Midterm 2en2g

Multiple questions a LO5

1. The overall objective of financial reporting is to provide information a. that is useful for decision making. b. about an enterprise’s assets, liabilities, and owners’ equity. c. about an enterprise’s financial performance during a period. d. that allows owners to assess management's performance.

3.Financial ing is the area of ing that emphasizes reporting to LO1 a. management. b. regulatory bodies. c. internal auditors. d. creditors and investors. The responsibility to review the work of the ants and issue opinions LO1 as to the fairness of the financial statements rests with a. the external auditor. b. the board of directors. c. the internal auditors. d. management. As independent (or external) auditors, As are primarily responsible for LO1 a. preparing financial statements in conformity with GAAP. b. certifying the accuracy of financial statements. c. expressing an opinion as to the fairness of financial statements. d. filing financial statements with the SEC. A common business transaction that would not affect the amount of owners’ LO2 equity is a. g a note payable to purchase equipment. b. payment of property taxes. c. billing of customers for services rendered. d. payment of dividends. d LO3

15. An accrued expense can be described as an amount a. paid and matched with earnings for the current period. b. paid and not matched with earnings for the current period. c. not paid and not matched with earnings for the current period. d. not paid and matched with earnings for the current period.

Which of the following errors will be detected when a trial balance is LO3 properly prepared? a. An amount that was entered in the wrong b. A transaction that was entered twice

c. A transaction that had been omitted d. None of the above The last step in the ing cycle is to LO1 a. prepare a post-closing trial balance. b. journalize and post closing entries c. prepare financial statements. d. journalize and post adjusting entries. d LO1

3. Accrued revenues would normally appear on the balance sheet as a. plant assets. b. current liabilities. c. long-term liabilities. d. current assets.

Which of the following would not be classified as a current asset on a LO1 classified balance sheet? a. Investment securities (trading). b. Short-term investments. c. Prepaid expenses. d. Intangible assets. b LO1

a LO1

6. Unearned rent would normally appear on the balance sheet as a a. plant asset. b. current liability. c. long-term liability. d. current asset. 15. Which of the following would not be reported for capital stock in the contributed capital section of a classified balance sheet? a. Dividends per share b. Shares authorized c. Shares issued d. Shares outstanding

b LO4

3. On a multiple-step income statement, gains or losses on sale of equipment would be shown a. before gross profit on sales. b. after gross profit on sales but before income from continuing operations. c. after income from continuing operations but before income from extraordinary items. d. after income before extraordinary items but before net income.

5.The normal ordering of items in the income statement would be best

LO4

illustrated by which of the following? a. Extraordinary items, cumulative effects, income from continuing operations, discontinued operations, net income b. Income from continuing operations, discontinued operations, extraordinary items, cumulative effects, net income c. Income from continuing operations, extraordinary items, cumulative effects, discontinued operations, net income d. Discontinued operations, income from continuing operations, extraordinary items, cumulative effects, net income

6.A single-step income statement is a format that LO4 a. compares the current year’s income with last year’s income. b. recognizes subtotals at intermediate stages such as gross margin. c. combines revenues and gains and subtracts from them expenses and losses, resulting in income from operations. d. reports sales revenue, cost of goods sold, gross margin, and all other expenses.

Problems Problem 1 White Lightning Inc. reported income from continuing operations before income taxes of $626,000 for the year ended December 31, 2001. During October of 2001, White Lightning elected to phase out a segment of its business. That segment reported a net loss prior to the measurement date of $74,000. White Lightning expects to incur additional losses of $35,000 during the phase-out period. Management estimates a loss on the sale of the assets associated with the segment of $85,000. The income tax rate for White Lightning is 30 percent. Prepare the portion of the income statement beginning with “Income from continuing operations before income tax” for the year ended December 31, 2001. Solution 1 LO4 White Lightning Inc. Income Statement (partial) For the Year Ended December 31, 2001 Income from continuing operations before income tax.......................... $ 626,000 Income tax expense............................................................................... 187,800 Income from continuing operations........................................................ $ 438,200

Discontinued operations: Loss from operations of discontinued business segment (net of income tax savings of $22,200)...................................... (51,800) Loss on disposal of business segment (net of income taxes of $36,000).......................................................................................... (84,000) Net Income............................................................................................. $ 302,400

Problem 2 The following totals are taken from the December 31, 2001, balance sheet of Streamer Company: Current assets.............................................................................. $ Long-term assets.......................................................................... Current liabilities........................................................................... Long-term liabilities......................................................................

350,000 800,000 240,000 270,000

Additional information: (a)

Cash of $38,000 has been placed in a fund for the retirement of long-term debt. The cash and long-term debt have been offset and are not reflected in the financial statements.

(b)

Long-term assets include $50,000 in treasury stock.

(c)

Cash of $14,000 has been set aside to pay taxes due. The cash and taxes payable have been offset and do not appear in the financial statements.

(d)

Advances on salespersons’ commissions in the amount of $21,000 have been made. Also, sales commissions payable total $24,000. The net liability of $3,000 is included in Current Liabilities.

After making any necessary changes, what are the totals for Streamer’s current assets and current liabilities?

Solution 2 LO1 Current Assets Beginning ................................................ $ 350,000 (a) No adjustment (b) No adjustment (c) Offsetting cash and taxes payable. . 14,000 (d) Netting commission advances and commissions payable................. 21,000 Totals...............................................$ 385,000

Current Liabilities $ 240,000 14,000 21,000 $ 275,000

Problem 3 The following totals are taken from the December 31, 2001, balance sheet of Bartholomew Company: Current assets.............................................................................. $ Long-term assets.......................................................................... Current liabilities........................................................................... Long-term liabilities......................................................................

350,000 800,000 240,000 270,000

Additional information: (a)

A building costing $100,000 was purchased by taking out a $100,000 mortgage. Since the building serves as collateral on the mortgage loan, both have been excluded from the financial statements.

(b)

Cash in the amount of $45,000 is in a restricted fund for the purchase of equipment. This cash has been included in Current Assets.

(c)

Long-term liabilities include a bank loan of $80,000. Of this loan, $15,000 must be repaid within the coming year.

(d)

Investment securities totaling $27,000 are included in Current Assets. These securities represent stock purchases made as a long-term equity investment in a major supplier.

After making any necessary changes, what are the totals for Bartholomew’s longterm assets and long-term liabilities?

Solution 3 LO1 Long-Term Assets Beginning.....................................................$ 800,000 (a) Offsetting building and mortgage.... 100,000 (b) Restricted fund................................ 45,000 (c) Current portion of long-term debt.... (d) Long-term investment...................... 27,000 Totals...............................................$ 972,000

Long-Term Liabilities $ 270,000 100,000 (15,000) $ 355,000

Problem 4 Presented below is the December 31 trial balance of Cassini Studios. Cassini Studios Trial Balance December 31, 2001 Cash................................................................................. s Receivable........................................................ Allowances for Doubtful s................................... Inventory, January 1......................................................... Furniture and Equipment................................................. Accumulated Depreciation--Furniture and Equipment..... Prepaid Insurance............................................................ Notes Payable.................................................................. Cassini, Capital................................................................ Sales................................................................................ Purchases........................................................................ Sales Salaries Expense................................................... Advertising Expense........................................................ istrative Salaries Expense..................................... Office Expense................................................................. (1)

Debit $ 14,800 33,600

Credit $

2,160

62,400 67,200 26,880 4,080 22,400 72,000 480,000 320,000 40,000 5,360 52,000 4,000 $603,440

$603,440

Prepare adjusting journal entries for the following items: (a) Adjust the Allowance for Doubtful s to 8 percent of the s receivable. (b) Furniture and equipment is depreciated at 20 percent per year. (c) Insurance expired during the year, $2,040. (d) Interest accrued on notes payable, $2,688. (e) Sales salaries earned but not paid, $1,920. (f) Advertising paid in advance, $560.

(g)

Office supplies on hand, $1,200, charged to Office Expense when purchased.

(2)

Prepare closing entries for Cassini after the above adjusting entries have been made. Additional information shows the inventory on December 31 was $64,000. Solution 4 LO3 (1) (a) Bad Debts Expense............................................ 528 Allowance for Doubtful s............... 528 (b) Depreciation Expense--Furniture and Equipment....................................................... 13,440 Accumulated Depreciation--Furniture and Equipment........................................ 13,440 (c) Insurance Expense............................................. 2,040 Prepaid Insurance...................................... 2,040 (d) Interest Expense................................................. 2,688 Interest Payable......................................... 2,688 (e) Sales Salaries Expense..................................... 1,920 Salaries Payable........................................ 1,920 (f) Prepaid Advertising............................................ 560 Advertising Expense................................... 560 (g) Office Supplies on Hand..................................... 1,200 Office Expense........................................... 1,200 (2)

Dec. 31 Cost of Goods Sold.................................... 318,400 Inventory..................................................... 1,600 Purchases..........................................

320,000

Dec. 31 Sales........................................................... 480,000 Retained Earnings..............................

480,000

Dec. 31 Retained Earnings...................................... 438,616 Cost of Goods Sold............................ Advertising Expense.......................... istrative Salaries Expense....... Sales Salaries Expense..................... Office Expense................................... Insurance Expense............................ Bad Debts Expense........................... Depreciation Expense--Furniture and Equipment............................... Interest Expense................................

318,400 4,800 52,000 41,920 2,800 2,040 528 13,440 2,688

Mexute amocana testbankshi ara ris magram single-step income statement-i unda shegedgina. Dz advili iyo 

Questions 1. What difference between a) real and nominal s; b) a general journal and special journals; c) a general ledger and subsidiary ledger. a. Real s are balance sheet s not closed to a zero balance in the closing process. Nominal s are income statement or temporary owners’ equity s closed out in the process of arriving at the net increase or decrease in owners’ equity for a period. b. A general journal is the most flexible book of original entry. It may be used to record all business transactions or simply those that cannot be recorded in one of the special journals. Special journals are designed to facilitate the recording of some particular type of frequently occurring transaction, such as sales, purchases, cash receipts, and cash disbursements. c. The general ledger carries summaries of all s appearing on the financial statements. Subsidiary ledgers afford additional detail in of certain general ledger balances. Thus, s payable appear in total in the general ledger, but individual s with each creditor are provided in the s payable subsidiary ledger. 2. Why we do a) adjusting entries; b) closing entries. a. Adjusting entries are made at the end of an ing period to update balance sheet s and to record accrued expenses and accrued revenues. Frequently, adjusting entries are first made on a work sheet and then are recorded in the general journal from which they are posted to the ledger s. b. Closing entries are made after the adjusting entries have been posted. They transfer all nominal balances to Retained Earnings. 3. Why ing standards? Why FASB is setting standards for the United states? ( sityvasityvit ar maxsovs shinaarsi e saris  ) 4. What advantages a person has when he works as ant ( in ing) and why ethical personality is important for this position. ( sityva-sityvit ar maxsovs shinaarsi e saris  )

Tito amocana iyo 50 quliani (total 250); erti maltipali (total 50); ert Mtlianad midtermi aris 300 quliani.

Yvelas carmatebebi!  Es me davawere exla