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Exam 2: Financial Statements and the Annual Report

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Question 1

True/False

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A construction company that builds skyscrapers is likely to have an operating cycle longer than one year.

A) True
B) False

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Question 2

Multiple Choice

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Which of the following is the best description of the purpose of financial reporting?

A) To allow users to access the daily detailed records of a business
B) To help the users reach their decisions in an informed manner
C) To provide users with an assessment of how long the company will continue as a going concern
D) To allow users access to a list of all the individuals who owe the company money

E) All of the above
F) B) and D)

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B

Question 3

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Which statement is true concerning an income statement?

Smith Corporation Listed below is information from the financial records of Smith Corporation at December 31, 2017: $\begin{array}{lrlr}\text { Retained earnings } & \$ 37,000 & \text { Notes payable-Due July 1,2020 } & \$ 12,000 \\\text { Accumulated depreciation } & 13,000 & \text { Interest payable } & 1,000 \\\text { Income taxes payable } & 24,000 & \text { Office supplies } & 2,000 \\\text { Buildings } & 48,000 & \text { Accounts payable } & 46,000 \\\text { Cash } & 11,000 & \text { Inventory } & 33,000 \\\text { Accounts receivable } & 35,000 & \text { Land } & 50,000 \\\text { Capital stock } & 60,000 & \text { Prepaid rent } & 4,000\end{array}$ -Read the information about Smith Corporation. Required: Prepare the Long-Term Assets section of Smith Corporations's balance sheet at December 31,2017.You may omit the heading.Why are these amounts classified as "long-term"?

______________________________ is a liquidity measure that is calculated by subtracting current assets from current liabilities.

Fellsmere Corporation Presented below are the condensed balance sheets of Fellsmere Corporation at December 31,2018 and 2017.Net income for the years ending December 31,2018 and 2017 is $346,000 and $109,000,respectively. ​ $\begin{array}{lrr}&\text { December 31, } 2018&\text { December 31, } 2017\\\text { Current assets } & \$ 2,228,186 & \$ 2,544,683 \\\text { Property, plant, and equipment } & 530,589 & 376,647 \\\text { (net) } & 131,206 & 118,121\\\text { Total assets }&\$ 2,889,981&\$ 3,039,451\\\\\text { Current liabilities } & \$ 1,429,674 & \$ 1,003,906 \\\text { Long-term obligations } & 3,360 & 7,240 \\\text { Warranty and other liabilities } & 112,971 & 98,081 \\\quad \text { Total liabilities } & \$ 1,546,005 & \$ 1,109,227\\\text { Stockhol ders' equity: }\\\text { Common stock } & \$ 1,566 & \$ 501,631 \\\text { Additional paid-in capital } & 365,986 & 799,483 \\\text { Retained earnings } & 980,509 & 634,509\\\text { Accumulated other }&(4,085) & (5,399) \\\text { comprehensive loss }\\\text { Total stockholders' equity } & \$ 1,343,976 & \$ 1,930,224 \\\text { Total liabilities and stockholders' } & \$ 2,889,981 & \$ 3,039,451\\\text { equity }\end{array}$ -Read the information about Fellsmere Corporation. ​ Required (A)Explain the change in Fellsmere's working capital from 2017 to 2018.Why do users believe the current ratio provides more information than the dollar amount of working capital? Explain. ​ (B)Fellsmere Corporation's creditors need to know whether its working capital position improved during the year.How would you evaluate this?

Vance Corporation's partial income statement is as follows: Required Determine the profit margin.Would you invest in Vance Corporation? Explain your answer. $\begin{array}{lr}\text { Sales } & \$ 1,300,000 \\\text { Cost of sales } & 300,000 \\\text { Selling expenses } & 210,000 \\\text { General and administrative } & 150,000 \\\text { expenses } &\end{array}$

Moore Industries Moore Industries began operations on January 2, 2017, with an investment of $50,000 by each of its two stockholders. Net income for its first year of business was $240,000. Moore Industries paid a total of $100,000 in dividends to its stockholders during the year. -Read the information about Moore Industries.The company's dividends for the year

Information that is material means that an error or alternative method of handling a transaction

____________________ is the quality of accounting information that makes it comprehensible to those willing to spend the necessary time.

Hammar Corporation's partial income statement is as follows: ​ $\begin{array}{lr}\text { Sales } & \$ 2,400,000 \\\text { Cost of sal es } & 900,000 \\\text { Selling expenses } & 121,600 \\\text { General and administrative } & 150,000 \\\text { expenses } &\end{array}$ Required Determine the profit margin.Would you invest in Hammar Corporation? Explain your answer.

The current ratio is irrelevant in liquidity analysis for service companies because they do not have inventories among their current assets.

Jones,Inc. ,a manufacturer of tires,has given you its most recent annual report in an effort to obtain a sizable loan.The company is very profitable and appears to have a sound financial position.Based on a report presented on prime-time television last night,you are aware that Jones is a defendant in several lawsuits related to its defective tires that cause vehicles to overturn.The information presented on television is an example of financial information that is

Financial statements are intended to tell the reader the value of a company.

The SEC created the objectives of financial reporting.

_________________________ are cash and other assets that are reasonably expected to be converted to cash during the normal operating cycle of the business.

Moore Industries Moore Industries began operations on January 2, 2017, with an investment of $50,000 by each of its two stockholders. Net income for its first year of business was $240,000. Moore Industries paid a total of $100,000 in dividends to its stockholders during the year. -Read the information about Moore Industries.What is the company's retained earnings balance at December 31,2017?

Which one of the following items is reported as a current asset on a classified balance sheet?

Huntington Corporation Presented below are all of the items from Huntington Corporation's income statement for the years ending December 31, 2018 and 2017. $\begin{array}{lrr}&\text { December 31, } 2018 & \text { December 31, } 2017\\\text { Service fees } & \$ 2,300,000 & \$ 2,100,000 \\\text { General and administrative expenses } & 1,900,000 & 1,500,000 \\\text { Other income, net } & 40,000 & 20,000 \\\text { Income taxes } & 150,000 & 180,000\end{array}$ -Read the information about Crystal,Inc.Has Crystal been profitable since it began operations? How do you know?

Jobston,Inc. The balance sheet of Jobston Inc.includes the following items: ​ $\begin{array}{lr}\text { Cash } & \$ 22,400 \\\text { Accounts receivable } & 11,700 \\\text { Inventory } & 23,300 \\\text { Prepaid insurance } & 1,040 \\\text { Land } & 80,000 \\\text { Accounts payable } & 47,500 \\\text { Salaries payable } & 1,200 \\\text { Capital stock } & 84,040 \\\text { Retained earnings } & 5,700\end{array}$ ​ -Read the information about Jobston,Inc.What is Jobston's working capital?