Expert Answers

The statement of changes in retained earnings for the year shows:
A. the retained earnings balance at the beginning of the year.
B. amounts received from the sale of additional common stock during the year.
C. extraordinary gains or losses during the year.
D. the effect of a stock split during the year.

Which of the following is an accurate statement regarding a statement of cash flows?
A. Only cash items that affect the income statement are included.
B. Only material cash items that affect the income statement are included.
C. Material non-cash transactions are included.
D. Immaterial financing activities that affect cash do not need to be included.
E. None of the above.

Revenue may be recognized:
A. from the sale of a company’s own common stock.
B. if a company trades inventory at its usual sale value for newspaper advertising.
C. if management believes the market value of land held for future development rises.
D. in 2010 from the sale of subscriptions of a magazine to be published in 2011.

The term, “realization,” in revenue recognition refers to which of the following?
A. The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.
B. The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.
C. The entity has received an irrevocable order for goods or services.
D. Cash has been received with an irrevocable order for goods or services.
E. None of the above.

Essay Questions (show your work):

Problem 1: The balance sheet caption for common stock is:
Common stock, $10 par value, 7,000,000 shares authorized, 5,700,000 shares issued, 5,500,000 shares outstanding.

(a.) Calculate the dollar amount that will be presented opposite of this caption.

(b.) Calculate the total amount of a cash dividend of $1.00 per share.

(c.) What accounts for the difference between issued shares and outstanding shares?
Problem 2: Use the appropriate information from the data provided below to calculate operating income for the year ended December 31, 2011.

Cost of goods sold $117,000
General and administrative expenses 48,000
Net cash provided by financing activities 69,000
Dividends paid 16,000
Extraordinary loss from a flood, net of
tax savings of $32,000 74,000
Income tax expense 11,000
Other selling expenses 26,000
Net sales 278,000
Advertising expense 39,000
Accounts receivable 33,000