27. The purchase of supplies appears on the balance sheet as an expense. FALSE 28. The income statement reports on operating activities at a point in time. FALSE 29. A net loss on an income statement results when expenses are greater than revenues. TRUE 30. Both Accounts Receivable and Revenue increase when a service is performed and the customer agrees to pay in the future. TRUE 31. The financial statement that reflects the financial position of a firm at a specific point in time is the Statement of Owner's Equity. FALSE 32. Owner investments and withdrawals impact the profitability of the firm. FALSE 33. The statement of Owner's Equity reports the changes in equity of the owner over time. TRUE Multiple Choice Questions 34. Net Income: A. Decreases equity. B. Represents the amount of assets owners put into a business. C. Equals assets minus liabilities. D. Is the excess of revenues over expenses. E. Represents owners' claims against assets.
40. Expenses: A. Increase equity. B. Are gross increases in equity from a company's earning activity. C. Are the costs of assets or services used to earn revenues. D. Occur when equity exceeds revenue. E. Are creditors' claims on assets. 41. The Phrase "On Credit" indicates: A. That payment has already been made B. That payment will likely never be collected C. That the customer has a credit balance D. That the customer will need to pay their balance within 10 days E. That cash payment will occur at a later dated 42. If assets are $109,000 and liabilities are $32,000, then equity equals: A. $32,000. B. $77,000. C. $109,000. D. $141,000. E. $198,000. Feedback: Equity = $109,000 - $32,000 = $77,000 43. Another name for equity is: A. Net income. B. Expenses. C. Net assets. D. Revenue. E. Net loss. 44. The excess of expenses over revenues for a period is: A. Net assets. B. Equity. C. Net loss. D. Net income. E. A liability.
Purchase price above which goodwill would result $675,000 b. Any existing goodwill would be eliminated before recording a gain: $675,000 Fair Value of Identifiable Net Assets – $50,000 Gain = $625,000. c. Anything below $675,000 is technicially considered a bargain. d. Goodwill would be $75,000 at a purchase price of $750,000 or ($675,000 + $75,000). 1. In the first step of the goodwill impairment test, the fair value of the reporting unit is compared to its carrying amount. If the fair value is less than the carrying amount, then the carrying value of the goodwill is compared to its implied fair value. A loss is recognized when the carrying value of goodwill is higher than its fair value. 2. Issue SFAS No. 141 SFAS No. 141R Acquisitions costs Capitalize the costs. Expense as incurred. In-process R&D Included as part of purchase price, but then immediately expensed. Included as part of purchase price, treated as an asset. Contingent consideration Record when determinable and reflect subsequent changes in the purchase price. Record at fair value on the acquisition date with subsequent changes recorded on the income statement. Business definition A business is defined as a self-sustaining integrated set of activities and assets conducted and managed for the purpose of providing a return to investors. The definition would exclude early-stage development entities. A business or a group of assets no longer must be self-sustaining. The business or group of assets must be capable of generating a revenue stream. This definition would include early-stage development entities. Short Answer Questions from the Textbook Solutions