Name: Date:

Section & Schedule: Score:

PRELIM TOPICS.

Statement of Financial Position

DEFINITIONS.
Provide clear, concise answers for the following.

1. What are assets?

2. What are liabilities?

3. What is equity?

4. What are current liabilities?

5. Explain what working capital is and how it is computed.

6. What are intangible assets?

7. What are current assets?

TERMINOLOGY.
In the space provided at right, write the word or phrase that is defined or indicated.

1. Obligations expected to be liquidated 1. ___________________________________

through use of current assets.

2. Statement showing financial condition at a 2. ___________________________________

point in time.

3. Events that depend upon future outcomes. 3. ___________________________________

4. Probable future sacrifices of economic 4. ___________________________________

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 benefits.

5. Resources expected to be converted to 5. ___________________________________

cash in one year or the operating cycle,
whichever is longer.

6. Resources of a durable nature used in 6. ___________________________________

operations.

7. Economic rights or competitive advantages 7. ___________________________________

which lack physical substance.

8. Probable future economic benefits. 8. ___________________________________

9. Residual interest in the net assets of an 9. ___________________________________

entity.

BALANCE SHEET CLASSIFICATIONS.

The various classifications listed below have been used in the past by Maris Company on its balance sheet. It
asks your professional opinion concerning the appropriate classification of each of the items 1-14 below.
a. Current Assets f. Current Liabilities
b. Investments g. Long-Term Liabilities
c. Plant and Equipment h. Common Stock and Paid-in Capital in Excess of Par
d. Intangible Assets i. Retained Earnings
e. Other Assets

Indicate by letter how each of the following items should be classified. If an item need not be reported on the
balance sheet, use the letter "X." A letter may be used more than once or not at all. If an item can be classified
in more than one category, choose the category most favored by the authors of your textbook.

____ 1. Employees' payroll deductions.

____ 2. Cash in sinking fund.

____ 3. Rent revenue collected in advance.

____ 4. Equipment retired from use and held for sale.

____ 5. Patents.

____ 6. Payroll cash fund.

____ 7. Goods held on consignment.

____ 8. Accrued revenue on temporary investments.

____ 9. Advances to salespersons.

____ 10. Premium on bonds payable due two years from date.

____ 11. Bank overdraft.

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____ 12. Salaries which company budget shows will be paid to employees within the next year.

____ 13. Work in process.

____ 14. Appropriation for bonded indebtedness.

BALANCE SHEET PRESENTATION. (25 points)

Given the following account information for Leong Corporation, prepare a Statement of Financial Position in
report form for the company as of December 31, 2016. All accounts have normal balances.

Equipment 40,000
Interest Expense 2,400
Interest Payable 600
Retained Earnings ?
Dividends 50,400
Land 137,320
Inventory 102,000
Bonds Payable 78,000
Notes Payable (due in 6 months) 14,400
Common Stock 60,000
Accumulated Depreciation - Eq. 10,000
Prepaid Advertising 5,000
Revenue 331,400
Buildings 80,400
Supplies 1,860
Taxes Payable 3,000
Utilities Expense 1,320
Advertising Expense 1,560
Salary Expense 53,040
Salaries Payable 900
Accumulated Depr. - Bld. 15,000
Cash 30,000
Depreciation Expense,
Building & Equipment 8,000

Statement of Comprehensive Income and Changes in Equity

DEFINITIONS.
Provide clear, concise answers for the following.

1. What are revenues?

2. What are expenses?

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 3. What are gains?

4. What are losses?

5. What are the criteria (in addition to materiality) that must be met to classify an event or transaction as
extraordinary?

INCOME STATEMENT RELATIONSHIPS.

Fill in the appropriate blanks for each of the independent situations below.
Company A Company B Company C
Sales (a) _______ 343,400 540,000
Beginning inventory 52,600 (d) _______ 90,000
Net purchases 175,300 255,600 (g) _______
Ending inventory 52,200 108,000 63,000
Cost of goods sold (b) _______ (e) _______ 407,000
Gross profit 85,300 98,000 (h) _______
Operating expenses (c) _______ 50,000 48,000
Income before taxes 6,000 (f) _______ (i) _______

CALCULATION OF NET INCOME FROM THE CHANGE IN STOCKHOLDERS' EQUITY. (3points)

Presented below is certain information pertaining to Edson Company.
Assets, January 1 240,000
Assets, December 31 230,000
Liabilities, January 1 150,000
Common stock, December 31 80,000
Retained earnings, December 31 31,000
Common stock sold during the year 10,000
Dividends declared during the year 13,000

Compute the net income for the year.

CALCULATION OF COMPREHENSIVE INCOME. (3 points)

Claus Company provided the following information for the current year:

Income from continuing operations 5,000,000

Income from discontinued operations 1,000,000
Unrealized gain on financial asset at FVTPL 2,500,000
Unrealized gain on financial asset at FVTOCI 1,500,000
Unrealized gain on futures contract designated as a cash flow hedge 500,000
Actuarial loss during the year due to increase in PBO 400,000
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 Foreign translation adjustment-debit 100,000
Loss on credit risk of a financial liability designated at FVTPL 200,000
Revaluation surplus during the year 2,000,000

What amount should be reported as comprehensive income for the year?

Statement of Cash Flows

STATEMENT OF CASH FLOWS CLASSIFICATION.
For each event listed below, select the appropriate category which describes the effect of the event on a
statement of cash flows:
a. Cash provided/used by operating activities.
b. Cash provided/used by investing activities.
c. Cash provided/used by financing activities.
d. Not a cash flow.

____ 1. Payment on long-term debt

____ 2. Issuance of bonds at a premium

____ 3. Collection of accounts receivable

____ 4. Cash dividends declared

____ 5. Issuance of stock to acquire land

____ 6. Sale of available-for-sale securities (long-term)

____ 7. Payment of employees' wages

____ 8. Issuance of common stock for cash

____ 9. Payment of income taxes payable

____ 10. Purchase of equipment

____ 11. Purchase of treasury stock (common)

____ 12. Sale of real estate held as a long-term investment

CASH FLOWS FROM OPERATING ACTIVITIES (INDIRECT AND DIRECT METHODS).

Presented below is the income statement of Cowan, Inc.:
Sales 380,000
Cost of goods sold 225,000
Gross profit 155,000
Operating expenses 85,000
Income before income taxes 70,000
Income taxes 28,000

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 Net income 42,000

In addition, the following information related to net changes in working capital is presented:
Debit Credit
Cash 12,000
Trade accounts receivable 15,000
Inventories 19,400
Salaries payable (operating expenses) 8,000
Trade accounts payable 12,000
Income tax payable 3,000

The company also indicates that depreciation expense for the year was 16,700 and that the deferred tax
liability account increased 2,600.

Instructions
Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement
of cash flows:
(a) using the indirect method. (10 points)
(b) using the direct method. (5 points)

Notes to Financial Statements

An article in Dun's Review made the following comments:

"Every other year, say, companies should print the notes in big type
and the base figures in smaller ones."

Instructions
(a) Are notes considered as part of the financial statements and what basic purpose do they serve?
(5pts.)

(b) What are the general types of notes? (5pts.)

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