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Financial Statements Multiple Choice

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Which one is false?

A) conservative accounting aggressively recognizes loss or reserve provisions in early period
B) aggressive accounting understates loss in early period
C) conservative accounting may be reversed to record higher profit later
D) conservative accounting is based on logical theory instead of accounting tradition

Which one is false?

A) when company finds the error on prior statement and the prior period affected is reported for comparative purposes, the corrected information must be disclosed for the period in which it occurred
B) when an estimate is changed, no adjustment is needed from the previous statements
C) when the accounting principle for goodwill in 2002 is changed, the firm should remake the previous financial statements based on the new principle for 5 years

Which one is false?

A) SFAS No. 128 requires that company should report EPS on the face of the income statement
B) Primary EPS on APB No. 15 is always equal to the basic EPS on SFAS No. 128
C) There are two EPS figures such as basic EPS and Diluted EPS. The basic EPS is usually higher than diluted EPS
D) EPS has been termed a summary indicator to communicate the information about the performance or financial position

Which one is not a main question when you evaluate earnings' quality?

A) gross profit ratio
B) relationship between earnings and the market price of the common stock
C) debt to equity ratio and total amounts of liabilities
D) source of revenue and persistence of revenues

Which one is false?

A) the return on assets (ROA) measures the percentage return on the asset employed by a company
B) inventory on balance sheet is measured only by current or replacement values
C) the balance sheet should disclose a company's wealth to a point. Wealth is defined as the present value of all resources less the present value of obligations.
C) FASB's asset-liability approach is based on FASB Statement of Concept No. 6

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Solution Preview

Which one is false?

A) conservative accounting aggressively recognizes loss or reserve provisions in early period <-- this is true. Losses would be recognized before gains in conservative accounting.
B) aggressive accounting understates loss in early period <-- it usually severely understates expenses and losses. It is the opposite of conservative accounting.
C) conservative accounting may be reversed to record higher profit later <-- true, there is usually a delay because of "how conservative" conservative accounting practices are.
D) conservative accounting is based on logical theory instead of accounting tradition <------ this would be false and is an opinion. Conservative accounting wouldn't be based on logical theory to any greater or less extent than aggressive accounting is.

Which one is false?

A) when company finds the error on prior statement and the prior period affected is reported for comparative purposes, the corrected information must be disclosed for the ...

Solution Summary

Financial Statements Multiple Choice questions are answered with explanations.

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See Also This Related BrainMass Solution

Multiple Choice, financial statements for Rustic Camp Sites, and Donna Bruck, MD

Part I Multiple Choice (worth 1 point each for total of 5 points)
(clearly identify the correct letter)

1. Borrowing money is an example of a(n)
answer_________
a. delivering activity.
b. financing activity.
c. investing activity.
d. operating activity.

2. . Issuing shares of stock in exchange for cash is an example of a(n)
answer _________
a. delivering activity.
b. investing activity.
c. financing activity.
d. operating activity.

3. State the Accounting Equation:
answer _________
a. Assets + Liabilities = Equity
b. Assets + Equity = Liabilities
c. Assets = Liabilities - Equity
d. Assets = Liabilities + Equity

4. Bulldog Company purchased land for $50,000 cash. A financial statement impact of this transaction is:
answer _________
a. Assets decreased
b. Equity increased
c. Cash decreased
d. Liabilities increased

5. Maroon Company borrowed $100,000 from First Bank. A financial statement impact of this transaction is:
answer _________
a. Assets decreased
b. Equity increased
c. Cash decreased
d. Liabilities increased

Part II Exercise Transactions Analysis (worth 5 points)
During 2005 Rustic Camp Sites experienced the following transactions.
1. RCS acquired $32,000 cash by issuing common stock.
2. RCS received $116,000 cash for providing services to customers (leasing camp sites).
3. RCS paid $13,000 cash for salaries expenses.
4. RCS paid a $9,000 cash dividend to the owners.
5. RCS sold land that had cost $100,000 for $100,000 cash.
6. RCS paid $47,000 cash for other operating expenses.
Required
a. For each transaction above explain which accounts are impacted (increase or decrease) and classify the impact it will have on the Balance Sheet and Income Statement (such as Asset, Liability, Equity, Revenue, Expense). If there is no impact, then state as such. (worth 3 points)
The first transaction has been completed as an example below
Transaction # Identify Accounts Increased Identify Accounts Decreased Classify All Types of Balance Sheet Accounts Impacted (Asset, Liability or No impact) Classify All Types of Income Statement Accounts Affected (Revenue, Expense or No Impact)
1 Cash increase, and Common Stock increase N/A Assets increase for Cash and Equity increases for Common Stock No impact
2
3
4
5
6

b. What amount of net income will RCS report on the 2005 income statement? Show your calculation for revenue and operating expenses . (worth 2 points)

Part III Problem Preparing Financial Statements (worth 5 points)
The Income and Statement and Balance Sheet are worth 2 points each and the Retained Earnings Statement is worth 1 point. Make sure you complete all 3 financial statements as noted.

Prepare an income statement, a retained earnings statement, and a balance sheet for the medical practice of Donna Bruck, MD, from the items listed below for the month of October 2007.

Retained earnings (October 1) $15,000
Common stock 30,000
Accounts payable 6,000
Equipment 32,000
Service revenue 26,000
Dividends 6,000
Dental supplies expense 3,500
Cash 13,000
Utilities expense 700
Dental supplies 2,800
Salaries expense 7,000
Accounts receivable 10,000
Rent expense 2,000

DONNA BRUCK, MD
Income Statement
For the Month Ended October 31, 2007

Revenues $

Expenses $

Total expenses

Net income $ t

DONNA BRUCK, MD
Retained Earnings Statement
For the Month Ended October 31, 2007

Retained Earnings, October 1 $
Add:

Less:

$ t

DONNA BRUCK, MD
Balance Sheet
October 31, 2007

Assets
$

Total assets
$ t

Liabilities and Stockholders' Equity
Liabilities
$
Stockholders' Equity
$

Total liabilities and stockholders' equity $ t

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