SolnExam1

# SolnExam1 - Exam#1 SOLUTIONS Part I 20 Multiple Choice...

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Solutions Manual – Exam #1 91 Exam #1 SOLUTIONS Part I. 20 Multiple Choice Questions at 3 Points Each Intermediate numbers are shown in italics and the final answer is shown in bold. 1. B. Use the Assets = Liabilities + Shareholders’ Equity relationship: Assets = Liabilities + S. Equity \$338,200 = \$338,200 services on account 253,900 253,900 cash received in advance 169,000 cash collected on account (169,000) (reduce accounts receivable) \$592,100 = \$253,900 + \$338,200 2. D. Again, use the Assets = Liabilities + Shareholders’ Equity relationship: Assets = Liabilities + S. Equity \$(265,000) = 492,000 \$(757,000) cash and on account (378,600) = (378,600) paying accrued expenses (150,400) = prepaying for resources 150,400 (increases prepaid expenses) \$(643,600) = \$113,400 + \$(757,000) 3. C. \$192,200 cash from operating activities – \$441,750 used for investing activities +/– cash used or provided by financing activities = \$71,300 increase in cash. Solving, we get investing activities = +\$320,850, that is, provided \$320,850 . 4. C. Shareholders’ Equity consisted of \$502,000 of contributed capital and \$838,000 in retained earnings (\$1,340,000 total shareholders’ equity – \$502,000). Retained earnings : \$838,000 + \$234,000 net income in 2006 + \$104,000 net income in 2007 – \$84,000 dividend in 2007 = \$1,092,000 . Contributed capital : \$502,000 + \$166,000 issuance of stock in 2006 – \$70,000 purchase and retirement of stock in 2007 = \$598,000 . 5. A. Once again, use the Assets = Liabilities + Shareholders’ Equity relationship: Assets = Liabilities + S. Equity 12/31/06 \$1,545,000 = \$664,500 + \$880,500 7 3 5 , 0 0 0 r e v e n u e s (693,000) expenses ( 3 4 , 5 0 0 ) d i v i d e n d s + \$18,000 60,000 new stock 12/31/07 \$1,630,500 = \$682,500 + \$ 948,000

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INTRODUCTION TO FINANCIAL REPORTING AND ANALYSIS – 4 TH EDITION 92 6. D. For the prepaid insurance on the warehouse, we have \$32,400 ÷ 36 months = \$900 per month x 5 months’ of prepaid insurance remaining (June 1, 2005 to December 31, 2007 is 31 months (7 in 2005, 12 in 2006, and 12 in 2007), so 5 months remain) = \$4,500 . For the prepaid insurance on the office building, we have \$18,720 ÷ 24 months = \$780 per month x 14 months’ of prepaid insurance remaining (March 1, 2007 to December 31, 2007 is 10 months, so 14 months remain) = \$10,920 . Total prepaid insurance remaining at December 31, 2007 = \$15,420 (\$4,500 + \$10,920). 7. E. Set up a Statement of Retained Earnings: the beginning balance of \$601,400 + revenues – expenses of \$549,300 – dividends of \$29,800 = the ending balance of \$911,800 (the issuance of stock does not affect retained earnings). Therefore, revenues = \$889,500 , and this is answer a. Revenues of \$889,500 – expenses of \$549,300 = net income of \$340,200 , and this is answer d. So the best answer is that more than one of the answers is correct . 8.
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SolnExam1 - Exam#1 SOLUTIONS Part I 20 Multiple Choice...

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