SE 1.3 Type of statements: 

SE 1.3 Type of statements: 
Match the following type of report with the most likely statement user: management, taxation authority, regulatory agency or investor

1. Financial Statement: Investor
2. Tax Return: Taxation Authority
3. Annaul Budget: Management
4. Special Report on a bank’s financial health: Regulatory agency

SE 1.4 Accounting Organizations:

Match the following organizations with the set of accounting guidelines: Financial Accounting Standards Board (FASB), International Accounting Standards Board (IASB):
a. Generally accepted accounting principles (GAAP)FASB
b. International financial reporting standards (IFRS)IASB

SE 1.5 Business Activities:  Match the following activities with the type of activity: Operating, Investing, Financing:

a. Day-to-day business activitiesoperating
b. Purchase of land for a new warehouseinvestingc.
Sale of merchandise inventory operating
d. Obtain a new bank loan financing
e. Payment of dividendsfinancing
f. Invest excess cashinvesting
g. Purchase office suppliesoperating
h. Sell old equipment that is no longer neededinvesting

SE 1-6 Financial Statement Items Identify the financial statement (or statements) in which each of the following items would appear: income statement (IS), statement of stockholders’ equity (SSE), balance sheet (BS), or statement of cash flows (SCF)
a. AssetsBS
b. RevenuesIS
c. Cash flow from investing activitiesSCF
d. Stockholders’ equityBS, SSE
e. ExpensesIS
f. Net change in cashSCF
g. Net incomeIS, SSE
h. LiabilitiesBS

SE 1-8 The Sarbanes-Oxley Act .  The Sabanes-Oxley Act of 2002 was enacted to help restore confidence in financial reporting.  Which of the following is not part of the legislation? 

1. Severe penalties for fraudulent reporting
2. A requirement for certification of the financial statements by top management
3. A new statement of social responsibility.
4. A report on internal controls to help prevent and detect errors in the reporting process.

SE 1-11
Using the Basic Accounting Equation (Assets = Liabilities + Stockholders’ Equity) Use the basic accounting equation to answer the following:

a.  Hawkins Company has total assets of $150,000 and total liabilities of $110,000. How much is the company’s total stockholders’ equity?

b. Paul Company has total liabilities of $170,000 and total stockholders’ equity of $105,000. How much total assets does the company have?

c. If  Black Company’s total assets increased by $35,000 during the year, and its total liabilities decreased during the same year by $20,000, what was the change in the company’s total stockholders equity?

SE 1-12
Using the Basic Accounting Equation Floyd Company had beginning of the year total asset of $320,000 and total liabilities of $180,000

a. If during the year total assets increased by $15,000 and total liabilities increased by $40,000, what is the end-of-year total stockholders’ equity?

b. If during the year total assets increased by $60,000 and total liabilities decreased by $5,000, what is the end-of-year total stockholders’ equity?

c. If during the year total liabilities increased by $40,000 and total stockholders’ equity increased by $35,000, what are the end-of-year total assets?

SE 1-14
Financial Statements
Indicate which statement (or statements) you would examine to locate the following items: balance sheet (BS), income statement (IS), statement of stockholders’ equity (SSE), or statement of cash flows (SCF).

a. Revenues for the period IS
b. Cash at year-end SCF, IS
c. Cash used to pay back borrowings SCF
d. Dividends for the period SSE

SE 2-1
Normal Balances
Indicate for each of the following accounts whether the normal balance is a debit or a credit:

a. Accounts Receivable – Debit
b. Accounts Payable- Credit
c. Dividends – Debit
d. Wage Expense – Debit
e. Inventory
f. Interest Income
g. Retained Earnings – Credit

SE 2-2
Debit and Credit Effects
Indicate the account that will be debited for each of the following transactions:

a. Issued common stock for cash
b. Borrowed money from a bank
c. Provided services on account
d. Purchased inventory on account
e. Collected cash from customers that owed a balance due

SE 2-3
Debit and Credit Effects
Indicate the account that will be credited for each of the following transactions:

a. Issued common stock for cash
b. Borrowed money from a bank
c. Provided services on account
d. Purchased inventory on account
e. Collected cash from customers that owed a balance due

SE 2-4
Determine a Transaction
The Pearce Company recorded a transaction by debiting Accounts Receivable and crediting Sales Revenue. What event was being recorded?

SE 2-8
Prepare a Trial Balance
The following balances were taken from the general ledger of Doggie Corportation as of December 31. All balances are normal. Prepare a trial balance.

Cash                                       $6000                    Accounts Receivable          $10,800
Account s Payable                6,000                   Common Stock                      51,000
Equipment                            45,000                   Dividends                                  2,400
Utilities Expense                   2,,000                  Administrative Expense         8,000
Sales Revenue                     17,200

SE 2-10

The Accounting Cycle

The following is the correct order of the five steps in the accounting cycle:

a. Analyze; adjust; record; report; close
b. Analyze; record; adjust; report; close
c. Analyze; record; adjust; close; report
 d. Analyze; report; adjust; record; close

3-1
Steps in the Accounting Cycle
Listed below, out of order, are the steps in an accounting cycle.

1. Prepare the unadjusted trial balance   (3)
2. Post journal entries to general ledger accounts  (2)
3. Analyze transactions from source documents  (4)
4. Journalize and post adjusting entries (5)
5. Prepare the financial statements (7)
6. Record transactions in a journal  (1)
7. Prepare the post-closing trial balance (9)
8. Prepare the adjusted trial balance (6)
9. Journalize and post-closing entries (8)

1. (a)  Place the numbers from the above list in order in which the steps in the accounting cycle are performed
2. (b)  Identify the steps in the accounting cycle that occur daily

SE 3-3
Adjusting Accounts
MacKenzie Enterprises includes the following accounts in its general ledger. Explain why each of these accounts may need to be adjusted.

1. Rent Payable
2. Unearned Revenue
3. Prepaid Subscriptions
4. Depreciation Expense

SE 3-4 Adjusting Entry for Depreciation.  Cowley  Company just completed its first year of operation.  The December 31 equipment account has a balance of $20,000.  There is no balance in the Accumulated Depreciation – Equipment account or in the Depreciation Expense account.  The accountant estimates the yearly equipment depreciation to be $5,000.  Prepare the required adjusting entry to record the yearly depreciation for equipment.

SE 3-5 Adjusting Entry for Prepaid Insurance
Cooper Inc. recorded the purchase of a three-year insurance policy on July 1 in the amount of $4,800 by debiting Prepaid Insurance and crediting Cash. Prepare the necessary December 31 year-end adjusting entry.

SE 3-8  Prepare an Income Statement from an Adjusted Trial Balance.  The Decade Company’s adjusted trial balance contains the following balances as of December 31:

Retained Earnings.                                                                              $8,500
Dividends                                                                                              $2,000
Sales                                                                                                       $22,000
Cost of Goods Sold                                                                             $8,000
Selling and Administrative Expenses Interest Expense               $3,000
Interest Expense                                                                                  $1,500

Prepare an income statement for the year.

SE 3-11 Prepare Closing Entries Using the Income Summary Account.  Use the data from SE 3-8 to prepare the closing entries for The Decade Company.  Close the temporary accounts to income summary.  The balace of $8,500 in the retained earnings account is from the beginning of the year.  What is the ending retained earnings balance after positing the closing entries?

SE 4-1
Preparing a Classified Balance Sheet
Desi Company, a merchandising firm, reports the following data as of January 31, 2019:

Stockholders’ equity……………………………………………………………………………………………………………… $5,700
Property, plant, and equipment……………………………………………………………………………………………….. 10,000
Inventory…………………………………………………………………………………………………………………………….          3,500
Accounts receivable……………………………………………………………………………………………………………….    1,200
Other current liabilities…………………………………………………………………………………………………………..     600
Accounts Payable…………………………………………………………………………………………………………………..        800
Long-term notes payable………………………………………………………………………………………………………… 8,000 Cash…………………………………………………………………………………………………………………………………..              400

Prepare a classified balance sheet for Desi Company as of January 31, 2019.

SE 4-2
Evaluating Firm Profitability
The following financial information is taken from the annual reports of the Billy Company  and the Ball Company:

Billt.         Ball

Net Income…………………………………………………………………………………………          $ 10,000     $100,000
Net sales………………………………………………………………………………………………             40,000         500,000

Calculate the return on sales ratio for each company and determine which firm is more profitable.

4-3
Evaluating Firm Liquidity.  The following financial information is taken from the balance sheets of the Peter Company and the Paul Company:

Peter                       Paul

Current assets…………………………………………………………………………………… $ 200,000         $50,000
Current liabilities……………………………………………………………………………….. 40,000            20,000

Calculate the current ratio for each company and determine which firm has the higher level of liquidity.

SE 4-4

Evaluating Firm Solvency

The following financial information is taken from the balance sheets of the Benny Company and the Walter Company:                                                                                             Benny                                   Walter

Total debt………………………………………………………………………………………… $400,000                             900,000
Total assets……………………………………………………………………………………… 500,000                   $ 1,000,000

Calculate the debt-to-total-assets ratio and determine which firm has the higher level of solvency.

4-5
Calculating Free Cash Flow.  The following financial information is taken from the annual reports of the Ira Company and the Paul Company:

                                                                                                                                Ira                           Paul

Cash flow from operating activities………………………………………………      300,000                               650,000
Cash investment in property & equipment……………………………………. 75,000                        240,000

Calculate the free cash flow for each company and determine which firm has a better cash flow health.

4-6
Statement of Cash Flows.  Which of the following would not appear on a company’s statement of cash flows?
a. Cash flow from operating activities
b. Net change in cash
c. Total assets
d. Cash flow for investing activities

5-1
Merchandising versus Service Firm.  For each of the following accounts, indicate whether it would be found in the records of a merchandising firm, a service firm, or both.

1. Cost of goods sold
2. Service revenue
3. Purchase returns and allowances
4. Inventory
5. Accounts receivable
6. Accounts payable
7. Sales revenue
8. Freight-out

5-7
Gross Profit Percentage
Using the data below, compute Ian’s gross profit percentage for the month of January.

Net sales……………………………………………………………………………………………………………………………… $12,000
Costs of goods sold………………………………………………………………………………………………………………… 3,000
Operating expenses………………………………………………………………………………………………………………… 7,000
Other income…………………………………………………………………………………………………………………………       500
Income tax expense………………………………………………………………………………………………………………… 1,000

SAMPLE SOLUTION