Reading 27: Analysis of Financial Statements: A Synthesis

assets, following, account, equity, balance

Q12. Which of the following adjustments should Kelley make to Landesign’s balance sheet to account for deferred taxes? Kelley

should:

A) add $56,000 to equity and subtract $56,000 from liabilities.

B) add $350,000 to equity and subtract $350,000 from liabilities.

C) add $56,000 to assets and subtract $56,000 from liabilities.

Q13. Which of the following adjustments should Schmidt make to Landesign’s financial statements for the agreement to purchase

stone at a discount?

A) A prepaid expense needs to be added to the asset side of the balance sheet.

B) An estimate of the future liability should be recognized on the balance sheet.

C) No changes are necessary since Landesign expenses the costs as part of normal operating expense.

Q14. Which of the following adjustments should Schmidt make to Landesign’s financial statements to account for the greenhouse

that Landesign uses to grow plants and store mulch?

A) Increase both liabilities and assets by $341,500.

B) Increase liabilities and decrease equity by $440,000.

C) Increase both liabilities and assets by $328,400.

Q15. Regarding the comments made about Landesign’s growth through acquisition strategy:

A) Kelley’s comment was incorrect; Schmidt’s comment was incorrect.

B) Kelley’s comment was incorrect; Schmidt’s comment was correct.

C) Kelley’s comment was correct; Schmidt’s comment was incorrect.

Q16. Which of the following statements regarding the adjustments that Schmidt should make to Landesign’s financial statements for

its sale of receivables is most accurate?

A) Accounts receivable should be increased by $123,500, cash should be decreased by $123,500, and a loss of $6500 should be recognized on the income statement.

B) $123,500 should be added to cash flow from financing, and $123,500 should be subtracted from cash flow from operations.

C) Accounts receivable should be increased by $123,500, loans payable should be increased by $123,500, and a loss of $6,500 should be recognized on the income statement.

Q17. Inventories are listed on the balance sheet at $600,000, retained earnings are $1.9 Million. In the notes to financial statements,

you find a LIFO reserve of $125,000. Also, the probability of a LIFO liquidation is high. Assuming a tax rate of 36%, what will

be the adjusted value of retained earnings?

A) $1,980,000.

B) $1,820,000.

C) $1,855,000.