ACCT 1201 Chapter Notes - Chapter 3: Retained Earnings, Accrual, Matching Principle
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The comparative balance sheets for 2016 and 2015 and the statement of income for 2016 are given below for Wright Company. Additional information from Wright's accounting records is provided also. |
WRIGHT COMPANY Comparative Balance Sheets December 31, 2016 and 2015 ($ in 000s) | ||||
2016 | 2015 | |||
Assets | ||||
Cash | $ | 109 | $ | 70 |
Accounts receivable | 110 | 115 | ||
Short-term investment | 52 | 24 | ||
Inventory | 115 | 110 | ||
Land | 82 | 100 | ||
Buildings and equipment | 615 | 480 | ||
Less: Accumulated depreciation | (163) | (115) | ||
$ | 920 | $ | 784 | |
Liabilities | ||||
Accounts payable | $ | 35 | $ | 43 |
Salaries payable | 6 | 8 | ||
Interest payable | 7 | 5 | ||
Income tax payable | 7 | 11 | ||
Notes payable | 0 | 27 | ||
Bonds payable | 234 | 180 | ||
Shareholders' Equity | ||||
Common stock | 355 | 280 | ||
Paid-in capitalâexcess of par | 161 | 140 | ||
Retained earnings | 115 | 90 | ||
$ | 920 | $ | 784 | |
WRIGHT COMPANY Income Statement For Year Ended December 31, 2016 ($ in 000s) | ||||
Revenues: | ||||
Sales revenue | $ | 460 | ||
Expenses: | ||||
Cost of goods sold | $ | 210 | ||
Salaries expense | 67 | |||
Depreciation expense | 48 | |||
Interest expense | 17 | |||
Loss on sale of land | 4 | |||
Income tax expense | 64 | 410 | ||
Net income | $ | 50 | ||
Additional information from the accounting records: | |
a. | Land that originally cost $18,000 was sold for $14,000. |
b. | The common stock of Microsoft Corporation was purchased for $28,000 as a short-term investment not classified as a cash equivalent. |
c. | New equipment was purchased for $135,000 cash. |
d. | A $27,000 note was paid at maturity on January 1. |
e. | On January 1, 2016, bonds were sold at their $54,000 face value. |
f. | Common stock ($75,000 par) was sold for $96,000. |
g. | Net income was $50,000 and cash dividends of $25,000 were paid to shareholders. |
Required: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepare the statement of cash flows of Wright Company for the year ended December 31, 2016. Present cash flows from operating activities by the direct method. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands (i.e., 5,000 should be entered as 5).) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Question 11
The Kerchin Company purchased $60,000 worth of stock in theXeronics company in 2006. In 2012 the stock was sold for $78,000.On the statement of cash flows prepared using the indirect methodthe company will report:
A. | a subtraction of $60,000 in the investing section. | |
B. | an addition to net income of $18,000 in the operatingsection. | |
C. | a subtraction from net income of $18,000 in the operatingsection. | |
D. | an addition of $18,000 in the investing section. |
2 points
Question 12
When preparing the operating section of a statement of cashflows using the indirect method, various adjustments are needed.Which of the following adjustments is incorrectly stated?
A. | Add gains on sale of equipment. | |
B. | Add to net income any increases in current liabilities. | |
C. | Add to net income depreciation and amortization expense. | |
D. | Deduct any increases in inventories from net income. |
2 points
Question 13
In 2011 Armstrong Company sold for $76,000 cash, an asset whichhad an original cost of $204,000 and accumulated depreciation of$98,000. On the statement of cash flows prepared using the indirectmethod the company should report:
A. | an addition to net income in the operating section of$30,000. | |
B. | a subtraction from net income of $30,000 in the operatingsection. | |
C. | a subtraction of $106,000 in the investing section. | |
D. | an addition of $76,000 in the investing section. | |
E. | Both A and D are correct. |
2 points
Question 14
In 2011 Covington Company sold an asset which had an originalcost of $54,000 and accumulated depreciation of $28,000 for $15,000in cash. On the statement of cash flows prepared using the indirectmethod the company should report:
A. | an addition to net income in the operating section of$11,000. | |
B. | a subtraction from net income in the operating section of$11,000. | |
C. | a source of cash of $15,000 in the investing section. | |
D. | a use of cash in the investing section of $39,000. | |
E. | Both a and c are correct. |
2 points
Question 15
Henry Company's statement of cash flows indicated a $52,000decrease in cash during the year. The statement also indicated that$63,000 was provided by operating activities and $71,000 was usedby investing activities. How much are net cash used by financingactivities?
A. | $86,000 | |
B. | ($44,000) | |
C. | $42,000 | |
D. | $40,000 |
2 points
Question 16
Which of the following would be an example of a cashequivalent?
A. | Notes receivable. | |
B. | Accounts receivable. | |
C. | Money market funds. | |
D. | Investment in GMC stock. |
2 points
Question 17
Carte Company reported cost of goods sold for $100,000 anddepreciation expense totaling $7,000. On January 1, Carte hadinventory and accounts payable of $21,000 and $24,000,respectively. On December 31, inventory and accounts payable were$28,000 and $20,000, respectively. Net income is $60,000. Beginningaccounts receivable was $13,000 and ending was $12,000. How muchare the cash flows from operating activities using the indirectmethod?
A. | $57,000 | |
B. | $50,000 | |
C. | $65,000 | |
D. | $77,000 |
2 points
Question 18
The statement of cash flows is typically used to determine if acompany can:
A. | generate enough cash to pay cash dividends to stockholders. | |
B. | generate enough cash to pay an increase in employees wages. | |
C. | generate enough cash to acquire another company. | |
D. | generate enough cash to buy equipment. |
2 points
Question 19
Cash flows related to buying and selling long-term assets areclassified as:
A. | financing activities. | |
B. | investing activities. | |
C. | non-cash activities. | |
D. | operating activities. |
2 points
Question 20
Given the following information, what amount of cash wascollected from customers during 2012? All sales are on account.
2011 | 2012 | |
Accounts receivable | $ 800,000 | $ 580,000 |
Sales | 3,100,000 | 3,250,000 |
A. | $2,880,000 | |
B. | $3,620,000 | |
C. | $2,670,000 | |
D. | $3,470,000 |
2 points