Reference no: EM131093344

True/False:

1. If the assets owned by a business total $150,000 and liabilities total $105,000 stockholders' equity totals $45,000.

2. Claims of creditors and owners on the assets of a business are called liabilities.

3. Long-term investments appear in the property, plant, and equipment section of the balance sheet.

4. Stockholders' equity is divided into two parts: common stock and retained earnings.

Multiple Choice:

1. Acquiring assets necessary to operate the business is called a(n):

a. financing activity.
b. operating activity.
c. revenue activity.
d. investing activity.

2. The financial statement which presents a picture on a particular date of what a business owns and owes is a(n):

a. income statement.
b. retained earnings statement.
c. balance sheet.
d. statement of cash flows.

3. Dividends are reported on the

a. income statement.
b. retained earnings statement.
c. balance sheet.
d. income statement and balance sheet.

4. Jimmy's Repair Shop started the year with total assets of $200,000 and total liabilities of $160,000. During the year the business recorded $420,000 in revenues, $220,000 in expenses, and dividends of $40,000. Stockholders' equity at the end of the year was

a. $240,000.
b. $200,000.
c. $160,000.
d. $180,000.

5. A merchandiser will earn an operating income of exactly $0 when

a. net sales equals cost of goods sold.
b. cost of goods sold equals gross margin.
c. operating expenses equal net sales.
d. gross profit equals operating expenses.

6. In a classified balance sheet, assets are usually classified as

a. current assets; long-term assets; property, plant, and equipment; and intangible assets.
b. current assets; long-term investments; property, plant, and equipment; and common stocks.
c. current assets; long-term investments; tangible assets; and intangible assets.
d. current assets; long-term investments; property, plant, and equipment; and intangible assets.

7. Which of the following is not a current liability?

a. Salaries and Wages Payable
b. Accounts Payable
c. Taxes Payable
d. Bonds Payable

8. These are selected account balances on December 31, 2014.

Land	$100,000
Land (held for future use)	150,000
Buildings	800,000
Inventory	200,000
Equipment	450,000
Furniture	100,000
Accumulated Depreciation	300,000

What is the total amount of property, plant, and equipment that will appear on the balance sheet?

a. $1,500,000
b. $1,300,000
c. $1,800,000
d. $1,150,000

9. McKinney Corporation had beginning retained earnings of $2,242,000 and ending retained earnings of $2,499,000. During the year they issued common stock totaling $141,000. No dividends were paid. What was their net income for the year?

a. $257,000
b. $116,000
c. $398,000
d. $323,000

10. The most important information needed to determine if companies can pay their current obligations is the

a. net income for this year.
b. projected net income for next year.
c. relationship between current assets and current liabilities.
d. relationship between short-term and long-term liabilities.

Workout:

1. The following items are taken from the financial statements of Grove Company for 2014:

Accounts payable	$18,500
Accounts receivable	8,000
Accumulated depreciation-equipment	4,800
Bonds payable	18,000
Cash	24,000
Common stock	25,000
Cost of goods sold	27,000
Depreciation expense	4,800
Dividends	5,300
Equipment	44,000
Interest expense	2,500
Patents	7,500
Retained earnings, January 1	16,000
Salaries and wages expense	5,200
Sales revenue	50,500
Supplies	4,500

Instructions

(a) Prepare (an income statement) and a retained earnings statement for the year ended December 31, 2014 and a classified balance sheet as of December 31, 2014.

(b) Compute the following ratios and values:

1. Current ratio
2. Working capital

2. These items are taken from the financial statements of Drew Corporation for 2014.

Retained earnings (beginning of year)	$33,000
Utilities expense	2,000
Equipment	56,000
Accounts payable	15,300
Cash	15,900
Salaries and wages payable	3,000
Common stock	13,000
Dividends	14,000
Service revenue	78,000
Prepaid insurance	3,500
Maintenance and repairs expense	1,800
Depreciation expense	3,300
Accounts receivable	14,200
Insurance expense	2,200
Salaries and wages expense	47,000
Accumulated depreciation-equipment	17,600

Instructions

Prepare (an income statement) and a retained earnings statement for the year ended December 31, 2014 and a classified balance sheet as of December 31, 2014.