Question

QUESTION 5

Entity A reported the following items on its balance sheet at the end of the current year. All accounts are listed.
Cash $45,000
Accounts payable 80,000
Property, plant & equipment 200,000
Long-term debt 60,000
Common stock 150,000
Accounts receivable 90,000
Retained earnings ?
Inventory 75,000
What is Entity A’s Retained Earnings balance at the end of the current year?

		$270,000
		$410,000
		$140,000
		$120,000

QUESTION 6

Entity I forgot to record four adjusting entries during 2019. Which one of the following omissions will understate net income?

		Interest on monies borrowed has not yet been recorded.
		Income taxes owed but not yet paid are ignored.
		Credit sales made during the last week of the period are not recorded.
		Prepaid insurance is not reduced for the portion of the policy that has expired during the period.

QUESTION 7

Assets which are expected to be realized in cash, sold or consumed generally within a year are reported on a classified balance sheet as:

		Property, Plant and Equipment.
		Intangible Assets.
		Current Assets.
		Current Liabilities.

Answer 1

Question 1 (5 per screen above):-

Retained Earnings = Total Assets - Total Liabilities - Common Stock

Total Assets:-

Particulars	Amount
Cash	45,000
Property, plant and equipment	200,000
Accounts Receivable	90,000
Inventory	75,000
Total Assets	410,000

Total Liabilities

Particulars	Amount
Accounts Payable	80,000
Long Term Debt	60,000
Total Liabilities	140,000

Retained Earnings = $410,000. - $140,000 $150,000

Retained Earnings = $120,000

Based on the above calculation, the correct answer is Option D - $120,000.

Option A, Option B and Option C are all incorrect as they present different amounts than the actual Retained earnings of $120,000 calculated above.

Question 2 (6 per screen above):-

In order to find out which transaction would reduce net income, we have to understand which of the options decreases revenue or increases expenses. Based on the options available, Option C - Credit sales made during the last week of the period are not recorded is the correct answer.

Option A is incorrect. Interest on monies borrowed not yet paid would increase net income. Hence this is incorrect.

Option B is incorrect. Income taxes owed but not yet paid is an expense that has not yet been recorded, which indirectly increases net income. Hence, it is not the correct answer.

Option C is correct. When sales made are not recorded, the revenue is understated and when revenue is understated, ultimately the net income is understated. As such, this is the correct answer.

Option D is incorrect. Prepaid expense is not reduced for the portion of the policy that expired during the period would understate expenses which would result in an increase in net income. As such, this is not the right answer.

Question 3(7 per screen above)

The correct answer is Option C - Current Assets.

Option A is incorrect. Property plant and equipment are fixed assets of the business.

Option B is incorrect. Intangible assets are assets that cannot be felt or seen . This is not a valid answer.

Option C is correct. Current assets are assets that a company possesses like cash, accounts receivable, inventory, etc that can be sold and realizable in cash within 12 months. As such, this is the correct answer.

Option D is incorrect. Current liabilities are liabilities that a company owes or is obligated to perform in within the upcoming 12 months. This option is not the correct answer.