# Exam1 - EXAM#1 SOLUTIONS Problem I Multiple Choice(60...

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Exam #1 Financial Accounting 1 E XAM #1 SOLUTIONS Problem I. Multiple Choice (60 points; 3 points each) Calculations and explanations: (Intermediate numbers are shown in italics and the final answer is shown in bold.) 1. C. Financing activities involve acquiring capital to use for investing activities (page 2 in the text). An increase in liabilities from purchasing equipment on a long-term note payable , therefore, is a financing activity. Performing services, paying wages, the expiration of prepaid rent, and purchasing supplies on credit are all operating activities. 2. B. For 2004, retained earnings would have an ending balance of \$149,300 . This is total revenues of \$409,900 – expenses of \$203,200 – dividends of \$57,400. The ending balance for 2005 would be \$521,600 . This is the beginning balance of \$149,300 + total revenues of \$926,400 – expenses of \$418,800 – dividends of \$135,300. 3. A. Assume the beginning cash balance was zero: -0- +/– cash from operating activities – \$523,400 cash used by investing activities + \$1,162,300 cash provided by financing activities = \$387,500 ending balance. Therefore, operating activities = \$251,400 that is, used \$251,400 . 4. C. We can use our Assets = Liabilities + Shareholders’ Equity formula. Enter the known amounts and work back to liabilities at January 1: Assets = Liabilities + Shareholders’ Equity \$2,141,300 = \$920,700 + \$1,220,600 Rev 1,017,700 Exp (960,500) Div (47,700) Stock 84,100 \$2,260,100 = \$945,900 + \$1,314,200 5. D. Again, we can use our Assets = Liabilities + Shareholders’ Equity formula and enter the transactions to see their effect: A s s e t s = Liabilities + S. Equity \$304,400 = \$304,400 228,500 228,500 170,300 (170,300) \$532,900 = \$398,800 + \$134,100

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Exam #1 Financial Accounting 2 6. A. The rent on the downtown building is \$27,600 ÷ 24 months = \$1,150 per month x 16 months of prepaid rent left on December 31, 2005 (8 months of rent were used up from May 1 to December 31) = \$18,400 . The rent on the uptown building is \$26,400 ÷ 12 months = \$2,200 per month x 7 months of prepaid rent left on December 31, 2005 (5 months of rent were used up from August 1 to December 31) = \$15,400 . The total in Prepaid Rent = \$33,800 (\$18,400 + \$15,400). 7. B. Beginning balance of \$1,086,000 + Revenues – \$638,800 of expenses – \$345,400 of dividends = \$1,634,900 ending balance. Therefore, Revenues were \$1,533,100 . (The issuance of stock for cash did not affect retained earnings.) This is not one of the answers, so we solve for net income = \$894,300 (\$1,533,100 – \$638,800) and that is an answer. 8. D. The required adjusting entry would have been a debit to Unearned Revenue and a credit to Revenue. Therefore, net assets (revenues) are understated . Adjusting entries do not affect cash and therefore, there is no effect on cash from operating activities from failing to make an adjusting entry. 9.
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Exam1 - EXAM#1 SOLUTIONS Problem I Multiple Choice(60...

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