Module 2 Review Questions

1. Which of the following are included in current assets?

A) Prepaid rent

B) Taxes payable

C) Automobiles

D) Common stock

E) None of the above

2. Which of the following items would not be found on a balance sheet?

a. Stockholders’ Equity b. Property, plant and equipment c. Nonowner financing

d. Sales e. Retained earnings

3. As inventory and property plant and equipment on the balance sheet are consumed, they are reflected:

A) As a revenue on the income statement

B) As an expense on the income statement

C) As a use of cash on the statement of cash flows

D) On the balance sheet because assets are never consumed

E) Both B and C because the financial statements articulate

4. In its December 31, 2010 financial statements, Harley-Davidson reported the following (in millions):

Long-term Assets / Current Liabilities / Long-term Liabilities / Total
Liabilities / Equity
$5,364 / $ 2,014 / $ 5,210 / $7,224 / $2,207

At December 31, 2010, current assets amount to:

A) $2,014 million

B) $3,350 million

C) $7,224 million

D) $4,067 million

E) None of the above

5. Target Corporation’s balance sheet shows Retained Earnings of $12,013 and $13,417 at the end of fiscal 2005 and 2006 respectively. The company reported Net Income of $2,787 for fiscal 2006. Which of the following is most likely:

a. The company paid dividends of $4,170 d. The company paid dividends of $1,404

b. The company paid dividends of $1,383 e. The company did not pay dividends

c. The company sold stock for $1,404

6. Cash collected on accounts receivable would produce what effect on the balance sheet?

a.  Increase liabilities and decrease equity

b.  Decrease liabilities and increase equity

c.  Increase one asset and decrease another asset

d.  Decrease assets and decrease liabilities

7. In 2011, Caterpillar Inc. reported the following (in millions):

Current
Assets / Lont-term
Assets / Current
Liabilities / Total Liabilities
$38,128 / $43,318 / $28,561 / $68,044

What amount did Caterpillar report as equity in 2011?

A) $39,483 million

B) $24,726 million

C) $81,446 million

D) $13,402 million

E) None of the above

8. The Goodyear Tire & Rubber Company’s December 31, 2008 financial statements reported the following (in millions):

Total assets / $15,226
Total liabilities / 14,204
Total shareholders’ equity / 1,022
Net income (loss) / (77)
Dividends to stockholders
Retained earnings, December 31, 2007 / 10
$ 1,602

What did Goodyear report for Retained earnings at December 31, 2008?

a. $1,679 million b. $1,525 million c. $1,022 million d. $945 million e. $1,515 million

Exercise Identify the financial statements in which you would find each of the items listed below. Some items may appear on more than one statement. Indicate all financial statements that apply to each item. The possible choices are:

B : / Balance sheet
SE : / Statement of Stockholders’ Equity
I : / Income Statement
CF : / Statement of Cash Flows
Financial Statement Item / Financial Statement
a. Office building
b. Trademarks
c. Dividends
d. Proceeds of sale of investments
e. Repayments of bank loan
f. Treasury stock

Exercise Match the item on the left to a numbered item on the right to complete each sentence.

a.  Companies report assets, liabilities, and equity on the ______.
b.  Sales, cost of goods sold, and net income are found on the ______.
c.  Accounting methods are explained in the ______.
d.  The ______reports cash from financing activities. / 1.  income statement
2.  balance sheet
3.  statement of cash flows
4.  footnotes

EXERCISE B (8 points)

Construct the balance sheet for Kroger, Co. for February 3, 2007:
Current assets $6,755
Retained earnings $5,501
Other Equity $(4,011)
Total liabilities $16,292
Cost of goods sold $51,115
Cash from operations $2,351
Interest expense $488
Operating expenses $13,760
Common stock $3,433
Long-term assets $14,460
Current liabilities $7,581
Sales $66,111
Tax expense $633