L.O.: 1-2
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
85) Dividends are a form of expenses.
Answer: FALSE
Diff: 2 Type: TF
L.O.: 1-2
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
86) Revenues are increases in retained earnings from the delivery of goods or services.
Answer: TRUE
Diff: 2 Type: TF
L.O.: 1-2
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
87) Closing retained earnings as reported on the balance sheet represent a company's net income from its formation, less the cumulative dividends declared to-date.
Answer: TRUE
Diff: 2 Type: TF
L.O.: 1-2
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
88) Your friend has asked you to review and analyze the financial status of her company before she goes to the bank to request a loan. Answer the following questions:
a. What will you need to review in order to make a sound decision?
b. What will the bank be looking for? Be specific.
Answer:
a. A decision maker would like to have access to all the financial statements of a company for several years, including the income statement, balance sheet, statement of retained earnings, and cash flow statement.
b. The bank will be looking at the company's ability to repay the loan. The bank will look at the amount of income generated by the company for the past several years as well as whether or not it has been increasing or decreasing. The amount of debt already owed by the company will also be an issue. The bank would like to see that shareholders' equity exceeds total liabilities at the time of the loan request. Also, dividends paid to the owner should not exceed the net income in any given period. These are indications that the owner is as much at risk as the bank would be if the loan were granted.
Diff: 3 Type: ES
L.O.: 1-2
CPA COMPETENCIES: Chapter 1
1.1.1 Evaluates financial reporting needs
1.1.2 Evaluates the appropriateness of the basis of financial reporting
1.1.3 Evaluates reporting processes to support reliable financial reporting
89) Following is an alphabetical list of the assets, liabilities, revenues, and expenses of Keykin Inc. Prepare an income statement for the year ended September 30, 2017.
Accounts payable $2,800 Note payable $4,000
Accounts receivable 5,400 Rent expense 10,200