6,000 were accrued on July 31. Angeles co. had set up a cash
fund to meet this obligation. This cash fund was not included in the cash balance
but was offset against the taxes payable amount.
Required:
Prepare a corrected classified balance sheet as of July 31,2016 from the
available information adjusting the account balances using the additional
information.
Answer:
Angeles Ochoa Co.
Balance Sheet
As of July 31, 2016
Current Assets Current Liabilities
Cash $66,000 Notes and Accounts Payable $44,000
(69,000- 9000+6,000)
Advances from customers
Accounts Receivable (Accounts receivable credit
50,000-5300 44,700 balance) 6,000
Less AFDA (3500) Accrued taxes 6,000
Inventories Long term liabilities 75,000
(60,000 + 5,300) 65,300
Long Term Investments Stockholders' equity 155,500
Bond Sinking Fund 9000

Equipment 84,000
Patents 21,000
Total Assets $286,500 Total liabilities and $286,500
Stockholders' Equity

33
TASK FIVE
The following incomplete balance sheet for Sanderson Manufacturing Companay was
prepared by the company’s controller. As accounting manager for Sanderson, you are
attempting to reconstruct and revise the balance sheet
Sandersonn Manufacturing Company
Balance Sheet
At Decmber 31, 2019
(in $000s)
Assets
Current Assets
Cash 1250
Accounts Receivable 3500
Allowance for uncollectible Accounts (400)
Finished Goods Inventory 6000
Prepaid Expenses 1,200
Total Current assets 11,550
Non Current Assets
Investments 3000
Raw Materials and Work in process 2,250
Inventory
Equipment 15,000
Accumulated Depreciation-equipment (4200)
Patent ???
Total Assets ????
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable $5200
Notes Payable 4,000
Interest payable – note 100
Unearned Revenue 3,000
Total Current liabilities 12,300
Long term liabilities
Bonds Payable 5500
Interest payable- bonds 200
Shareholders’ equity
Common Stock ?
Retained Earnings ?
Total liabilities and Shareholders’ ?
Equity

Additional Information ($in 000s)

1. Certain records that include the account balances for the patent and
shareholders’ equity items were lost. However, the controller told u that a
complete, preliminary balance sheet prepared before the records were lost
showed a debt-to-equity ratio of 1.2. That is, total liabilities are 120% of
total shareholders’ equity. Retained earnings at beginning of the year was

34
 $4000. Net income for 2019 was $1560 and $560 cash dividends were
declared and paid to shareholders.
2. Management intends to sell investments in the next months
3. Interest on both the note and bonds is payable annually
4. The note payable is due in annual installments of $1000 each
5. Unearned revenue will be earned equally over the next two fiscal years
6. The common stock represents 400,000 shares of no-par stock authorized
250,000 shares issued and outstanding
Required:
Prepare a complete, corrected, classified balance sheet
Assets
Current Assets
Cash 1250
Investments 3000
Accounts Receivable 3500
Allowance for uncollectible Accounts (400)
Raw Materials and WIP 2,250
Finished Goods Inventory 6000
Prepaid Expenses 1,200
Total Current assets 11,550
Non Current Assets
Equipment 15,000
Accumulated Depreciation-equipment (4200)
Patent ???
Total Assets 33000
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable $5200
Notes Payable 1,000
Interest payable – note 100
Interest payable- bonds 200
Unearned Revenue 1500
Total Current liabilities 8000
Long term liabilities
Unearned Revenue 1500
Notes Payable 3000
Bonds Payable 5500
Long term liabilities 10,000
Total liabilities 18000
Shareholders’ equity
Common Stock 10,000
Retained Earnings 5000
Total equity 15000
Total liabilities and Shareholders’ Equity 33000

35
TASK SIX
The following is the 2019 balance sheet for the Nagoda Corporation does not conform
with the accounting principles:

The Nagoda Corporation

Balance Sheet (Asset Portion Only)
December 31, 2019
Current Assets
Cash including a bank overdraft of ($5000) 46,500
Available-for-sale securities at cost (Fair value $159,800) 185,800
Accounts Receivable (gross value) 790,000
Inventories valued at replacement cost (cost equals 1,455,000) 1,800,000
Notes Receivable (will be paid in 2021) 310,000
Total Current Assets 3,087,300

Long term Investments

Treasury Stocks 251,540
Trademarks 70,000
321,540

Property, Plant and Equipment

Land held for speculation 2,575,000
Buildings at (fair value) 3,475,540
Equipment at book value (less of Accumulated Depreciation) 332,100
Total Property, Plant and Equipment 8,382,640

Intangible Assets
Goodwill (generated by the business since its beginning) 2,000,000
Cash Surrender value of Life Insurance Policy 450,000
Total Intangible Assets 2,450,000
Total Assets 12,241480

Additional information
1. Allowance for Doubtful accounts are 45000
2. Historical cost of the building is 3,000,000 and its accumulated depreciation is
50,000.
3. Equipment have an accumulated depreciation of 72,000
Required:
Find all the errors that you can notice (10 errors at least) in the asset portion of the
balance sheet of Nagoda Corporation and explain how each error should be corrected
according to the accounting principles

36
Answer:
Current Assets
Cash including (bank overdraft should be recorded in current 51,500
liabilities of ($5000)
Available-for-sale securities 159800
Accounts Receivable, net of AFDA of 45000 745,000
Inventories valued at Lower of cost or market 1,455,000
Notes Receivable (will be paid in 2021) 310,000
Total Current Assets 2456300
Long Term Investments
Land held for Speculation 2575000
Notes Receivable 310,000
Treasury Stocks (should be deducted in the stockholders’ equity 251,540
sections)

Trademarks 70,000

Total Long term Investments 2885000

Property, Plant and Equipment
Land held for speculation 2,575,000
Buildings at (Cost) 3000,000
Less: Accumulated Dep (50,000) 2500,000
Equipment at book value (less of Accumulated Depreciation of
72000) 332,100
Total Property, Plant and Equipment 2832100

Intangible Assets
Goodwill (generated by the business since its beginning) [should 2,000,000
not be recorded]
Cash Surrender value of Life Insurance Policy 450,000
Trademarks 70000
Total Intangible Assets 70,000
Total Assets 8243400

37
TASK SEVEN
The following is a December 31, 2019 trial balance for the Weismuller Publishing
Company
Account Title Debits Credits
Cash 65,000
Accounts Receivable 160,000
Inventories 285,000
Prepaid Expenses 148,000
Machinery and equipment 320,000
Accumulated Depreciation 110,000
Machinery
Investments 140,000
A/payable 60,000
Interest Payable 20,000
Unearned Revenue 80,000
Taxes Payable 30,000
Notes Payable 200,000
Allowance for uncollectible 16,000
accounts
Common Stock 400,000
Retained Earnings 202.000
Totals 1118000 1118000

Additional Information:
1. Prepaid expenses include $120,000 paid on December 31, 2019, for a two year
rent on the building.
2. Investments include $30,000 in treasury bills purchased on November 30, 2019.
The bills mature on January 30, 2020. The remaining $110,000 includes
investments in marketable equity securities that the company intends to sell in
the next year.
3. Unearned Revenues represent customer prepayments for magazine subscriptions
for a period of less than one year.
4. The notes payable account consists of the following:
a. $40,000 note in due in six months
b. $100,000 note due in six years.
c. $60,000 due in three annual installments of $20,000 each, with the
next installment due August 31, 2020
5. The common stock account represents $400,000 shares of no par value common
stock issued and outstanding, the corporation has 80,000 shares authorized.
Required:
Prepare a classified balance sheet for the Weimuller Publishing company at December
31, 2019

38
Account Title Debits Credits
Current Assets Current Liabilities
Cash 65,000 A/payable 60,000
ST Investments 140000 Interest Payable 20,000
Accounts Receivable 160,000 Unearned Revenue 80000
Less: AFDA (16000) Taxes Payable 30000
Inventories 285,000 Notes Payable 60000
Prepaid Expenses 88,000 Total Current 250000
liabilities
Total Current Assets 722000
Non Current Assets Non Current
Liabilities
Property plant and Long term N/P 140000
Equipment
Machinery and 320,000 Owner’s Equity
equipment
Accumulated (110000) Common Stock 400,000
Depreciation Machinery
210000 Retained Earnings 202000
Other Assets Equity 602000
Prepaid Expenses 60000
Total Assets 992,000 Liab and Equity 992000

39
Cash flow statement

Notes that can help you

Concerning cash flows from operating activities
We start by net income then we

• Add: Depreciation exp (either directly given in the income statement or

calculated by the difference in accumulated depreciation from beginning of the
period to the end)
• Any increase in Current assets (A/R, Prepaid Exp, Inventory) will be subtracted
• Any decrease in Current assets (A/R, Prepaid Exp, Inventory) will be added
• Any increase in current liabilities (A/P, Accrued exp, exp payable) will be added
• Any decrease in current liabilities (A/P, Accrued exp, exp payable) will be
subtracted
Cash flows from investing
• An increase in property, plant and equipment (Land, building, furniture,
vans….) or any investment account, means we purchased, then this is a cash
outflow (subtracted)
• A decrease in property, plant and equipment (Land, building, furniture, vans….)
or any investment account, means we sold, then this is a cash inflow (added)
Cash flows from financing activities

• An increase in common stocks or bonds payable means we issued stocks or

bonds, then this is a cash inflow that should be added
• A decrease in common stocks or bonds payable means we purchased the stocks
or paid the bonds, then this is a cash outflow that should be subtracted
Dividends always result in cash outflow that should be subtracted

40
TASK EIGHT

A comparative balance sheet for Oprah Winfrey Company is

presented below:
Assets December 31, 2019 December 31, Change
2018=1/1/2019
Cash $63,000 22,000 41,000
Accounts Receivable 85,000 66,000 19000
Inventories 180,000 189,000 (9000)
Land 75,000 110,000 (35000)
Equipment 260,000 200,000 60000
Accumulated (66,000) (42,000) 24000
Depreciation
Total 597000 545,000
Liabilities and
Stockholders’ equity
Accounts Payable 34,000 47,000 (13000)
Bonds Payable 150,000 200,000 (50000)
Common Stock 214,000 164,000 50,000
Retained Earnings 199,000 134,000 65000
Treasury stock 20000 0 +20000
Total 597,000 545,000

Additional information
Net income for 2019 was $105,000

Cash dividends of $40,000 were declared and paid

Required:

Prepare a cash flow statement for the year ended December 31, 2019

41
Answer:

Cash flow statement for the year ended December 31, 2019
Cash flow from operating activities
Net income 105000
Adjustments to reconcile net income to net cashflows from
operations
+ Depreciation expense +24000
Increase in Accounts receivable -19000
Decrease in Inventories 9000
Decrease in Accounts Payable -13000
NCF provided (used) by operating activities 106000
Cash flows from investing activities
Sale of land +35000
Purchase of equip -60,000
NCF provided (used) by investing activities -25000
Cash flows from financing activities
Settlement of bonds -50,000
Issuance of stocks +50,000
Payment of dividends -40,000
NCF provided (used) by financing activities -40000
Net change in cash Balance 41000
+Beginning cash Balance 22000
=Ending Cash Balance 63000

42
TASK NINE
The following is the financial data for Gully company

Assets December 31, 2019 December 31, Change

2018
Cash 54000 37000
Accounts Receivable 68000 26000
Inventories 54000 -0-
Prepaid expenses 4000 6,000
Land 45000 70,000
Building 200,000 200,000
Accumulated (21000) (11000)
Depreciation
Equipment 193000 68000
Accumulated (28000) (10,000)
Depreciation
Total 569000 386000
Liabilities and
Stockholders’ equity
Accounts Payable 23000 40,000
Accrued Expense 10,000 -0-
payable
Bonds Payable 110,000 150,000
Common Stock 220,000 60,000
Retained Earnings 206000 136,000
Total 569,000 386000
Additional Information:

Net Income for the period is 125000

Cash dividends of 55000 were declared and paid

Required: Prepare a cash flow statement for the year 2019

43
 Cash flow statement for the year ended December 31, 2019
Cash flow from operating activities
Net income 125000
Adjustments to reconcile net income to net cashflows from
operations
Depreciation Expense-Building 10000
Depreciation Expense Equipment 18000
Increase in Accounts Receivable -42000
Increase in inventories -54000
Increase in prepaid expenses +2000
Decrease in Accounts Payable -17000
Increase in accrued expenses payable +10,000
Cash flows provided by operating activities 52000
Cash flows from investing activities
Sale of land 25000
Purchase of equipment -125000
Net Cash flows used by investing activities -100,000
Cash flows from financing activities
Settlement of bonds -40,000
Issuance of Common Stocks 160,000
Payment of Dividends -55000
NCF provided by financing activities 65000
Change in cash balance +17000

44
TASK TEN
The following is a comparative balance sheet for Anne Boleyn Corporation:

December 31
Assets 2018 2017
Cash $69,000 22,000
Accounts Receivable 82,000 66,000
Inventories 180,000 189,000
Land 75,000 110,000
Equipment 260,000 200,000
Accumulated Depreciation- (69,000) (42,000)
equipment
597,000 545,000
Total
Liabilities and Stockholders'
Equity
Accounts Payable $34,000 47,000
Bonds Payable 150,000 200,000
Common Stock 214,000 164,000
Retained Earnings 199,000 134,000
Total 597,000 545,000

Additional Information
1. Net income for 2018 was $115,000
2. Cash Dividends of $50,000 were declared and paid
3. Bonds Payable amounting to $50,000 were retired through the issuance of
common stock
Required:
Prepare a statement of cash flows for 2018 for Anne Boeyn Corpration

Cash flow statement

For the year ended December 31, 2018

Cash flows from operating activities

Net Income 115000

45
+ Adjustments to reconcile net income to cash flows from operating
activities
Dep exp 27000
Increase in A/R -16000
Decrease in inventory +9000
Dec in Accounts Pay -13000
NCF provided by operating activities 122000
Cash flows from Investing Activities
Cash proceeds from Sale of land 35000
Purchase of equipment (60,000)
NCF used by investing act (25000)
Cash flows from financing activities
Payments of Dividends (50000)
Change in cash balance +47000
Add: Beginning Cash Balance 22,000
Ending Cash Balance 69,000

46
MULIPLE CHOICE QUESTIONS
Choose the Correct Answer
1. Which of the following is a limitation of the balance sheet?
a. Many items that are of financial value are omitted.
b. Judgments and estimates are used.
c. Current fair value is not reported.
d. All of these

Answer: d
2. The statement of financial position is useful for analyzing all of the following
except
a. Liquidity. c. Solvency.
b. Profitability. d. Financial flexibility.

Answer: b

3. The balance sheet contributes to financial reporting by providing a basis for all of
the following except
a. Computing rates of return.
b. Evaluating the capital structure of the enterprise.
c. Determining the increase in cash due to operations.
d. Assessing the liquidity and financial flexibility of the enterprise.

Answer: a
\
4. The current assets section of the balance sheet should include
a. Machinery. c. Patents.
b. Goodwill. d. Inventory.

Answer: d

5. Which of the following should not be considered as a current asset in the balance
sheet?
a. Installment notes receivable due over 10 months in accordance with normal
trade practice.
b. Prepaid taxes which cover assessments of the following operating cycle of the
business.
c. Equity or debt securities purchased for trading.
d. The cash surrender value of a life insurance policy carried by a corporation on
its president.
Answer: d

6. Which of the following is not a long-term investment?

a. Cash surrender value of life insurance c. Franchise
b. Land held for speculation d. A sinking fund

Answer: c

47
7. Which item below is not a current liability?
a. Unearned revenue c. Accounts receivable
b. The currently maturing portion of long-term debt d. Trade accounts payable

Answer: c

8. An example of an item which is not an element of working capital is

a. Accrued interest on notes receivable. c. Goodwill.
b. Goods in process. d. Trading investments.

Answer: c
9. Company had assets of $100,000 and liabilities of $60,000. What is the balance of
stockholders’ equity?
a. $0 c. $40,000
b. $60,000. d. $100,000

Answer: b

10. Treasury stock should be reported as a(n)

a. Current asset. C. Investment.
b. Other asset. D. Reduction of stockholders' equity.

Answer: d

11. Which of the following is not an acceptable major asset classification?

a. Current assets c. Long-term investments
b. Property, plant, and equipment d. Deferred charges

Answer: d

12. Which of the following is a contra account?

a. Premium on bonds payable c. Unearned revenue
b. Patents d. Accumulated depreciation

Answer : d

13. In preparing a statement of cash flows, sale of treasury stock would be classified
as a(n)
a. Operating activity. c. Financing activity.
b. Extraordinary activity. d. Investing activity.

Answer: c

14. In preparing a statement of cash flows, which of the following transactions would
be considered an investing activity?
a. Sale of equipment c. Sale of merchandise on credit
b. Payment of a cash dividend d. Issuance of bonds payable at a discount

Answer: a

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15. For Grimmett Company, the following information is available:
Goodwill $200,000 Trademarks 65,000 Long-term
receivables 75,000
In Grimmett’s balance sheet, intangible assets should be reported at
a. $65,000. c. $75,000.
b. $265,000. d. $275,000.

Answer: b

16. Houghton Company has the following items: common stock, $720,000; treasury
stock, $85,000; Taxes payable $100,000 and retained earnings, $313,000. What total
amount should Houghton Company report as stockholders’ equity?
a. $848,000. c. $948,000.
b. $1,048,000. d. $1,118,000.

Answer: Common stock 720,000 – Treasury stock 85,000 +R/E 313,000=c

17. Which of the following is not a major characteristic of a plant asset?

a. Possess physical substance c. Acquired for resale
b. Acquired for use d. Long-term in nature

Answer: c

18. Stine Corp.'s trial balance reflected the following account balances at December 31,
2010:
Accounts receivable (net) $24,000
Trading securities 6,000
Accumulated depreciation on equipment and furniture 15,000
Cash 11,000
Inventory 30,000
Equipment 25,000
Patent 4,000
Prepaid expenses 2,000
Land held for future business site 18,000
In Stine's December 31, 2010 balance sheet, the current assets total is
a. $90,000. c. $82,000.
b. $77,000. d. $73,000.

Answer: A/R 24,000 + trading securities 6000 + cash 11000 + inventory 30,000 +
prepaid exp 2000= 73000 d

19.Kinder Company purchased equipment for $210,000 on 1/1/2015. The estimated

residual value is $10,000, and the estimated useful life is 10 years. The straight
line method is used for depreciation.
What is the annual depreciation expense on this asset?
a. $19,000 c. $20,000
b. $22,000 d. $190,000

Answer : annual dep exp = [210,000- 10000]/10= 20000 [c]

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20. Refer to the previous problem, the book value of the equipment at end of the third
year is:
a. $180,000 c. $200,000
b. $ 170,000 d. $150,000
Answer : Book value = cost 210000 – [Acc dep for 3 years 60,000]= 150,000 [d]

21-The primary difference between revenues and gains is:

A. Gains are increases in net assets from peripheral activities while revenues are
increases from ongoing activities.

B. Revenues increase operating income and gains have no impact on net income.

C. Revenues cause increases in net assets as a result of peripheral activities and gains
cause increases through ongoing activities.

D. Gains result in an increase in operating income whereas revenues do not impact

operating income.

Answer: A

22. Lanz company has provided the following information

Cash Sales totaled $255,000 Credit Sales totaled $479,000
Cash collections from customers for services to be provided =$88,000
A $22,000 loss from the sale of property, plant and equipment occurred
Interest income was $7,700 Interest Expense was $19,900
Cost of Goods Sold $336,000 Rent Expense was 36,000
Salaries Expense was $49,000 Other operating expenses totaled
$79,00
Unearned Revenue $4000
Lantz Company has provided the following information:

How much was Lantz's operating income?

A. 219,700 B. 322,000 C.199,800 D.234,000

Answer: Revenues [255000 +479000]- Expenses[336000 +49000+ 36000+79000]= d

23) A payment on bonds payable will be reported in the ________ section of the
statement of cash flows.
A) operating activities only
B) investing activities
C) financing activities
D) noncash investing and financing activities
Answer: C

24) Which of the following events do NOT affect cash flows from operating
activities? Assume the direct method is used.
A) cash sale of merchandise inventory
B) cash purchase of equipment

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C) cash purchase of inventory
D) cash paid for employees' wages

25) The cash paid to settle a long-term note payable is included in the ________
section of the statement of cash flows.
A) operating
B) investing
C) financing
D) noncash
Answer: C

26) The cash paid for taxes is included in the ________ section of the statement of
cash flows. Assume the direct method is used.
A) operating
B) investing
C) financing
D) noncash
Answer: A

27) The cash paid for employees' wages is included in the ________ section of the
statement of cash flows. Assume the direct method is used.
A) operating
B) financing
C) investing
D) noncash
Answer: A

28) The cash paid to purchase equipment is included in the ________ section of the
statement of cash flows.
A) operating
B) investing
C) financing
D) noncash
Answer: B

29) Cash collections from customers are included in the ________ section of the
statement of cash flows. Assume the direct method is used.
A) operating
B) investing
C) financing
D) noncash
Answer: A

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30) Old equipment having a book value of $12,000 was sold for $20,000 cash. New
equipment was purchased for $25,000 cash. Additional equipment was acquired in
exchange for a $17,000 long-term note payable. The net cash flow from investing
activities was ________.
A) $5,000 cash outflow
B) $22,000 cash outflow
C) $25,000 cash outflow
D) $42,000 cash outflow
Answer: A

31) California Company reports the following information:

12/31/14 12/31/15
Fixed Assets $330 $581
Less: Accumulated Depreciation (110) (127)
Net Fixed Assets $220 $454

Depreciation expense for the year ending December 31, 2015 is $17. No fixed assets
were sold during 2015. What is the net cash flow from investing activities for the year
ending December 31, 2015?
A) $17 cash inflow
B) $251 cash inflow
C) $251 cash outflow
D) $268 cash outflow
Answer: C

32 Listed below are selected accounts for Dentice Corporation:

December 31, 2013 December 31, 2014

Accounts Receivable $20,000 $40,000
Inventory $70,000 $30,000
Accounts Payable $20,000 $88,000
Wages payable $22,000 $1,000

For the year ended December 31, 2014, net income was $50,000 and depreciation
expense was $0. The net cash provided by operating activities for the year ending
December 31, 2014 was ________. Assume the indirect method is used.
A) $70,000
B) $90,000
C) $108,000
D) $117,000
Answer: D

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