Reference no: EM132421041

Question: Please select the right answer from the questions and show your working.

1. Gretta Cat Co. (GCC) has assets at January 1, 20X4, which consist of $8,000 in inventory. It did not have any liabilities at that date. During the year ended December 31, 20X4, GCC sold the inventory for $10,000 cash and distributed $1,000 to the owners by way of dividends. GCC replaced the inventory on December 31, 20X4, at a cost of $8,300. It did not have any other transactions during the year. The inflation rate during 20X4 was 5%. How much profit did GCC make according to the physical (productive capacity) concept of capital maintenance?

A)$1,000

b) $1,600

c) $1,700

d) $2,000

2. The primary objectives of financial reporting are to provide useful, relevant information that faithfully represents an entity's financial position. However, in meeting these objectives, an entity is limited by which of the following?

a) The cost-benefit constraint

b) The going-concern assumption

c) The capital maintenance concept

d) The materiality characteristic

3. You have been given the following information for Spector Inc.:

• Retained earnings as at January 1, 20X7, were $50,000.

• The statement of comprehensive income for the year ended December 31, 20X7, reported comprehensive income of $12,000 comprising net income of $5,000 and other comprehensive income of $7,000.

• Spector paid out $30,000 in cash dividends during the 20X7 fiscal year. Its dividend payable account increased by $3,000. What is the balance in Spector Inc.'s retained earnings account as at December 31, 20X7?