plugin-A471f10 Solutions to Practice Exam 1

# plugin-A471f10 Solutions to Practice Exam 1 - ACC471...

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ACC471 PRACTICE FIRST EXAM SUGGESTED SOLUTIONS FALL 2010 1. b. “Economic resources” are assets, and “obligations” are liabilities. Choice a. describes a statement of cash flows. Choice c. describes one of the objectives of financial statement analysis that involves both the balance sheet and the income statement. Choice d. describes one of the uses of the income statement. 2. d. Think in terms of the statement of cash flows: Beginning cash balance (?) + cash from operating activities of \$1,688,300 ─ \$1,180,500 cash used by investing activities ─ \$1,746,700 cash used by financing activities = \$419,600 ending cash balance. Therefore, beginning balance = \$1,658,500. 3. d. Use our Assets = Liabilities + Stockholders’ Equity formula to first solve for beginning Stockholders’ Equity, then for ending Stockholders’ Equity, and finally for ending Liabilities. Assets = Liabilities + Equity \$1,113,200 = \$479,300 + \$ 633,900 505,900 revenues (475,400) expenses (25,000) dividends 43,800 new stock issued \$1,492,100 = \$808,900 + \$ 683,200 4. d. Use the formula Assets = Liabilities + Stockholders’ Equity. The payment of \$378,000 would reduce cash and, thus, decrease total assets by \$378,000 . The expenses to be paid next year (\$54,000) represent an accrued liability at the end of the current year. Thus, the adjustment to record the expenses results in an increase in total liabilities of \$54,000 . The total expenses of \$432,000 would reduce net income, reduce retained earnings, and thus reduce total stockholders’ equity by \$432,000 . 5. c. Remember that Stockholders’ Equity consists of Capital Stock + Retained Earnings. So, first use the formula Assets = Liabilities + Stockholders’ Equity to determine Retained Earnings at the end of the year. Then, apply the formula for the statement of retained earnings to determine net income. Assets = Liabilities + Capital Stock + Retained Earnings \$100,000 Beg. Bal. 120,000 + Net Inc. ( 20,000) − Div. \$2,500,000 = \$900,000 + \$1,400,000 + \$200,0000

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6. d. Consider first how the Prepaid Insurance account works: Beginning balance + Cash paid in advance for insurance − Insurance expired = Ending balance. Because the balance in the account decreased by \$7,000, that means that the insurance that expired during the year (i.e., accrual-basis insurance expense) was \$7,000 than the amount of cash paid (i.e., cash-basis insurance expense). Therefore, cash-basis expense would have been \$7,000 less and net income would have been
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## This note was uploaded on 01/26/2011 for the course ACC 471 taught by Professor Winkle during the Fall '08 term at University of Michigan.

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plugin-A471f10 Solutions to Practice Exam 1 - ACC471...

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