This is “End-of-Chapter Exercises”, section 3.5 from the book Accounting in the Finance World (v. 1.0).
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You are the CEO of Fisher Corporation. You are very concerned with presenting the best financial picture possible to the owners of your company. Unfortunately, Fisher has a lawsuit pending at the end of the year, which could result in the company having to pay a large sum of money. On the bright side, Fisher also has business deal that might go through, which could result in the company making a large gain. The principle of conservatism would say that which of the following is true?
Henderson Inc. reports the following: assets of $500,000, liabilities of $350,000 and capital stock of $100,000. What is the balance in retained earnings?
Giles Corporation borrowed money from Midwest Bank during the year. Where would this event be reported on Giles’s statement of cash flows?
You are considering investing in the stock of Mogul Corporation. On which of the following statements would you find information about what a company has to help it generate revenue in the future and what the company owes to others?
Which of the following is not a correct representation of the accounting equation?
Use the following abbreviations to indicate on which statement you would find each item below. Some items may appear on more than one statement. Include all abbreviations that would apply.
The following relate to Farr Corporation for the month of April:
|Gain on the Sale of Land||$20,000|
|Cost of Goods Sold||$75,000|
|Loss on Lawsuit||$24,000|
Maverick Company has the following account balances at the end of December. Show that Maverick’s balance sheet would balance using the accounting equation.
Ramond Company has hired you to prepare financial statements for the year ending 12/31. On your first day of work, your assistant comes to you with several items that could be classified as expenses or could be classified as assets. Based on your knowledge of accounting so far, determine whether the following items should be recorded as an expense or an asset.
For each of the following, determine the missing balance.
|Cost of Goods Sold||$459,030|
|Gain on Sale of Equipment||$5,000|
|Income Tax Expense||$50,000|
|Retained Earnings, 12/31||$16,200|
|Retained Earnings, 1/1||?|
Rescue Records needs rescuing. The downloading of songs and other media are killing its business. The owners of Rescue want to know if they made a net income or a net loss for the year ended December 31. Given the following account balances, prepare an income statement for Rescue similar to Figure 3.1 "Income Statement".
|Cost of Goods Sold||$109,000|
|Income Tax Expense||$3,800|
|Loss on Sale of Stock||$12,090|
Your lawn care business, A Cut Above, has grown beyond your wildest dreams—to the point where you would like to buy some new equipment and hire some people to help you. Unfortunately, you don’t have that kind of money sitting around, so you are applying for a loan. The bank has requested financial statements, including, of course, a balance sheet. The following are the balances you have on 5/31. Prepare a classified balance sheet to submit to the bank.
|Note Payable Due Two Years from Now (Loan from Mom)||$5,000|
|Capital Stock (Money You Invested to Start Business)||$2,000|
Maria Sanchez, an accountant by trade, moonlights as a personal trainer. Maria is curious about her cash inflows and outflows from her personal work for the month of February. Using the following information, prepare a statement of cash flows for Maria.
|Cash for Supplies Inventory||$500|
|Cash for Advertising||$400|
|Cash Paid for Equipment||$900|
|Cash Received from Bank Loan||$1,000|
|Cash Paid for Insurance||$700|
|Cash Received from Customers||$2,200|
|Cash Paid for Taxes||$400|
|Cash Balance, 2/1||$500|
The U.S. Securities and Exchange Commission (SEC) is a governmental organization whose mission is to protect investors and oversee capital markets. The SEC requires companies whose stock is traded on U.S. public exchanges to submit financial statements like those introduced in this chapter on a quarterly and annual basis. Anyone can access these statements using the SEC’s EDGAR (Electronic Data Gathering and Retrieval) database system. This exercise will allow you to learn more about the SEC and use its database to access a company’s financial statements. You can access the SEC on the Internet at http://www.sec.gov.