Kingpin804

Beta Company reported the following financial statement information:

December 31, 2006:
	Assets	$58,000
	Liabilities	28,000
December 31, 2007:
	Assets	?
	Liabilities	38,000
During 2007:
	Stockholder investments	15,500
	Net income	18,000
	Dividends	7,750

Calculate Beta’s total assets and stockholders’ equity as of December 31, 2007.

Total assets

Stockholders' equity

A) $93,750 $55,750

B) $93,750 $30,000

C) $79,250 $55,750

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Stockholders’ equity, as of December 31, 2006, was $30,000 ($58,000 assets – $28,000 liabilities) and stockholders’ equity, as of December 31, 2007, was $55,750 ($30,000 beginning equity + $15,500 stockholder investments + $18,000 net income – $7,750 dividends). Total assets, as of December 31, 2007, are $93,750 ($38,000 liabilities + $55,570 stockholders’ equity).

Kingpin804

Wichita Corporation reported the following balances as of December 31, 2007:

Cash	$?
Accounts payable	16,000
Accounts receivable	58,000
Additional paid-in capital	42,000
Common stock	19,600
Inventory	12,000
Plant and equipment	26,800
Notes payable	20,000
Retained earnings	32,000

Calculate Wichita’s cash and total assets as of December 31, 2007 based only on these entries.

Cash

Total assets

A) $16,000 $129,600

B) $32,800 $113,600

C) $32,800 $129,600

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Liabilities plus equity are equal to $129,600 ($16,000 accounts payable + $20,000 notes payable + $19,600 common stock + $42,000 additional paid-in capital + $32,000 retained earnings). Since assets must equal liabilities plus equity, cash must equal $32,800 ($129,600 total assets – $58,000 accounts receivable – $12,000 inventory – $26,800 plant and equipment).

Kingpin804

Alpha Company reported the following financial statement information:

December 31, 2006:
	Assets	$70,000
	Liabilities	45,000
December 31, 2007:
	Assets	82,000
	Liabilities	55,000
During 2007:
	Stockholder investments	3,000
	Net income	?
	Dividends	6,000

Calculate Alpha’s net income for the year ended December 31, 2007 and the change in stockholders’ equity for the year ended December 31, 2007.

Net income

Change in stockholders' equity

A) ($3,000) $2,000 increase

B) $5,000 $2,000 decrease

C) $5,000 $2,000 increase

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Stockholders’ equity, as of December 31, 2006, was $25,000 ($70,000 assets – $45,000 liabilities) and stockholders’ equity, as of December 31, 2007, was $27,000 ($82,000 assets – $55,000 liabilities). Stockholders’ equity increased $2,000 during 2007. Net income for 2007 was $5,000 ($27,000 ending equity + $6,000 dividends – $3,000 stockholder investments – $25,000 beginning equity).

Kingpin804

An accounting entry that updates the historical cost of an asset to current market levels is best described as:

A) a contra account.

B) a valuation adjustment.

C) accumulated depreciation.

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In some cases, accounting standards require balance sheet values of certain assets to reflect their current market values. Accounting entries that update these assets’ values from their historical cost are called valuation adjustments. To keep the accounting equation in balance, changes in asset values are also changes in owners’ equity, through gains or losses on the income statement or in “other comprehensive income.”

Kingpin804

Accruals are best described as requiring an accounting entry:

A) when an expense has been incurred.

B) only when a good or service has been provided.

C) when the earliest event in a transaction occurs.

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Accruals require an accounting entry when the earliest event occurs (paying or receiving cash, providing a good or service, or incurring an expense) and one or more offsetting entries as the exchange is completed.

Kingpin804

Which of the following is the least likely to be considered an accrual for accounting purposes?

A) Accumulated depreciation.

B) Wages payable.

C) Unearned revenue.

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Accruals fall into four categories:
1. Unearned revenue.
2. Accrued revenue.
3. Prepaid expenses.
4. Accrued expenses. Wages payable are a common example of an accrued expense.
Accumulated depreciation is considered a contra-asset account to property, plant and equipment, not an accrual.

Kingpin804

A furniture store acquires a set of chairs for $750 cash and sells them for $1000 cash. These transactions are most likely to affect which accounts?

Purchase

Sale

A) Assets only Assets, revenue, expenses, owners' equity

B) Assets only Assets and revenues only

C) Assets and expenses Assets, revenue, expenses, owners' equity

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The purchase will be a decrease in cash and an increase in inventory, both asset accounts. The expense is not recorded until the chairs are sold. The sale will be a decrease in inventory and an increase in cash (assets), an increase in sales (revenues), an increase in cost of goods sold (expenses), and an increase in retained earnings (owners’ equity) for the $250 profit.

Kingpin804

Washburn Motors signs a contract to sell a $100,000 luxury sedan to be delivered next month, and receives a $20,000 cash down payment from the buyer. How will the transaction most likely affect Washburn’s assets and liabilities?

Assets

Liabilities

A) Unchanged Unchanged

B) Increase Increase

C) Increase Unchanged

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The down payment will increase cash (an asset) and unearned revenue (a liability). Revenues (and thus retained earnings and owner’s equity) will not increase because the car has not been delivered.

Kingpin804

The purchase of equipment for $25,000 cash is most likely to be recorded as:

A) an increase in one asset account and a decrease in another asset account.

B) an increase in an asset account and an increase in a liability account.

C) an increase in two asset accounts.

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The purchase of equipment for cash is an increase in property, plant and equipment (an asset) and a decrease in cash (another asset).

Kingpin804

Which of the following least accurately describes a correct use of double-entry accounting?

A) A decrease in a liability account may be balanced by a decrease in another liability account.

B) A transaction may be recorded in more than two accounts.

C) An increase in an asset account may be balanced by an increase in an owner’s equity account.

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Keeping the accounting equation in balance requires double-entry accounting, in which a transaction has to be recorded in at least two accounts. An increase in an asset account, for example, must be balanced by a decrease in another asset account or by an increase in a liability or owners’ equity account. A decrease in a liability account may be balanced by an increase in another liability account, not a decrease. If two liabilities decrease without a balancing entry, the balance sheet will be out of balance.