Exam 1: Financial Statements and Business Decisions

Describe the roles of the Securities & Exchange Commission and The Financial Accounting Standards Board with respect to the development of Generally Accepted Accounting Principles.

Gail's Greenhouse,Inc.,a small retail store which sells house plants,started business on January 1,2010.At the end of January,2010,the following information was available: Sales of plants for cash \ 75,000 Sales of plants for credit (not yet collected) 15,000 Cost of plants which were sold and paid for during January 45,000 Expenses during incurred and paid for during January unless otherwise noted: Salaries \ 5,000 Telephone 250 Office supplies (all used) 150 Electricity 300 Rent on the store for January, 2010 (will not be paid untilFebruary, 2010) 1,000 Requirements: A.Using the above information,prepare the income statement for Gail's Greenhouse for the month ended January 31,2010. B.What is the amount of cash flows provided by operating activities to be presented on the statement of cash flows?

A decision maker who wants to understand a company's financial statements must carefully read the notes to the financial statements because the notes provide useful supplemental information.

An audit examines the financial statements provided by management to ensure that they represent what they claim and to make sure that they are in compliance with Generally Accepted Accounting Principles.

Which of the following properly describes the impact on the financial statements when a company borrows $20,000 from a local bank?

Business managers utilize managerial accounting reports to plan and manage the daily operations.

The primary responsibility for the content of the financial statements lies with the external auditor.

Which of the following statements is correct?

The financial statement that shows an entity's economic resources and claims against those resources is the balance sheet.

Which of the following accounts would be reported as assets on the balance sheet?

Which of the following describes the primary objective of the balance sheet?

Alfred Company manufactures men's clothing.During 2010,the company reported the following items that affected cash.Indicate whether each of these items is a cash flow from operating activities (O),investing activities (I),or financing activities (F). Purchased equipment by paying cash: ------ Collected cash on account from customers: ------ Paid dividends to stockholders: ------ Paid cash for supplies: ------ Paid suppliers for fabric: ------ Borrowed money from bank on a long-term note: ------ Paid interest to bank on the note: ------ Paid wages to employees: ------ Sold shares of stock to new stockholders: ------ 1. Sold shares of stock to new stockholders I 2. Purchased equiprnent by paying cash O 3. Paid wages to employees F 4. Borrowed money fran bark on a long-tern note O 5. Collected cash on account from customers O 6. Paid cash for supplies F 7. Paid dividends to stockholders O 8. Paid suppliers for fabric O 9. Paid interest to bark on the note F

A business entity's accounting system creates financial accounting reports which are provided to external decision makers.

Which of the following would not be found on the statement of cash flows?

During 2010,Rock Company's cash balance increased from $57,000 to $94,300.Rock's net cash flow from operating activities was $26,900 and its net cash flow from financing activities was $13,700.How much was Rock's net cash flow from investing activities?

The accounting equation states that Assets = Liabilities + Stockholders' Equity.

Describe the role of a company's management and the external auditors in the accounting communication process.

During 2010,Rock Company's cash balance increased from $79,000 to $91,300.Rock's net cash flow from operating activities was $37,300 and its net cash flow from financing activities was $11,100.How much was Rock's net cash flow from investing activities?

Which of the following has primary responsibility to develop Generally Accepted Accounting Principles?

At the beginning of 2010,a corporation had assets of $270,000 and liabilities of $160,000.During 2010,assets increased $25,000 and liabilities increased $5,000.What was stockholders' equity on December 31,2010?