Exam 1: Financial Statements and Business Decisions

Which of the following statements is true?

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

Moss Company has provided the following data: 2016 revenues were $87,500. 2016 expenses were $43,900. Dividends declared and paid by Moss during 2016 totaled $15,700. Total assets on December 31, 2016 were $227,000. Total stockholders' equity on December 31, 2016 was $133,000. Common stock on December 31, 2016 was $93,000. Required: Calculate the beginning retained earnings balance.

Which of the following would not be found within the investing activities section of the statement of cash flows?

An audit is an examination of the financial statements 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 best describes the purpose of an audit?

Borrowing money is an investing activity.

Willie Company's retained earnings increased $20,000 during 2016. What was Willie's 2016 net income or loss given that Willie declared $25,000 of dividends during 2016?

Which financial statement would you utilize to determine whether a company will be able to pay liabilities which are due in 30 days?

Which of the following statements pertaining to the audit function is incorrect?

Rose Corporation began operations on January 2, 2016. During 2016, Rose made cash and credit sales totaling $500,000 and collected $420,000 in cash from its customers. Rose purchased inventory costing $250,000, paid $15,000 for dividends and the cost of goods sold was $210,000. Also, the corporation incurred the following expenses during 2016: Required: 1. Prepare an income statement showing revenues, expenses, income before income taxes, income tax expense, and net income for the year ended December 31, 2016. 2. Based on the above information, what is the amount of accounts receivable on the balance sheet prepared as of December 31, 2016? 3. Based on the above information, what is the amount of retained earnings on the balance sheet prepared as of December 31, 2016?

Which of the following statements is true about a sole proprietorship?

For a business organized as a general partnership, which statement is true?

Sparty Corporation has provided the following information for its most recent year of operation: Revenues earned were $97,000, of which $9,000 were uncollected at the end of the year. Operating expenses incurred were $39,000, of which $7,000 were unpaid at the end of the year. Dividends declared were $11,000, of which $3,000 were unpaid at the end of the year. Income tax expense is $17,400. What is the amount of net income reported on Sparty's income statement?

Which of the following would not be reported in the operating activities section of a cash flow statement?

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

Which of the following equations best describes the income statement?

On January 1, 2016, Miller Corporation had retained earnings of $8,000,000. During 2016, Miller reported net income of $1,500,000, declared dividends of $500,000, and issued common stock for $1,000,000. What were Miller's retained earnings on December 31, 2016?

Husky Company has provided the following information for its most recent year of operation: Cash collected from customers totaled $89,300. Cash borrowed from banks totaled $31,700. Cash paid to employees for salaries totaled $32,100. Cash received from selling Husky common stock to stockholders totaled $41,000. Cash payments to banks for repayment of money borrowed totaled $7,500. Cash paid to suppliers totaled $12,500. Land costing $25,000 was sold for $25,000 cash. Cash paid for dividends to stockholders totaled $3,300. How much was Husky's cash flow from operating activities?

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