ACCT200 EXAM 1; Questions & Answers 100%
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11) Stosch Company's balance sheet reported assets of $40,000, liabilities of $15,000 and
common stock of $12,000 as of December 31, Year 1. If Retained Earnings on the balance sheet
as of December 31, Year 2, amount to $18,000 and Stosch paid a $14,000 dividend during Year
2, then the amount of net income for Year 2 was which of the following? Correct answer-
19,000
Explanation: If assets on December 31, Year 1 totaled $40,000, total claims (including liabilities,
common stock, and retained earnings) on that date must have also been $40,000. If liabilities
were $15,000 and common stock was $12,000, retained earnings on December 31, Year 1 must
have been $13,000. At the end of Year 2, the company reported $18,000 in retained earnings, a
$5,000 increase. During Year 2, Stosch paid a $14,000 cash dividend, which reduced retained
earnings. Therefore, Year 2 net income must have been $5,000 greater than the dividend paid.
$14,000 + $5,000 = $19,000.
14) If a company's total assets increased while liabilities and common stock were unchanged,
then: Correct answer-Revenues were greater than expenses
19) On January 1, Year 2, Chavez Company had beginning balances as follows:
Assets
=
$
12,500
, ACCT200 EXAM 1; Questions & Answers 100%
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Liabilities
=
$
4,500
Common Stock
=
$
3,000
During Year 2, Chavez paid dividends to its stockholders of $2,000. Given that ending retained
earnings was $6,000, what was Chavez's net income for the Year 2? Correct answer-3,000
Explanation: On January 1, Year 2:
Assets = Liabilities + Common Stock + Retained Earnings
$12,500 = $4,500 + $3,000 + Retained Earnings
Retained Earnings = $5,000
22) At the end of Year 2, retained earnings for the Baker Company was $3,500. Revenue earned
by the company in Year 2 was $1,500, expenses paid during the period were $800, and
dividends paid during the period were $500. Based on this information alone, retained earnings
at the beginning of Year 2 was: Correct answer-3,300
, ACCT200 EXAM 1; Questions & Answers 100%
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Explanation: Beginning Retained Earnings + Revenue − Expenses − Dividends = Ending Retained
Earnings
Beginning Retained Earnings + $1,500 − $800 − $500 = $3,500
Beginning Retained Earnings = $3,300
30) The year-end financial statements of Calloway Company contained the following elements
and corresponding amounts: Assets = $50,000; Liabilities = ?; Common Stock = $15,000;
Revenue = $22,000; Dividends = $1,500; Beginning Retained Earnings = $3,500; Ending Retained
Earnings = $7,500. Correct answer-16,500
Explanation: Beginning retained earnings + Revenue − Expenses − Dividends = Ending retained
earnings
$3,500 + $22,000 − Expenses − $1,500 = $7,500
Expenses = $16,500
38) During Year 2, Chico Company earned $1,950 of cash revenue, paid $1,600 of cash
expenses, and paid a $150 cash dividend to its owners. Based on this information alone, which
of the following is not correct? Correct answer-D) Cash inflow from operating activities
was $200.
Explanation: Revenue minus expenses equal net income ($1,950 − $1,600 = $350). Total assets
increased by $200 ($1,950 − $1,600 − $150). Cash from operating activities increased by $350
($1,950 − $1,600). Cash from financing activities decreased by $150.
