Exam 1: Financial Statements and Business Decisions

Cosmos Corporation was established on December 31,2010,by a group of investors who invested a total of $1,000,000 for shares of the new corporation's stock.During the month of January,2011,Cosmos provided services to customers for which the total revenue was $100,000.Of this amount,$10,000 had not been collected by the end of January.Cosmos recorded salary expense of $20,000,of which 90% had been paid by the end of the month; rent expense of $5,000,which had been paid on January 1; and other expenses of $12,000,which had been paid by check.On January 31,2011,Cosmos purchased a van by paying cash of $30,000.There were no other transactions that affected cash. Requirements: 1.In which section of the statement of cash flows would the amount of cash paid for rent be reported? 2.In which section of the statement of cash flows would the amount of cash paid for the van purchase be reported? 3.By how much did Cosmos's cash increase or decrease during January,2011? 4.What was Cosmos's net income or net loss (after income tax expense)for the month of January,2011? The income tax rate was 30%. 5.Explain why the net increase or decrease in cash for a business generally will be different than the net income,or net loss,for the same period.

Which of the following equations best describes the income statement?

Why is the CPA's role in performing audits important to our economic system?

Which of the following best describes liabilities and stockholders' equity?

During 2010,Winterset Company performed services for which customers paid or promised to pay $587,000.Of this amount,$552,000 had been collected by year-end.Winterset paid $340,000 in cash for employee wages and owed the employees $15,000 at the end of the year for work that had been done but had not paid for.Winterset paid interest expense of $3,000 and $195,000 for other service expenses.The income tax rate was 35%,and income taxes had not yet been paid at the end of the year.Winterset declared and paid dividends of $20,000.There were no other transactions that affected cash. Requirements: 1.What was the amount of the increase or decrease in cash during the year? 2.Prepare an income statement for Winterset for the year. 3.At the beginning of 2010,Winterset's retained earnings were $90,000.Prepare a statement of retained earnings.

Which of the following statements describes the balance sheet?

The International Accounting Standards Board has worked to develop global accounting standards known as

Which of the following correctly describes the various financial statements?

The balance sheet includes assets,liabilities and stockholders' equity as of a point in time.

Which of the following are the components of stockholders' equity on the balance sheet?

On January 1,2010 Miller Corporation had retained earnings of $8,000,000.During 2010,Miller reported net income of $1,500,000,declared dividends of $500,000,and issued stock for $1,000,000.What were Miller's retained earnings on December 31,2010?

For each of the following items that appear on the balance sheet,identify each as an asset (A),liability (L),or element of stockholders' equity (SE).For any item that would not appear on the balance sheet,write the letter,N. Retained earnings ------ Accounts payable ------ Selling expense ------ Contributed capital ------ Accounts receivable ------ Income tax expense ------ Income tax expense ------ Dividends ------ Property and equipment ------

Within which of the following would you find the inventory method(s)being used by a business entity?

Willie Company's retained earnings increased $20,000 during 2010.What was Willie's 2010 net income or loss given that Willie declared $25,000 of dividends during 2010?

Which of the following accounts is not a liability on the balance sheet?

Which of the following equations is the balance sheet equation?

One of the advantages of a corporation when compared to a partnership is the limited liability of the owners.

A company's retained earnings balance increased $50,000 last year; therefore,net income last year must have been $50,000.

An examination of the financial statements of a business to ensure that they conform to generally accepted accounting principles is called

Which of the following transactions increases both cash and net income?