Multiple ChoiceIdentify the letter of the choice that best completes the statement or answers the question.
1. Which equation is correct?a. Assets = Liabilities + Contributed Capital - Dividends
b. Stockholders' Equity = Assets - Liabilities + Contributed Capital + Net Income
c. Stockholders' Equity = Contributed Capital + Retained Earnings + Net Income - Dividends
d. Retained Earnings = Net Income + Dividends
2. (CMA adapted, Dec 96 #11) Revenues of an entity are generally measured by the exchange values of the assets or liabilities involved. Recognition of revenue does not occur until thea. revenue is realized and collected
b. revenue is realized and earned
c. entity has signed a binding contract
d. revenue is earned and recorded
3. Stockholders of Forest Glen Corporation have received $35,000 in dividends in the current year. At year end the corporation has total assets of $500,000, total liabilities equal to $300,000, and contributed capital totaling $100,000. If retained earnings at the beginning of the year was $80,000, what was Forest Glen's net income for the current year?a. $80,000
4. (CMA adapted, Jun 85) Northland Company failed to record a valid sale on account of merchandise that had been shipped to a customer prior to the end of the current year. The merchandise had been properly excluded from inventory at the end of the current year. What is the effect of this error?a. Understatement of total expenses for the current year
b. Overstatement of net income for the current year
c. No effect on net income for the current year
d. Understatement of total assets at the end of the current year
5. (CMA Dec 95 #1) Depreciation expense is added to net income under the indirect method of preparing a Statement of Cash Flows in order toa. report all assets at gross book value
b. ensure depreciation has been properly reported
c. reverse non-cash charges deducted from net income
d. calculate net book value
6. (CMA adapted, Dec 93 #29) SFAS 95, Statement of Cash Flows, classifies cash receipts and cash payments by operating, investing and financing activities. All of the following should be classified as investing activities excepta. cash outflows to purchase manufacturing equipment
b. cash inflows from the sale of bonds of other entities
c. cash outflows to lender for interest
d. cash outflows to purchase equity securities of other entities
7. At the end of the first year of operations the Avalanche Company had ending inventory totaling $20,000. The company sold goods at a cost of $240,000. Purchases of goods for the year totaled $220,000. What is the effect of inventory on the statement of cash flows for year 1?a. an outflow of $220,000
b. an inflow of $220,000
c. an outflow of $20,000
d. an inflow of $240,000
Royce CompanyRoyce Company had the following transactions during the fiscal year ended December 31, Year 4.â€¢ Accounts receivable decreased from $115,000 on December 31, Year 3, to $100,000 on December 31, Year 4.
â€¢ Royce's Board of Directors declared dividends on December 31, Year 4, of $.05 per share on the 2.8 million shares outstanding, payable to shareholders of record on January 31, Year 5. The company did not declare or pay dividends for fiscal year, Year 3.
â€¢ Sold a truck with a net book value of $7,000 for $5,000 cash, reporting a loss of $2,000.
â€¢ Paid interest to bondholders of $780,000.
â€¢ Cash increased from $106,000 on December 31, Year 3, to $284,000 on December 31, Year 4.
8. (CMA Dec 95 #2) Refer to the Royce Company example. Royce Company uses the direct method to prepare its Statement of Cash Flows at December 31, Year 4. The interest that is paid to bondholders woulda. be reported in the Financing Section, as a use or outflow of cash
b. be reported in the Operating Section, as a use or outflow of cash
c. be reported in the Investing Section, as a use or outflow of cash
d. be reported in the Debt Section, as a use or outflow of cash
9. (CMA Dec 95 #3) Refer to the Royce Company example. Royce Company uses the indirect method to prepare its Year 4 Statement of Cash Flows, and would show a(n)a. source or inflow of funds of $5,000 from the sale of the truck in the Financing Section
b. deduction of $15,000 in the Operating Section, representing the decrease in year-end accounts receivable
c. source or inflow of funds of $7,000 from the sale of the truck in the Financing Section
d. addition of $2,000 in the Operating Section for the $2,000 loss on the sale of the truck
10. (CMA Dec 95 #4) Refer to the Royce Company example. The total of cash provided (used) by operating activities plus cash provided (used) by investing activities plus cash provided (used) by financing activities isa. cash provided of $284,000
b. cash provided of $178,000
c. cash used of $178,000
d. cash used of $582,000
11. Indicate the effects of the following transactions that will, after the firm records the transaction and all closing entries, decrease Net income = Revenues + Gains - Expenses - Losses:a. The record keeping system in a retail firm requires that the bookkeeper debit all wages paid to Wage Payable. The opening balance in Wages Payable was $40,000. The firm paid $185,000 in cash to employees during the period, with the debit to Wage Payable.
b. A retail firm uses the periodic inventory method. It debits all acquisitions of merchandise to Cost of Goods Sold. Beginning Inventory was $20,000. The firm makes the required adjusting entry, if any, to recognize that the ending inventory is $25,000.
c. The firm retires office equipment which had originally cost $10,000 and had $8,000 of accumulated depreciation at the start of the year, which was several months ago. The firm now records depreciation charges of $100 and sells the equipment for $1,000 cash.
d. A landlord makes adjusting entries and prepares financial statements at the end of every month. During January the tenants had paid rent of $12,000 for the entire year and the fir had debited the amount to Cash and credited Rent Revenue. It makes an adjusting entry at the end of October.
e. A customer whose account receivable for $200 had been written off as uncollectible, makes full payment of the amount previously written off. The firm decides that its original estimates of uncollectibles as a percentage of sales and of the uncollectibles balance required by an aging analysis need not be altered.
12. The post-closing trial balance of the Kazak Import Company at March 31 is as follows. Debit Credit
Cash $ 321,000
Accounts Receivable 201,000
Building and Equipment 1,560,000
Accumulated Depreciation $ 240,000
Accounts Payable 246,000
Salaries Payable 45,000
Common Stock 1,410,000
Retained Earnings &nbs p; 645,000
Transactions during April and additional information follow.1. Sales on account $300,000
2. Cash sales 195,000
3. Cash collected on accounts receivable 240,000
4. Salaries paid in cash 150,000
5. Salaries earned on April 29 and 30, but not yet paid 15,000
6. Miscellaneous expenses paid in cash 30,000
7. Merchandise purchased on account 330,000
8. Accounts payable paid in cash 270,000
9. Merchandise inventory, April 30 540,000
10. Depreciation expense in April 9,000
Required:Prepare an income statement for the month of April and a post-closing trial balance at April 30.
13. Based on the following information, prepare a statement of cash flows for Year 2. Use the indirect method.The CFS CorporationComparative Balance SheetAs of December 31, Year 1 and Year 2
Year 1 Year 2
Cash $ 10,000 $ 30,000
Accounts receivable 20,000 15,000
Inventories 15,000 20,000
Total Current assets 45,000 65,000
Property, plant and equipment
Land 10,000 10,000
Building and equipment 100,000 120,000
Accumulated depreciation (10,000) (20,000)
Total Property, plant and equipment 100,000 110,000
Total Assets $145,000 $175,000
Liabilities and Shareholders' Equity
Accounts payable $ 20,000 $ 30,000
Total Current liabilities 20,000 30,000
Bonds payable 50,000 40,000
Notes payable 20,000 30,000
Total Noncurrent liabilities 70,000 70,000
Common stock 20,000 30,000
Retained earnings 35,000 45,000
Total Shareholders' Equity 55,000 75,000
Total Liabilities and Shareholders' Equity $145,000 $175,000
Dividends paid during Year 2 are $0. There were no dispositions of property during the year.
14. For each of the following activities, identify where the activity would be reported on the statement of cash flows.O â€”Operations
1. Change in accounts receivable
2. Acquisition of fixed assets
3. Change in short-term borrowing
4. Change in inventories
5. Change in long-term borrowing
6. Purchase of municipal bonds
7. Purchase of supplies inventory
8. Issue of capital stock
9. Change in trade accounts payable
10. Payment of interest expense