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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