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Exam 2: A Closer Look at the Financial Statements

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Question 1

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A company sold 10 widgets. How will the amounts the company reports as 'Sales' differ from amounts reported as 'Cost of Goods Sold'?

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The amount reported as sales represents ...

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Question 2

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For each financial statement item identify the best description , You may use each choice more than once or not at all.

Premises

Responses

Current liability

Amount of net income or loss less distributions to the owners of the company

The property part of property, plant, and equipment

Must be settled within one year

Retained earnings

Converted to cash within one year

Contributed capital

Amount of owners’ investment

Current asset

Portion of equity to which dividends reduce

Land used as a site for production

Premises

Current liability

The property part of property, plant, and equipment

Retained earnings

Contributed capital

Current asset

Responses

Amount of net income or loss less distributions to the owners of the company

Must be settled within one year

Converted to cash within one year

Amount of owners’ investment

Portion of equity to which dividends reduce

Land used as a site for production

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Premises

Responses

Amount of net income or loss less distributions to the owners of the company

Must be settled within one year

Converted to cash within one year

Amount of owners’ investment

Portion of equity to which dividends reduce

Land used as a site for production

Premises

Amount of net income or loss less distributions to the owners of the company

Must be settled within one year

Converted to cash within one year

Amount of owners’ investment

Portion of equity to which dividends reduce

Land used as a site for production

Responses

Question 3

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The following is the balance sheet of Columbus Corporation immediately prior to deciding how to finance the purchase of an additional $210,000 parcel of land. Answer the question that follows. Columbus Corporation Balance Sheet December 31, 2018 $\begin{array}{lr}\text { Assets }\\\text { Cash } & \$ 180,000 \\\text { Accounts receivable } & 60,000 \\\text { Land } & \underline{270,000} \\\quad \text { Total assets } & \underline{\$ 510,000}\\\text { Liabilities and Shareholders' Equity }\\\text { Accounts payable } & \$ 90,000 \\\text { Contributed capital } & 250,000 \\\text { Retained earnings } & 170,000 \\\text { Total liabilities \& shareholders' equity }&\$510,000\end{array}$ REQUIRED: Columbus will finance the $210,000 investment in land by issuing either $210,000 of common stock or using $210,000 of additional accounts payable that will be due in 90 days. Indicate which method of financing is preferable for Columbus. Consider the effects on short-term solvency positions.

Describe how the amount of net income relates to the balance sheet.

The amount a company expects to collect from its customers is:

The information below was taken from the 2018 annual report of Jena Corp. $\begin{array}{|l|c|c|c|} \hline& \mathbf{2 0 1 8} & \mathbf{2 0 1 7} & \mathbf{2 0 1 6} \\\hline \text { Beginning cash balance } & \$ 12,000 & ? & \$ 5,000 \\\hline \text { Net cash flow from operating activities } & 7,987 & ? & 9,100 \\\hline \text { Net cash flow from investing activities } & 2,450 & 4,330 & ? \\\hline \text { Net cash flow from financing activities } & ? & (9,612) & (7,500) \\\hline \text { Ending cash balance } & \$ 11,000 & ? & \$ 12,500\\\hline\end{array}$ Which of the following is the missing amount for the ending cash balance for 2017?

Use the information that follows concerning Ulrich Computer for the year ending December 31, 2018 for problems Several accounts and amounts from the financial statements of Ulrich Computer appear below for the year ending December 31, 2018. $\begin{array}{ll}\text { Cash } & \$ 11,000 \\\text { Sales Revenue } & 140,000 \\\text { Notes Receivable, 6-month } & 90,000 \\\text { Cost of goods sold } & 60,000 \\\text { Taxes Payable } & 31,000 \\\text { Salaries Expense } & 8,000 \\\text { Accounts Receivable } & 34,000\\\text { Dividends } & 42,000 \\\text { Equipment } & 150,000 \\\text { Accounts Payable } & 8,000 \\\text { Contributed Capital } & 30,000 \\\text { Retained Earnings } & 40,000 \\\text { Rent and Utilities Expense } & 4,000 \\\text { Income Tax Expense } & 20,000 \\\text { Inventory } & 21,000\end{array}$ -What is the total amount owed to Ulrich by its customers at the end of 2018?

For each financial statement item , identify in which balance sheet category it should be reported

The information below was taken from the 2018 annual report of Jena Corp. $\begin{array}{|l|c|c|c|} \hline& \mathbf{2 0 1 8} & \mathbf{2 0 1 7} & \mathbf{2 0 1 6} \\\hline \text { Beginning cash balance } & \$ 12,000 & ? & \$ 5,000 \\\hline \text { Net cash flow from operating activities } & 7,987 & ? & 9,100 \\\hline \text { Net cash flow from investing activities } & 2,450 & 4,330 & ? \\\hline \text { Net cash flow from financing activities } & ? & (9,612) & (7,500) \\\hline \text { Ending cash balance } & \$ 11,000 & ? & \$ 12,500\\\hline\end{array}$ Which of the following is the missing amount for the net cash flow from operating activities for 2017?

Autry Company determined its total sales were $400,000, salaries expense was $110,000, dividends paid were $8,000, rent expense was $14,000, other operating expenses were $20,000, and customers still owed $2,000 at the end of the year. How much is net income for the year?

Smith Corp. earned $300,000 profit during 2018. On which financial statement(s) will the exact dollar amount of the profit be clearly stated?

Which asset is more liquid, inventory or accounts receivable? Why?

Desert Company has retained earnings of $11,000, total assets totaling $41,000, and total liabilities of $20,000. How much is total shareholders' equity?

Favre Company has current assets, shareholders' equity, current liabilities, and long-term liabilities of $20,000, $54,000, $8,000, and $16,000, respectively. How much are long-term assets?

Hsu Company has eight major section headings in its balance sheet, which include Current Assets, Long-Term Investments, Property, Plant, and Equipment, Intangible Assets, Current Liabilities, Long-Term Liabilities, and Shareholders' Equity. Below are some of the balance sheet accounts for Hsu: 1. $\begin{array}{llll}\text { 1. Dividends Payable } & \text { 7. } \text { Wages Payable } \\\text { 2. } \text { Prepaid Rent } & 8 . \text { Deferred Revenues } \\\text { 3. } \text { Trademarks } & 9 . \text { Accumulated Depreciation - } \\\text { 4. } \text { Bonds Payable } & \text { Building } \\\text { 5. Investment Funds for Plant } & 10 . \text { Accounts Receivable } \\\text { Expansion } & 11 . \text { Accounts Payable } \\\text { 6. Inventories } & &\end{array}$ Which of these would be found under the heading "Property, Plant, and Equipment"?

Which one of the following creates a decrease in retained earnings?

Which of the above transaction(s) are examples of operating activities?

Which one of the following is a liability?

Explain the concept of liquidity.

What is the account, Accounts Payable, used for?