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Changes in an Entity's Balance Sheet

1. On January 31, an entity's balance sheet showed total assets of $750 and liabilities of $250. Owners' equity at January 31 was:
A) $ 500
B) $1,000
C) $ 750
D) $ 250

Use the following to answer questions 2 - 3:

At the beginning of the fiscal year, the balance sheet showed assets of $1,364 and owners' equity of $836. During the year, assets increased $74 and liabilities decreased $38.

2. Owners' equity at the end of the year totaled:
A) $836
B) $872
C) $948
D) $1,438

3. Liabilities at the end of the year totaled:
A) $490
B) $528
C) $836
D) $910

4. At the end of the year, retained earnings totaled $1,700. During the year, net income was $250, and dividends of $120 were declared and paid. Retained earnings at the beginning of the year totaled:
A) $2,070
B) $1,330
C) $1,230
D) $1,570

5. To accrue $5,500 of employee salaries for the last week of February, the employer's journal entry is:
A) Dr Salaries Expense..................................... $5,500
Cr Cash ................................................ $5,500
B)
Dr Salaries Expense..................................... $5,500
Cr Salaried Payable.................................. $5,500
C)
Dr Salaried Payable...................................... $5,000
Cr Cash.................................................. $5,500
D)
Dr Salaries Payable....................................... $5,500
Cr Fee Revenue....................................... $5,500

Week 2 objectives
· Differentiate among the components of assets and liabilities.
· Apply accounting principles and concepts to measure assets and liabilities.
· Recognize the transactions related to bonds and other liabilities.
· Evaluate the appropriateness of the organization's valuation techniques.

6. A cash equivalent is a current asset that:
A) Will be converted to cash within one year.
B) Will be converted to cash within one month.
C) Is readily convertible into cash with a minimal risk.
D) Is readily convertible into cash with a substantial risk.
E) None of the above.

7. The allowance for bad debts for the accounts receivable accounts is a(n):
A) asset
B) contra current asset
C) expense
D) contra revenue

Use the following to answer question 8:

Martin & Associates borrowed $5,000 on April 1, 2003 at 8% interest with both principal and interest due on March 31, 2004.

8.Which of the following journal entries should the firm use to accrue interest at the end of each month?
A)
Dr Interest payable................................. XXX
Cr Cash .......................................... XXX
B)
Dr Interest receivable.............................. XXX
Cr Interest payable ............................ XXX
C)
Dr Interest expense................................. XXX
Cr Interest payable ............................ XXX
D)
Dr Interest payable................................. XXX
Cr Interest expense ............................ XXX

9. An accounts receivable results from the sale of:
A) Property, plant and equipment for cash
B) Goods and services to customers on account
C) Goods and services to customers for cash.
D) The firm's common stock.
E) None of the above.

10. When costs are rising over time:
A) LIFO results in higher profits that FIFO.
B) Cost of goods sold using the weighted average method will be greater than LIFO cost of goods sold.
C) balance sheet inventory balances will be greater under LIFO.
D) FIFO results in higher profits than LIFO.

11. An Accounts Payable could result from which of the following transactions?
A) Purchasing accounts for cash.
B) Purchasing property, plant and equipment on long term credit.
C) Purchasing goods and services from suppliers on credit.
D) All of the above.
E) None of the above.

Week 3 objectives
· Recognize the components of a Statement of Changes in Owner's Equity and Statement of Cash Flows.
· Evaluate the implications of a change in the components of a Statement of Changes in Owner's Equity.
· Differentiate the components of a Statement of Cash Flows.
· Differentiate the components of a classified Income Statement.
· Evaluate the implications of a change in the components of a Statement of Cash Flows to assess performance.
· Appraise the value of explanatory notes and other financial information.

12. Gains differ from revenues because gains:
A) are not a result of the entity's ongoing, central operations.
B) do not have to be realized.
C) are reported as income from operating activities.
D) do not involve any offsetting costs or expenses.

13. Most entities satisfy the accounting criteria for recognizing revenue when:
A) an order is received from a customer.
B) cash is received from a customer.
C) an unearned revenue account is credited.
D) a product is delivered or a service is provided.

14. An item that cost $90 is sold for $120. The gross profit ratio for this item is:
A) 20%
B) 25%
C) 33.3%
D) 60%

15. An item that has a price $240 has a cost that will yield a gross profit ratio of 20%. The cost is:
A) $192
B) 288
C) 300
D) 1200

16. The major difference between the indirect and the direct method of a statement of cash flows appears in which the following activities section(s)?
A) The investing activities and financing activities sections.
B) The investing activities section only.
C) The operating activities and financing activities sections.
D) The operating activities section only.

.
Week 4 objectives
· Complete a financial analysis of an organization.
· Interpret the results of a financial analysis.
· Assess the financial strength of an organization.

17. Which of the following is not a category of financial statement ratios?
A) Financial leverage.
B) Liquidity.
C) Profitability.
D) Prospectus.

18. A higher P/E ratio means that:
A) the stock is more reasonably priced.
B) the stock is relatively expensive.
C) investors are wary of the stock.
D) earnings are expected to decrease.

19. Financial leverage:
A) arises because most borrowed funds have a fixed interest rate.
B) arises because most borrowed funds have a variable interest rate.
C) usually has no bearing on the risk associated with a company.
D) is a concept that does not apply to individuals.

Week 5 objectives
· Differentiate among cost accounting systems
· Assess the appropriateness of a cost accounting system.
· Perform a break-even analysis.
· Calculate a variance analysis of standard to actual costs and analyze variances.

Use the following to answer question 20:

Selling price per unit $ 100
Variable expenses per unit $ 40
Fixed expenses per month $60,000

20. The break-even point volume of units is:
A) 0
B) 360
C) 720
D) 1000

21. If a firm's debt ratio were 25%, its debt/equity ratio would be:
A) 25%.
B) 50%.
C) 33.33%.
D) 75%.

22. Which of the following is a true statement regarding absorption and/or direct costing?
A) A firm can choose to use either absorption or direct costing for income tax purposes.
B) A firm can choose to use either absorption or direct costing for financial reporting purposes.
C) Direct costing assigns only direct materials and direct labor to products.
D) Absorption costing includes fixed overhead in product costs whereas direct costing does not.
E) None of the above.

23. The production cost of a single unit of a manufactured product is determined by:
A) dividing total direct materials and direct labor for a production run by the number of units made.
B) dividing total direct materials, direct labor, and manufacturing overhead for a production run by the number of units made.
C) dividing total direct materials, direct labor, manufacturing overhead and selling expenses for a production run by the number of units made.
D) dividing the selling price by the gross profit ratio.

Week 6 objectives
· Prepare a budget.
· Assess actual performance against the budget.
· Select proper corrective action.

24. The key data element on which the entire budget is based is the:
A) sales/revenue forecast.
B) income statement budget.
C) cash budget.
D) balance sheet forecast.

25. Operating expenses are best budgeted on the basis of knowledge about:
A) actual cost behavior patterns.
B) relevant ranges provided by management.
C) the prior year's budget amounts.
D) current period budget amounts

Solution Preview

Study Guide
1. On January 31, an entity's balance sheet showed total assets of $750 and liabilities of $250. Owners' equity at January 31 was:
A) $ 500
B) $1,000
C) $ 750
D) $ 250
Answer: A
Assets = Liabilities + Owners' equity

Use the following to answer questions 2 - 3:

At the beginning of the fiscal year, the balance sheet showed assets of $1,364 and owners' equity of $836. During the year, assets increased $74 and liabilities decreased $38.

2. Owners' equity at the end of the year totaled:
A) $836
B) $872
C) $948
D) $1,438
Answer: C
At the beginning of the year
Assets 1,364 Liabilities 528
Owners' equity 836
During the year
Assets 1,438 Liabilities 490
Owners' equity 948

3. Liabilities at the end of the year totaled:
A) $490
B) $528
C) $836
D) $910
Answer: A

4. At the end of the year, retained earnings totaled $1,700. During the year, net income was $250, and dividends of $120 were declared and paid. Retained earnings at the beginning of the year totaled:
A) $2,070
B) $1,330
C) $1,230
D) $1,570
Answer: D
Retained at the end of year = Retained earnings at the beginning + net income - dividends

5. To accrue $5,500 of employee salaries for the last week of February, the employer's journal entry is:
A) Dr Salaries Expense..................................... $5,500
Cr Cash ................................................ $5,500
B)
Dr Salaries Expense..................................... $5,500
Cr Salaried Payable.................................. $5,500
C)
Dr Salaried Payable...................................... $5,000
Cr Cash.................................................. $5,500
D)
Dr Salaries Payable....................................... $5,500
Cr Fee Revenue....................................... $5,500
Answer: B

Week 2 objectives
? Differentiate among the components of assets and liabilities.
? Apply accounting principles and concepts to measure assets and liabilities.
? Recognize the transactions related to bonds and other liabilities.
? Evaluate the appropriateness of the organization's valuation techniques.

6. A cash equivalent is a current asset that:
...

Solution Summary

This solution is comprised of a detailed explanation to answer what is the entity's balance sheet.

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