ACCT 5301 Spring 2013
Modules 1-3 Review Questions
1
1. A clean audit opinion includes which of the following assertions:
A)
Financial statements present fairly the company’s financial condition
B)
The auditor certifies the financials to be error free
C)
The financial statements are the auditor’s responsibility
D)
Management has handled transactions efficiently in all material respects
E)
All of the above
On October 2, 2011 Starbuck’s Corporation reported, on its Form 10-K, the following (in
millions):
Total assets
$7,360.4
Total stockholders’ equity
4,387.3
Total current liabilities
2,075.8
What did Starbuck’s report as Total Liabilities on October 2, 2011?
A) $2,311.5 million
B) $2,075.8 million
C) $2,973.1 million
D) $7,360.4 million
E) None of the above
2.
3. In its 2010 annual report, Caterpillar Inc. reported the following (in millions):
2010
2009
Sales
$39,867
$29,540
Cost of goods sold
30,367
23,886
As a percentage of Sales, did Caterpillar’s gross profit increase or decrease during 2010?
A) Gross profit increased from 19% to 24%
B) Gross profit decreased from 24% to 19%
C) Gross profit increased from 76% to 81%
D) Gross profit decreased from 81% to 76%
E) There is not enough information to answer the question.
4. Sales for the year = $108,229, Net Income for the year= $13,144, Income from equity
investments = $3,309, and average Equity during the year = $47,556. Return on equity (ROE) for
the year is:
A) 12.1%
B) 27.6%
C) 43.9%
D) 227.6%
E) There is not enough information to answer the question.
5.
A)
B)
C)
D)
E)
Assets are recorded in the balance sheet in order of:
Market Value
Historic Value
Liquidity
Maturity
None of the above
6.
A)
B)
C)
D)
E)
One measure of solvency is:
Return on Assets
Current Ratio
Debt to total equities ratio
Asset turnover
Return on sales
ACCT 5301 Spring 2013
Modules 1-3 Review Questions
2
7.
A)
B)
C)
D)
E)
Which of the following can overrule the Securities and Exchange Commission?
Common industry practices
Financial Accounting Standards Board
American Institute of Certified Public Accountants
Auditors and managers
U.S. Congress
8.
A)
B)
C)
D)
E)
Which of the following transactions will affect the balance in the retained earnings account?
Collection of an accounts receivable
Payment of a dividend
Purchase of inventory on account
Sale of common stock to investors
Complete the construction of a building
9.
A)
B)
C)
D)
E)
All of the following transactions will be reflected in net income, EXCEPT:
Sale of services on account
Depreciation of machinery
Loss on the sale of a discontinued business
Sale of treasury stock
Interest income
10. In its December 31, 2010 financial statements, Harley-Davidson reported the following (in
millions):
Long-term
Current
Long-term
Total
Equity
Assets
Liabilities
Liabilities
Liabilities
$5,364
$ 2,014
$ 5,210
At December 31, 2010, current assets amount to:
A) $2,014 million
B) $3,350 million
C) $7,224 million
D) $4,067 million
E) None of the above
$7,224
$2,207
11. Cash collected on accounts receivable would produce what effect on the balance sheet?
A) Increase liabilities and decrease equity
B) Decrease liabilities and increase equity
C) Increase assets and decrease assets
D) Decrease assets and decrease liabilities
E) None of the above
12. An accrual of wages expense would have what effect on the balance sheet?
A) Decrease liabilities and increase equity
B) Increase assets and increase liabilities
C) Increase liabilities and decrease equity
D) Decrease assets and decrease liabilities
E) None of the above
ACCT 5301 Spring 2013
Modules 1-3 Review Questions
3
13. During fiscal 2010, E. I. DuPont de Nemours and Company recorded cash of $30,900 million
from customers for accounts receivable collections. Which of the following financial statement
effects template entries captures this transaction?
Balance Sheet
Transaction
Cash
Asset
+
Noncash
Assets
=
Liabilities
+
Income Statement
Contrib.
Capital
+
Earned
Rev–
Capital
enues
+30,900
(Retained +30,900 –
Earnings)
Expenses
=
Net
Income
=
+30,900
A)
+30,900
-30,900
(AR)
=
B)
+30,900
-30,900
(AR)
=
–
=
+30,900
(AR)
=
+30,900
(Retained +30,900 –
Earnings)
=
+30,900
(AR)
=
C)
D)
-30,900
+30,900
EXERCISES
Exercise A In its December 31, 2011 annual report, Mattell, Inc. reports the following items.
2011
($ thousands)
Net cash flows from operating activities
$ 664,693
Revenues
6,266,037
Stockholders’ equity
2,610,603
Net cash flows from financing activities
(402,199)
Total assets
5,671,638
Cash, end of year
1,369,113
Total Expenses
5,497,529
Noncash assets
4,302,525
Net cash flows from investing activities
(174,504)
Net income
768,508
Cash, beginning of year
$1,281,123
REQUIRED: Prepare a summarized balance sheet and an income statement for Mattel, Inc. for
2011.
ACCT 5301 Spring 2013
Modules 1-3 Review Questions
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Exercise B (6 points). Identify the financial statements in which you would find each of the items listed
below. Some items may appear on more than one statement. Indicate all financial statements that
apply to each item. The possible choices are:
B:
I:
CF :
a.
b.
c.
d.
e.
f.
Balance sheet
Income Statement
Statement of Cash Flows
Financial Statement Item
Office building
Revenues
Dividends
Proceeds of sale of investments
Administrative Expense
Treasury stock
Financial Statement
Exercise C (8 points). The Lee Corp. had beginning cash of $10,000, total assets of $100,000, total
liabilities of $50,000, common stock of $10,000, and retained earnings of $40,000. The company
had the following transactions during 2012:
1. Purchased in $50,000 of inventory on credit.
2. Sold the inventory purchased in (1) for $100,000 on credit.
3. Collected $60,000 in cash from customers.
4. Purchased $25,000 in equipment.
5. Paid $20,000 on a note payable that came due.
6. Recorded $5,000 in depreciation.
7. Recorded $20,000 in employee wages of which $15,000 was paid in cash.
8. Paid $10,000 in dividends.
Required:
a. Income statement for the Lee Corp. for 2012.
b. What is the balance in the ending Retained Earnings account?
ACCT 5301 Spring 2013
Modules 1-3 Review Questions
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Exercise D Record the following transactions in the financial statements effects template below.
Balance Sheet
Transaction
Cash
Noncash
+
=
Asset
Assets
Purchase
$10,000 of
inventory on
credit
Sell all
inventory for
$18,000 on
account
Collect
$4,000 cash
for accounts
receivable
Pay $6,000
cash toward
accounts
payable
LiabilContrib.
+
+
ities
Capital
Income Statement
Earned
Capital
Revenues
–
Expen=
ses
=
–
=
=
–
=
=
–
=
=
–
=
Net
Income
Exercise E Copy Corner began operations in March with cash and common stock of $12,000. The company
made $194,000 in net income its first month. It performed print jobs for customers and billed these customers
$300,000. The company collected half of its receivables by the end of the month. The company had cost of
goods sold of $54,000 paid for in cash and $2,000 inventory left over at the end of the month. Copy Corner
employees earned wages but those are not paid until the first of April. Complete the following statements for
the end of March.
Income Statement
Sales
$
Balance sheet
Cash
Cost of sales
Accounts receivable
Wages expense
Inventory
Net income
$
$
Total assets
$
Wages payable
$
Common Stock
Retained earnings
Total liabilities and equity
$